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Benefits Business No easy answers There have been changes aplenty in health care management, By Len Strazewski
Does anyone really understand the health care situation in the United States? Agents and brokers who provide employee benefits counsel to commercial clients and financial advice to their personal lines customers should, but probably don’t. Not really. As health care costs continue to rise and government programs grow increasingly complex, keeping track is almost impossible. Here is an update on a few of the most baffling issues. Benefit plan design In the past 20 years, health benefit plan design has evolved fast and furiously, with the development of various kinds of managed care plans, including health maintenance organizations (HMOs), preferred provider organizations (PPOs), and point-of-sale (POS) plans to complement various mixes and matches of deductibles and copayments. Managed care was supposed to be the answer to rising health care costs, but it seems to have run its course as a cost-control technique. Now, the latest hot design—which has nothing to do with managed care—is the consumer-directed health plan (CDHP). CDHPs are two-tiered plan designs that feature a high-deductible health plan and a health savings account (HSA) or health reimbursement account (HRA) that is controlled by the employee. Consultants have been talking about the idea for several years, but the concept has been taking off since last year when Medicare reform legislation also created the HSA and made the accounts portable and tax-advantaged. According to a survey of 585 large and mid-sized employers conducted by Watson Wyatt Worldwide in Washington, about 29% of respondents now offer the plans to employees, up from only 7% in 2004. However, employee participation remains small; median enrollment is only 7%. CDHPs are supposed to make participants treat health care decisions with the same consumer sensibility that they apply to other purchases. According to the survey, 80% of employers believe the plans are at least somewhat effective in increasing employee involvement in health care purchases; however, only 59% said the plans were helpful in controlling costs. Education might raise that second percentage, but if employers don’t provide the tools to help employees make good choices, the plans will not be as effective as they could be. And few employers do, so far. Additionally, insurers aren’t finished with plan design experiments. In March, CIGNA announced Custom Benefit Builder, an employee benefit program that allows employees to design their own benefits. The new product allows employees to model their own deductibles and copayments, coinsurance rates, and out-of-pocket maximums and then calculates how much the plan will cost. They can also choose their own pharmacy benefit plan design. Participants can also create their own health care scenarios and apply decision support tools to model various approaches and costs. Will employees be able to make good choices? According to a CIGNA survey, 79% of employees said they were confident in their ability to decide what coverage they want, and 87% said they would value the ability to choose. Retiree medical costs In March 2006, when General Motors Corp. offered tens of thousands of employees early retirement buyouts of up to $140,000 apiece, high on the priority list was eliminating expensive retiree medical benefits, obligations that had grown to become a serious drag on the corporate bottom line. A shrinking number of employers provide medical benefits for retirees, and most of those are not offering post-retirement medical benefits to present employees. Why? Even with Medicare and the new Medicare prescription drug benefit, retirees face an expensive future. According to Fidelity Employee Services Co., which annually calculates retiree medical costs, a 65-year-old couple retiring in 2006 will need $200,000 to cover medical costs in retirement. The estimate, which includes the cost of premium for Medicare Part B and Part D and related co-pays, rose 5.3% from last year and has been increasing an average of 5.8% since 2002. The totals do not include the cost of over-the-counter medication, dental care or long term care. The company notes that health care costs are rising at 2.5 times the consumer rate of inflation and three times faster than workers’ earnings, making it almost impossible to budget for health care without advance savings. Fidelity recommends that employers promote HSAs, which allow individuals who do not use up their accounts to save against their retiree medical expenses, and also continue to educate employees in health care consumerism. As a result, banks, investment advisors, and other financial marketers have jumped into the HSA market to compete with insurance agents and brokers for what they all expect will be a hot market. Medicare Part D When Medicare reform became law in 2003 with the mandate to provide prescription drug benefits for seniors, the insurance industry fought hard to retain participation. As a result, the legislation called for private prescription drug plans (PDPs) to market various models of the coverage at various premium points within guidelines provided by the Centers for Medicare and Medicaid Services (CMS) in Washington. Most of the major health insurers jumped into the market, resulting in an average of more than 40 different plans being offered in each state with a wide range of premiums, drug co-pays, and formulary restrictions. At the Association of Health Care Journalists conference in Houston in March, health reporters bombarded CMS Deputy Administrator Leslie V. Norwalk with horror stories about consumer confusion and dissatis-faction. High on the list of complaints was the CMS online research tool that required prospective participants to enter all of their prescription drugs and premium needs to search for an appropriate plan. Reporters noted that during the early days of the sign-up period, the Web site was frequently slow or offline and that the toll-free telephone support line was either busy or not being answered. Panelists at the Medicare Part D conference session also noted that while the programs attempted to match individual drug needs with the best plans, the plans did not account for prescription changes which would completely change the cost estimates. Norwalk defended the program and said that many new government programs have rocky launches. She read headlines from the early days of Medicare that indicated signups were just as confusing—though the bugs were fixed quickly and since then, Medicare has become a relatively efficient and consumer-friendly program. However, by the end of March, complaints were still common and agents who are assisting their clients in making Medicare Part D choices are still likely to be spending hours online or on the telephone with CMS to make the best choices. The program was also supposed to reduce the cost of prescription drugs for both the participants and the plan providers, but that may have been a false promise. While CMS announced in February that the plan saved the government payers $700 million, according to the Center for Medicare Advocacy in Washington, the actual costs for the top 250 drugs was 14% to 50% higher under the new plan. The reason? The smaller market strength and the diminished clout of the PDPs have reduced the govern-ment’s ability to negotiate rebates from the prescription drug manufacturers. Medical liability Lurking behind health care costs and plan design issues is the specter of medical liability costs and the high costs of medical malpractice insurance which are often cited as contributing to overall health care costs. Health care consumers still tell stories of physicians—particularly cardiac and neurosurgeons—abandoning their practices in expensive states with little notice and heading for states that have enacted tort reform caps on malpractice awards. At the Professional Liability Underwriting Society (PLUS) Medical Professional Liability Symposium in March, medical malpractice experts tried to sort out the reality and the hype behind these issues. Scott Strenge, senior vice president of Benfield in Minneapolis, Minnesota, confirmed that from 2001 to 2004, medical malpractice underwriters raised rates, rolled back discounts, reduced limit capacity, and completely re-underwrote their books of business while attempting to strengthen their reserves. However, in 2005 to present, rate increases have been moderating or flat, he says, and in tort reform states, underwriters are actually cutting a bit. Med mal underwriters still defended their conservative approach to rates and reserving, noting that payouts are still on the rise despite charges from consumer groups that rates are rising when payouts aren’t. Okay. Got all that? * The author |
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