Features of employment-based health plans

This Issue Brief focuses on changes to the health care financing and delivery system as implemented by employers. It discusses health plan costs, cost sharing, plan funding, health care delivery systems, services covered under various health plan types, coverage limitations, and retiree health coverage. National health expenditures are estimated at $1.035 trillion, representing 13.6 percent of Gross Domestic Product in 1996, up from $699.5 billion and 12.2 percent in 1990. Rising health care spending is also evident at the employer level: In 1996, employer spending on private health insurance totaled $262.7 billion, up from $61.0 billion in 1980. Business health spending as a percentage of total compensation increased from 3.7 percent in 1980 to a high of 6.6 percent in 1993, and declined to 5.9 percent in 1996. Employment-based health plans are the most common source of health insurance coverage among the nonelderly population in the United States, providing coverage to nearly two-thirds of those under age 65. Despite the growth of many cost-sharing provisions, individuals are paying a smaller percentage of total health care costs. In 1960, 69 percent of private health care expenditures were paid out of pocket. Between 1993 and 1996, only 37 percent of private health expenditures were paid out of pocket. One of the most significant developments of the 1980s, which has continued throughout the 1990s, is the growth of managed care plans. As recently as 1994, traditional indemnity plans were the most commonly offered type of employment-based health plan. As fewer employers offered traditional indemnity plans, participation in these plans declined and participation in managed care plans increased. In 1997, 15 percent of employees participating in a health plan were enrolled in an indemnity plan, compared with 52 percent in 1992. Since 1993, employment-based health benefit cost inflation has been virtually nonexistent. Employers have kept cost increases low by using managed care and making other changes. Workers have been shifted to, have been induced to choose, or have voluntarily selected managed care health plans. Preferred provider organization (PPO) and point-of-service (POS) plans have experienced relatively strong gains in enrollment. Employers have also increased the use of utilization review for active workers, and cut back on health benefits for retirees. These changes are in stark contrast to the pre-1993 period, which saw even faster change, with rising health care costs and increasing deductibles and coinsurance for workers in non-HMOs.

Short term drug abuse treatment costs and utilization: a multi-employer analysis

OBJECTIVES

This report investigates three aspects of drug abuse treatment costs, with special emphasis on systematic differences among employers: (1) predictors of drug abuse treatment costs; (2) differentials in drug abuse treatment costs across employers; and (3) differential impacts of patient and employer characteristics on drug abuse treatment costs.

METHODS

The study used multiple regression analysis of behavioral cost functions. It decomposed cost differences into employer and variable effects using an algebraic method that accounted for differences in cost functions and in population characteristics. An insurance claims database was used from 10 large self-insured employers for a 3-year period starting January 1989.

RESULTS

Marginal inpatient costs generally exceeded average costs, leading to slightly increasing costs per day as length of stay increased. Marginal outpatient costs were generally about the same as average costs, implying that outpatient drug treatment maintained constant unit costs as utilization increased. Decomposition of cost differences among employers suggested that observed differences among employers and/or their carriers (who administer the benefits for the self-insured employers) and providers appeared to be at least as important as differences among the characteristics or the utilization of the people that they cover.

CONCLUSIONS

National health policies aimed at reducing costs are likely to have differing impacts on different employers. Employers with high costs relative to the characteristics of their covered population may be able to achieve significant cost savings. Employers serving populations with greater risk factors may find it difficult to cut costs further.

Deflating inflation

The pundits warn that health care inflation is roaring back to life, with double-digit premium hikes. Yet that ignores the power of employers to just say no, according to an analysis by KPMG Peat Marwick.

Managing behavioral health care: an employer's perspective

Employee life cycle events and behavioral health disorders impact productivity and well-being. Employers use wellness initiatives and employee assistance or work-family programs to help manage those factors that can distract employees from performing optimally. Employer-sponsored health benefits are designed to protect employees from the catastrophic costs of illness. However, today's plan designers struggle with employee and employer affordability that does not compromise quality or effectiveness. In 1990, Digital Equipment Corporation, Maynard, Mass., shifted its strategy from an indemnity model to a managed care model that uses health maintenance organizations. Comprehensive standards are used to ensure the delivery of quality behavioral health care that is cost effective, is delivered at the clinically appropriate levels, and uses a broad continuum of treatment approaches with measurable outcomes.

Issues of quality and consumer rights in the health care market

This Issue Brief describes how the structure of the health care market has changed in the recent years. It outlines the growth in managed care and the changes in the types of managed care plans available. In addition, it discusses the issue of quality in the health care market. It also includes an overview of the legislative topics and issues relating to quality and consumer rights that policymakers are currently considering. Growth in national health expenditures, the medical care price index, and employer health care costs has slowed significantly since 1990. This decreased growth has coincided with substantial increases in managed care plan enrollment. The percentage of employees enrolled in managed care plans increased from 48 percent to 85 percent from 1992 to 1997. Quality is a multidimensional concept. Although individuals may agree on its components, they may disagree on the relative importance of these components. Therefore, disagreement exists not only on how to measure quality but also on how it is defined. Consequently, policy decisions need to be based on an evaluation of a particular law's effect as opposed to its stated goal or intent. This distinction is important because a law that addresses access or consumer rights does not necessarily address the quality of care a consumer receives. Ultimately, whether an individual believes that a law truly addresses quality will depend in a large part on his or her subjective opinion of what quality entails. To date, comparison of the quality of managed care plans with that of fee-for-service plans has not produced results that uniformly differentiate between these two plan types in either a positive or a negative way. In addition, it is important to note that the current debate on the quality of care provided in the health care market is not new to the present managed care era. The regulations and mandates discussed in this report would not guarantee increased quality in the health care market, unless quality is defined as easier access for those with health insurance. However, if quality is defined as the success of the outcomes of health services provided, the effect of these regulations on quality is in need of further research. Yet, the regulations would have some impact on the costs of health benefits and insurance. This impact has been estimated to be relatively small to substantial, depending on the interpretation of the mandates and assumptions derived from that interpretation. Regardless of the magnitude of the estimated increases, some research has shown that these regulations could have serious implications for the likelihood of small businesses offering health benefits. While these health plan regulations effect on quality depends on one's definition of quality, costs would increase regardless of the definition one uses. Consequently, these regulations would come at a price. Thus, legislators must decide between: (a) imposing regulation that would increase access and consumer "rights" for those with insurance but would be of questionable value to the quality of outcomes, and (b) allowing existing market forces to improve quality through experimentation and competitive forces.

Costs and use of mental health services before and after managed care

This paper tracks access, utilization, and costs of mental health care for a private employer over nine years during which mental health benefits were carved out of the medical plan and managed care was introduced. Prior to the carve-out, mental health costs increased by around 30 percent annually; in the first year after the change, costs dropped by more than 40 percent; in the six follow-up years, costs continued to decline slowly. This cost reduction was not attributable to decreased initial access, as the number of persons using any mental health care increased following the change. Instead, the cost reduction was the result of (1) fewer outpatient sessions per user, (2) reduced probability of an inpatient admission, (3) reduced length-of-stay for an inpatient episode, and (4) substantially lower costs per unit of service.

Genetic information and investment in human capital

In a game of incomplete information we analyze the consequences of giving an employer access to imperfect genetic information about his employees. The employer chooses whether to invest in the employee and the employee chooses a life style. We derive the condition for markets of information services to exist and the conditions for when it is beneficial to the various parties. In one specification of the game, the mere introduction of the information service may change the employee's choice of health behavior, which means that the value of genetic information may be negative to the employer.