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The Managed Care Insider eNews
Volume Three Number 4
April 2001
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This issue of The Managed Care Insider eNews addresses how the big four managed
care influences of today - employer groups, consumers, providers and eHealth
- are "defining" the contributions to the future of managed care. As
always, we welcome your comments to insider@scheur.com.
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TRAIN RESCUE OR TRAIN WRECK:
Defining the Future of "Defined Contribution"
by Barry S. Scheur and Hilary D. Lyon
Recently, there has been an emerging trend in attempts to once again control
health benefits costs. Over the past twenty-five years, we have migrated as an
industry from primary care management to medical management to case management
and to disease management -- all are ways of trying to de-escalate the never-ending
need to raise premiums to cope with healthcare cost increases. One of the reasons
that consumers' expectations are so high when it comes to healthcare is that
they have been treated as blind purchasers: naive about what employers pay and,
even more significantly, unaware of the costs of specific healthcare services
that, when mathematically coupled together, are translated into an insurance
premium.
Within the past year, a number of large employers have been seeking ways to limit
their contributions to healthcare benefits, while at the same time transferring
more of the decision making about healthcare benefits to their employees. Thus,
the concept of "defined contribution," in which an employer designates
a fixed number of dollars that can be spent by consumers on a variety of health
plan choices. This also permits consumers with differing medical needs and family
situations to make decisions on how much they want to spend on their healthcare
benefits.
Defined contribution plans may also be coupled with Section 125 plans in which
employees are given a cafeteria menu of benefits choices that include health
benefits in various pricing, network, and coverage level configurations that
allow further flexibility according to the needs of the employee and family.
The defined contribution model is gaining proponents, particularly among large
employers, because it permits capping healthcare expenditures and forces more
direct consumer involvement in decision making about the value of healthcare
coverage as a fringe benefit.
The key element in the success of defined contribution will be educating consumers
about their choices in terms of cost, coverage and value.
How Defined Contribution Would Work
Just imagine the following scenario for consumers, with all of the flexibility
and freedom it offers. This is the way that defined contribution plans could
operate.
- The employer allocates the same amount of money spent last year on an employee's
healthcare premium to a medical spending account. This would be before tax dollars,
let's say $5,000.
- The employee accesses, via the Internet, a health plan or every-business web
site to choose from a menu of healthcare options.
- The employee picks from a variety of services with varying co-payments dependent
upon individual and family needs that particular year. For example, the employee
picks a benefit package with a $10 doctor office co-pay and a $30 drug co-pay,
and then, if warranted, spends an additional $25 PMPM on a diabetes wellness
program.
- In addition, he or she chooses life insurance and the option that provides
for long-term care.
- The employee also likes targeted case management services at a premium of $20
PMPM for a covered dependent undergoing rehabilitation services.
- Comprehensive dental, vision and mental health services are also available,
and the member chooses to purchase that coverage.
- Then comes the selection of doctors from several network options: the first
group of doctors has a premium of $65 per month; the second set costs $85 per
month. A click of the mouse allows the consumer to see the difference in the
utilization patterns of each doctor in the network compared to peers in the same
specialty. The profile contrasts the number of procedures a physician performs
in a year, the patient outcomes and the average cost.
- After all the selections have been made, the employee is notified of the total
costs.
- The employee is responsible for any amount over the $5,000 amount defined as
the employer's healthcare contribution.
- Again, this has to be created and offered in terms the employee understands,
with choices and options available as alternatives.
If this all sounds far-fetched, it isn't. In fact, it is here today with over
thirty software companies offering this service online for a purchase fee by
MCOs. The question of the future realistic feasibility and success, not to mention
usage, of these plans' usage remains sketchy. There are discrepancies regarding
the number of employees signing on, as well as the number of employer groups
using this service, with only a relatively few MCOs actually implementing this
service.
Although the scenario outlined above is not an exact replica of what is being
offered today in terms of an integrated defined contribution package, it does
represent the possibilities that exist. In the near future, employers will be
able to isolate themselves from making healthcare choices for their employees,
relieving themselves of the liability and some financial burden by depositing
predetermined defined contributions into healthcare accounts where employees
may select the services of benefit to them. Furthermore, these benefits can be
redefined annually to reflect the employees' current needs and health status.
The Advantages
Defined contribution does have a number of advantages over the current approach
to health benefits selection and management:
1. It forces the insurance industry to gear its communications directly to consumers
with more explicit information pertinent to coverage, prices negotiated for various
healthcare services, and the real differences between competing plans.
2. It has the potential for reducing the role of the "middleman" broker
or consultant, with a resulting reduction in commission fees.
3. It will result in many consumer-tailored health benefits offerings because
the decision on how much to spend for healthcare will be driven directly by consumers,
and their influence will be felt when it comes to designing benefits and defining
the scope of the network.
4. The emphasis on direct marketing will increase, which should result in overall
improvement of communications between the healthcare organization and its customers.
5. Customers will be freer to demand needed accountability by having increased
power to vote with their feet.
6. It increases significantly the reliance on Internet-based technology for delivering
information to customers and purchasers. The evolution of relying on the Internet
for distribution of information and interactive communications will be vastly
speeded by the market opportunities envisioned through direct consumer benefits
choice and purchasing.
The Disadvantages
There are several blatant and troubling disadvantages to the use of defined contribution
as a mechanism for shifting the burden of choice and selection, not to mention
payment, from employers to employees.
1. What will happen when employees make unwise health benefits choices in the
face of needing major care that is not covered under their package? Lawyers are
likely to argue on their behalf that they were not briefed appropriately, and
the field of sufficiency of disclosure under defined contribution plans will
be a fertile one for litigation.
2. Defined contribution plans will only work for large businesses until the complexity
of administration and employee communications become part of a templated package.
Thus, rates for the other traditional benefits choice products actually may be
adversely affected by the introduction of a new breed of benefits design.
3. Defined contribution plans will be paired with self-funded arrangements by
large employers. The spread of the popularity of these arrangements will further
erode the state-mandated benefits coverage requirements, which means that plans
will be designed without key mandated features, and only later will customers
realize their selection mistakes. Not providing maternity coverage, not treating
mental health services on an equal basis to other inpatient services, and limitations
on drug benefits are just three examples of benefit designs that could severely
hurt the consumer.
Most middle-class consumers are going to be cost conscious, and will try to take
the least costly healthcare benefits program, until they are damaged by its lack
of comprehensiveness and/or payment. For this whole system to work, a massive
educational phase-in needs to exist.
4. Defined contribution plans cannot be instituted en masse without a mechanism
for state regulatory oversight. Plans will promise anything to get business,
but once the premium has been paid, if there has not been truthful and full disclosure,
it will be the state that has to clean up and deal with unmet customer expectations
and broken promises. A regulatory framework is needed before, not after, the
introduction of such a sweeping benefits revolution.
5. Health plans will have to evolve to something different, primarily a marketing
and back-office support organization, if defined contribution gains wide acceptance.
The risks of betting on books of business is eliminated, and replaced by random
freedom of choice programs. It will be harder for health plans to continue to
operate in a defined contribution environment, because they won't know the risks
they are running until they are already under one contractually.
Conclusion
There have been a number of good ideas for managing and restructuring healthcare,
and defined contribution may be one. But it is going to require a recognition
of the risks and possible damage to both the credibility of the involved organizations
and the physical and emotional well-being of consumers when they step into that
mythical health care voting booth for the first time.
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About Hilary Lyon: For SMG clients and the health plans in SMG's new business
initiative, Venture Health Partnership Group (VHPG), Hilary Lyon applies an extensive
background that spans 20 years' experience in healthcare management and operations
to the strategic focus of rethinking provider relations management for the new
century in health care. Her global perspective on the healthcare industry --
derived from work in hospital administration, managed care plans, public health
research and national consulting -- is the foundation for her work as a change
agent with SMG.
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Speaking Engagements:
May 17, 2001
Alabama Association of Health Underwriters Convention
Sandestin, FL
Topic: "Managed Care and Alabama: Allies or Adversaries?"
Speaker: Barry S. Scheur
September 9, 2001
NAHQ's 26th Annual Educational Conference
Reno, NV
Topic: "Resuscitating Managed Care: Getting Off Life Support and Recovering
Credibility"
Speaker: Barry S. Scheur
October 11, 2001
ViPS interAct 2001 Conference
Monarch Hotel, Washington, DC
General Session: "E-Health"
Speaker: Barry S. Scheur
If you are interested in contracting either Barry Scheur or any SMG/VHPG associate
for your organization, please contact Nancy Belle at nbelle@scheur.com
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Sites and Sounds on the 'Net
SMG has no ownership of, nor does it endorse the following sites. This information
is presented as a resource for subscribers. In keeping with this issue's focus
on dealing with change, we present the following sites that cover this area.
The basics of defined contribution at http://www.insure.com/health/definedcontributions.html
Defined contribution is NOT limited to health benefits. To learn more from the
National Defined Contribution Council (NDCC), visit http://www.ndcconline.org
PricewaterhouseCoopers report (February 2001) on defined contribution can be
found at http://www.pwchealth.com/pdf/ehq200102.pdf
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End of The Managed Care Insider eNews,
Volume Three, Number 4.
Scheur Management Group (SMG) is one of the most experienced specialized healthcare
operations management and business revitalization consulting firms in the country.
Our expertise is in time-sensitive analyses, strategic business and market planning,
operational re-engineering, and communications, as well as implementation of
start-ups, expansions, and new products. The firm's clients cover the spectrum
of insurers, managed care organizations, physician groups, integrated delivery
systems, hospitals, employers, governmental entities, vendors, and other providers.
Contributors to this edition are Barry S. Scheur and Hilary D. Lyon. Editing
and Research by Judith A. Jaffe. Production Coordination by Nancy K. Belle.
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