Employer Decision Making Regarding Health Insurance. Approaches to Purchasing


  1. The decision to self-insure is very common among large employers and influenced by several factors. Self-insurance was extensive among the large employers on the panel with this form of coverage ranging from 50 to 100 percent of their workforce. The smaller companies (under 1000 employees) bought only fully-insured products. The rationales for self-insurance included 1) maximizing the benefit dollar by improving efficiency and eliminating insurance company profits and administrative expenses; 2) ensuring uniformity of benefit package by avoiding state level benefit mandates; and 3) availing themselves of the protection against liability. Most panelists shared these views, and particularly emphasized the importance of the ERISA preemption to the latter two rationales. The large companies that are not fully self-insured are still buying insured products from HMOs, in most instances, though there was a general belief that more and more companies will shift their HMO contracts from fully-insured to ASO (administrative services only) arrangements in the future. These products get benefits of network negotiated rates, but companies can avoid some of the costs layered on fully insured products by the managed care companies. This is likely to be the case as HMOs increasingly become a regulatory and liability target and as employers, who seem to be increasingly disenchanted with them, distance themselves from buying their standard products. Smaller employers are also likely to seek options for self-insurance in the future, though those represented on the panel said that they still felt more comfortable with fully-insured products given the risks and responsibilities of self-insurance.

  2. There is significant disenchantment with conventional managed care products. There was a high level of dissatisfaction with the performance of the managed care industry, especially HMOs, on the panel. Some of the represented companies have historically been strong supporters of managed care, aggressive promoters of HMOs, and active participants in NCQA and related industry-employer initiatives. Others have been less supportive of the economic model of the HMO and have pursued PPO products including developing their own. Still others have had managed care strategies that have used a combination of HMO and PPO products. Several expressed the view that HMOs have “lost their way” in terms of becoming too concerned about their own profitability and performance relative to their investors rather than to their purchaser-customers. As one participant put it, “we do not appreciate the fact that the HMO companies are raising their rates when their profit margins are already exceeding our own margins.” Some panelists contended HMOs have created inappropriate barriers to care and brought much of the current backlash on themselves. The fractious relationships with providers has been disappointing and frustrating, and panelists expressed a desire to see physicians regain more control over decision-making, as represented, some participants suggested, by the recent decision of United Healthcare to discontinue certain intrusive utilization management practices.

  3. Quality measurement and promotion issues still seen as important, but degree of investment in it is limited. The members of the panel contended that their disappointment with the managed care industry did not indicate they had lost interest in or support for activities like measuring quality and promoting quality improvement as manifested by NCQA accreditation and HEDIS reporting. But some did acknowledge they are less convinced that investment in report cards and other consumer choice oriented initiatives are worth substantial investment. In part, this change of heart reflects competition for limited benefits resources. But it also seemed to suggest that employers simply are not convinced that employees will used these sort of data, in their current form, to make meaningful decisions. One panelists suggested that they may have overestimated the “appetite” for data of their employees when, in fact, continuity with their current physician is still by far the most important consideration in plan selection. For panelists that have experience with performance reporting initiatives, there was a strong sentiment that plan-level information is not meaningful given the nature of the choices consumers are making. Consequently they are investing and/or participating in initiatives that anchor the data close to the service provider level which consumers/employees are more likely to relate to at the point at which they are seeking care.