Employer Decision Making Regarding Health Insurance. Contemporary Concerns and Challenges for Health Benefits Managers


  1. Employers are pursuing cross-company strategies to improve negotiating leverage and promote efficient information sharing. At several points in the discussion, employers alluded to activities they are undertaking that have led them into collaboration with other purchasers. This is one means for smaller or widely-dispersed employers with limited or dissipated leverage to gain more influence with health plans, though none of the participating employers were actually negotiating rates as part of a group of employers. A number of their collaborative activities related to sharing health plan performance information, as well as evaluation templates that employers may use to assess plans and the proposals they are submitting. In some instance, formal collaborative vehicles or associations exist. In other cases cooperation occurs on a more ad hoc basis because employers may be situated in the same market or may be querying one another on their comparative experiences with common contractors. In general, the information sharing can be a positive for employers and for plans, especially if it leads to greater uniformity in data requests and requirements on plans. It was noted that in some instances outside consultants have seemed to want promote their own distinct information requirements, but participants saw these efforts as largely self-serving and counter-productive. In some of the rural markets, employers that share similar plans or TPAs were able to monitor provider performance across groups to aid them in bringing pressure to bear to de-select or promote improvement of deficient performers.

  2. Employer attitudes toward managed care reflect support for managing care, but concern about adequacy of current managing organizations. The companies represented on the panel are using a variety of products ranging from indemnity offerings to PPOs to HMOs with varying types of financing arrangements ranging from fully-funded or totally self-insured and even self-administered in one instance. They did however, tend to agree that buying “managed” products was the desired mode of purchasing, where this is feasible. However, they were equally insistent that not all managed care products are being managed or being well managed. Some plans have been unable to move beyond the easy savings and have done too little to reduce practice variation. Others seem content to engage in “shadow pricing” or have chosen to start offering looser products that are probably not going to be able to sustain cost control. Some panelists attributed these shortfalls to plan failure to invest adequately in information systems, and thus they are not producing true efficiencies in care delivery. It was also noted that the consolidation in the industry is likely to produce bigger plans that, in turn, may become even more difficult to negotiate with and more inflexible in product customization to local markets. Companies that have their own customized products-typically PPO or POS-seem unconvinced that established HMOs are offering products or features that the firms cannot make available in their own company plans.

  3. Rapidly rising prescription drug costs is an issue that is provoking both concern and creative responses among employers. The panel participants express near universal anxiety regarding rising prescription drugs costs and related a variety of strategies they are employing to address this concern. An important distinction was made regarding where strategic decision making is occurring; it varies depending on plan design and sponsorship. For fully insured HMO products, responses are crafted by the health plans. If employers use a carveout contractor, then a pharmacy benefit manager (PBM) is likely engaged in product redesign activities. When an employer is self-insured, the decisions about how to address these challenges must be made internally. The principal responses across all three decision makers have included benefit and price re-designs including higher out of pocket cost limits, proportional co-payments (coinsurance), or “triple co-pays.” These mechanisms are designed to promote more cost consciousness use of lower cost substitute products. Tighter formularies are being used in some instances but these may engender provider and employee dissatisfaction. Aggressive educational programs for employees to promote more discreet use of pharmaceuticals are seen as another adjunct for encourage more cost consciousness and to offset some of impact of direct to consumer marketing by pharmaceutical companies. One large employer with its own PPO product has made a concerted effort to work with area hospitals and their affiliated physicians to improve prescribing habits and promote greater cost awareness among community physicians — with the implied threat that failure to improve could lead to de-selection from the network. Some of the employers also see the development of specialized disease management programs as having implications for both the selection and use of pharmaceutical products, especially because they may be able to better exploit the benefits of treatment innovations than convention models of care. Despite the efforts underway, most employers believe they have not yet found any especially promising responses to this powerful trend.