The health benefits decision making process involves both specialized personnel and senior management of firms. The participants presented a common picture of the division of responsibility for health benefits decision making. The strategic and tactical planning occurs within the specialized units responsible for health benefits. This unit is normally part of a larger employee benefits group that ultimately reports to a senior human resources executive. The health benefits unit evaluates options, prepares cost and other analyses, may solicit employee input, compares the company and its benefits with benchmarks from the industry, and makes recommendations. In large firms the benefits buying units may be teams that also include cross-functional specialists from such areas as purchasing, internal audit, and operations while for small firms the health benefits staff may handle these functions entirely. The recommendations are typically presented to a standing group of senior executives, including chief financial officers, that makes final decisions or may ask for additional information or study. Panelists noted that the health benefits function is viewed as a specialized one, and thus their influence on the decisions of senior executives is substantial. This is even true in companies that are actively engaged in the health care industry. Consultants play a variety of roles to support and augment the efforts of employee benefits units, including providing external assessments of options, actuarial assistance, and data that are useful in benchmarking company benefits and experience.
The process for selecting vendors is a multi-stage effort that occurs over several months. The growth of managed care has led to a formalization of the process by which employers are engaged in a systematic purchasing of health benefits. A common approach is to develop bid specifications from potential suppliers including minimum qualification (e.g. NCQA accreditation) and performance targets. Next, the benefits unit solicits proposals from companies/health plans that are interested in being considered for a contract, and assigns scores to the proponents based on weighted evaluation criteria. For companies that espouse a value-based purchasing program the criteria and the scoring phase are critical. Contract awards are made and, in some companies, contribution strategies may be tailored to promote enrollment in higher scoring plans. The vendor selection process is a continuous one in that monitoring of plan performance is ongoing to ensure that performance standards are met and past experience is readily available for use in the re-bidding cycle. Companies with a geographically dispersed work force (e.g. sales or service personnel) often rely on one national plan to provide them with a standard cross-market product that may not include managed care features such as in-network participation. For employers that have developed their own self-insured company plan typically a PPO or POS product a single third party administrator is commonly chosen to provide administrative services and support. The company plan is typically offered along side other products when options are available. One company on the panel that has a very large work force in a non-urban area actually self-insures and self-administers its own PPO product.
Customizing benefits purchasing to local market conditions presents special challenges for both single market and multi-market firms. Panelists emphasized the importance of adapting their benefits purchasing strategies to local market conditions. For multi-market employers it can be a complex process to try to achieve uniformity in benefits and costs when delivery systems, prices, and potential contractors vary greatly. Firms often have to do business with many plans in several markets in which they have few enrollees, or use a national plan for this purpose. Employers see their ability to be successful tied to the numbers of lives they have to use for leverage in negotiation in the relevant local health care markets, so in many markets they have little influence with their plan contractors. Panelists further noted differences between working with local and regional health plans with whom they may have substantial negotiating opportunities, compared to large national managed care companies that may be more likely to offer only off-the-shelf products and terms. The extent of competition possible in a local market also varies, depending on provider and health plan market structure. This obviously affects a companys capacity to offer a broad set of options, such as in rural areas. Employers with sizable workforces in rural markets face other problems beyond lack of competition. They may have a disproportionate influence on local providers as the areas mega-buyer that carries with it additional responsibilities and sensitivities. The lack of options in terms of physicians and, especially hospitals, may make them more committed to supplier development or provider improvement, leading some to develop collaborative performance enhancement efforts with local providers. In some instances, this dominant purchaser role may make self-administering (in effect, direct contracting) a self-insured network-based plan a reasonable possibility.
Soliciting employee input is highly important and accomplished in multiple ways. The panelists emphatically stated they are systematically soliciting employee input into many facets of their health benefits programs ranging from input in terms of benefit changes (e.g. alternative medicine additions), provider networks (e.g. adding new providers or health plans), service performance (e.g. customer complaints), and overall satisfaction (e.g. satisfaction surveys). In addition, a number of firms offer flexible benefits programs that allow employees to do additional customization of their own total benefits packages. Companies use many different modalities to share information and solicit input and feedback. Many have direct toll-free phone line and e-mail access to benefits offices. Others conduct a variety of employee meetings and focus groups. Most use direct mail campaigns and other employee newsletters and the like. Some of these activities are necessary to meet their legal requirements, but most firms see them as part of a broader education strategy to raise employee awareness of and appreciation for the benefits that are available to them. Several panels noted that web-based communication is a key direction they are moving in currently, including the capacity to facilitate employee direct communication with health plans via this paperless medium. Health benefits satisfaction surveying has become extensive in the firms represented on the panel. Surveying is done either by the employers directly as part of ongoing employee surveys, or through health plans that are commonly required to use standardized instruments like CAHPS.
The contribution strategy is a key instrument employed to achieve human resource goals. The importance of contribution strategies has grown in part to promote more cost consciousness for their workers, direct/steer workers to a preferred plan, and, in some instances, to defray the impact of cost increases. Some firms with influential unions still do not have contribution requirements for members of the bargaining units. But most of the participants believe that more cost participation is critical to sensitize workers to health care costs, and some now have explicit policies in place to pass along a portion of future price increases. Rising prescription drug prices have intensified the belief that employees should be made aware of the costs of services that they are consuming. Some employers are more consciously using contribution strategies as a steering mechanism than others, but most agree that this can be a powerful tool used when a firm wants to encourage enrollment in a preferred plan-such as those with company plans or, in other instances, to chose health plans with demonstrated superior performance. Fixed dollar employer contributions or percentage of premium contributions for employees may encourage selection of lowest cost plans. For those employers that are trying to promote selection of higher performing health plans, the contribution strategy may be intentionally divorced from the plan premium illustrating that value-based purchasing does not mean promoting enrollment in the lowest price plans. These employers are particularly interested in promoting the enrollment of their most needy (sickest) employees and dependents in the best performing plans, even if they may be higher cost plans because employers believe they provide better value.
For companies that have attempted to migrate employees to preferred products there are several steps to address. Employers on the panel have now had considerable experience with promoting certain health benefits options, especially managed care products. The participants offered some insights into how they have engineered the migration of employees to these products in the wake of their introduction. Typically, employers embrace a model of delivery, such as an HMO strategy, that they think will give them more control and accountability. They then develop a benefit package that either they will offer directly, or will get bidders to offer and issue requests for information/proposal. A premium contribution strategy is developed and pricing for the products is unveiled. Next, employees are subjected to education campaigns detailing the product options and the rationale for the changes being made and an open enrollment process is carried out. Subsequent to implementation, feedback is provided to employees, initially on options chosen and then later satisfaction survey results are collected across the options and shared with the workforce. This approach was described in part to contrast it with a defined contribution strategy that, as discussed below, has a far more passive approach associated with it.
Implementation of new products or product designs is a complex but highly important function for health benefits. In the spirit of discussing operational features of health benefits coverage, the participants shared several insights about the importance of implementation of new products and designs. They underscored how complex this process may be, especially across diverse workforces in geographically dispersed areas. Some of the panelists represented firms that had dozens of HMO contracts across several work sites. The level of effort involved is often under-appreciated because the success of new initiatives can be undermined if the implementation process is poorly plans and executed. They are also reluctant to turn these functions over to outside consultants because of their lack of familiarity with key systems and employee relations issues. Examples of implementation activities mentioned by panelists included the following: 1) testing contractor ability to handle eligibility and claims processing functions; 2) preparing and carrying out employee communication initiatives; 3) assessing the effectiveness of interactions with other vendors, such as in the case of pharmacy or behavioral health care carveouts; and 4) closely monitoring performance through the open enrollment period. Such additional efforts are particularly taxing for units that have to continue to carry out their routine tasks. But failure in these basic functions may undermine and discredit new product initiatives.
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.
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.
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.
Many employers are giving serious consideration to defined contribution strategies but remain concerned about the implications of these approaches. When asked to discuss emerging developments in health benefits, most of panelists indicated trends depend very much on legislation and litigation (liability), as discussed in more detail below. There was a general sense that a defined contribution strategy could emerge even in the absence of major legislative developments, since many employers are currently giving some thought to the implications of such a conversion. As some participants noted, if all employers could agree to make such a switch at the same time to avoid creating competitive disadvantages for themselves this might happen quite quickly, though no one expects this to occur. In principle, a defined contribution approach could give employers more control over their future health care cost while providing employees with more flexibility. But veteran employee benefit managers suggested that this strategy could disrupt employee relationships, squander the years of effort to employers have invested in cost containment, and lose the efficiencies associated with having employer-sponsored health insurance products. For companies that have had a traditionally paternalistic approach to employee benefits this would be a major change. In addition, for companies that have been trying to promote a stronger link between health, health benefits, and productivity, including reducing disability and absenteeism, this could be a substantial setback.
Much of the skepticism about the viability of a defined contribution strategy lies with the lack of development of the market conditions to support informed employee choice. The panelists pointed to the dismal state of affairs in the individual insurance market as being indicative of these shortfalls. Employees are unlikely to have access to a wide choice of health plan options. Product prices are likely to be higher, confusing to consumers, and potentially discriminatory against persons with costly conditions. Meaningful information on plan performance is limited now and would likely become more meager if large employers could not use their leverage to extract such data from their contractors. Generally, defined contribution will lead employers to engage in a pricing strategy of merely setting benchmark rates or contribution levels on a regional basis. This would be a major step away from the far more proactive purchasing strategy in which most of the participants believed they had been making progress. It was noted, however, that it is possible that new purchasing vehicles and ventures might emerge in a defined contribution environment, and some panelists are already being approached by such web-based entrepreneurs. Presumably, the entities would try to bundle together groups of employees to pool their defined contributions to negotiate on their behalf with prospective health plans and provider organizations. Panelists suggested there is no way to know what kind of success such purchasers might have.
Employers express great concern about how increased liability for them could fundamentally alter the way they approach purchasing health benefits. Just as in the first panel, the participants were eager to weigh in on the current debate over liability, as partially represented in the proposed versions of the Patient Bill of Rights. The discussion revolved around employer liability due to the fact that the panelists uniformly expect to be seen as exercising discretionary authority for decisions about health benefits. Decisions about plan design, selecting contractors (health plans) to be offered, or devising their own company plan will all be affected in the opinions of the panelists. They suggested that if their worst fears are realized, they will have to step back and develop more restrictions and explicit exclusions, set up elaborate appeals processes, reduce their relationships with employees, and ultimately move to defined contributions to get themselves out of the line of fire. Panelists contended that these developments will fundamentally alter employer sponsored health insurance as employers flee from the efforts of trial lawyers to hold them liable and seek huge judgments against them.
Several companies reported to have disaster [contingency] planning underway to convert to some form of defined contribution as soon as feasible, if the most onerous legislation passes. The limitations of this strategy, as discussed above, were reiterated by the panelists. Employers expect a rapid conversion could result in a high degree of chaos because the infrastructure is not in place to respond to a surge of individuals trying to buy on their own behalf. In addition, problems could be created for providers if employees who now have company-sponsored health insurance decide they would rather take the defined contribution designated for health benefits and buy bass boats with it rather than health coverage. Consequently, some employers have even tried to educate providers to the potentially momentous developments they might face if this legislation passes. Finally, one panelist noted that such developments are yet another example of how the federal government seems to be working at cross-purposes with itself. Just as it tries to promote expanded employer-based coverage, it is creating power disincentives for employers to maintain such coverage.