Employers have increasingly adopted funding methods that are alternatives to the traditional group insurance contract. Both medical expense and disability income insurance are made available through self-insured or self-funded plans of employers, labor unions, and fraternal or cooperative groups. These plans may require enrolled members to share in the funding through dues or contributions. The benefits provided under these plans are similar to those of commercial group insurance contracts but usually are the amount desired and affordable by a specific group of individuals. [Read more...]
Preferred provider organizations (PPOs) are groups of health care providers that contract with employers, insurance companies, union trust funds, or others to provide medical care services at a reduced, negotiated fee. Like HMO’s, they may take the form of group practices or separate individual practices. PPOs typically differ from HMO’s in two aspects. First, they provide benefits on a fee-for-service basis as their services are used. Fees are usually subject to a schedule that is the same for all participants in the PPO. Second, plan participants have financial incentives to use the preferred provider network. A participant’s access to specialists is not controlled by a primary care physician, as is the case in most HMO plans and all POS plans. The proportion of employers offering PPOs increased from 36 percent in 1993 to 59 percent in 1996. [Read more...]
More than two-thirds of the U.S. population is enrolled in some form of managed care plan. The proportion of workers covered by managed care plans climbed from 58 percent in 1993 to more than 80 percent today. Clearly, managed care plans have become a major factor in the health care marketplace.
Health maintenance organizations (HMO’s) are legally organized entities that share the common characteristics of responsibility for both financing and delivering comprehensive health care services to a defined group of members for a prepaid, fixed fee. HMO’s differ from traditional insurance indemnity plans in that they are both the financing and servicing mechanism. They emphasize preventive medicine and early treatment through prepaid routine physical examinations and diagnostic screening techniques. At the same time, they provide complete hospital and medical care for sickness and injury. The 1973 federal legislation and later amendments in 1976 essentially provided for substantial government funding through grant arrangements to encourage the establishment of health maintenance organizations. The most important support for development of HMO’s came from the law’s requirement that certain employers must offer their employees the option of coverage by an HMO as an alternative to traditional forms of insurance. This requirement ceased on October 1, 1995.
HMO’sare the largest of the managed care approaches in terms of enrollment. About one-fourth of the nation’s population is enrolled in HMO’s. The five commonly recognized HMO models are staff, group, network, individual practice association, and direct contract. The major differences among these models pertain to the relationship between the HMO and its participating physicians. In a staff model, the physicians who serve the HMO members are employed by the HMO and typically are paid on a salaried basis but may also receive bonus or incentive payments that are based on their performance and productivity. At times, the staff model is referred to as a “closed panel” plan because participants are required to obtain all services from a staff employee. In the staff model, the HMO also operates the facilities in which its physicians practice, providing on-site ancillary support services such as radiology, laboratory, and pharmacy services. Hospital care and other services usually are purchased by the HMO through fee-for-service or prepaid contractual arrangements.
In a group model, the HMO contracts with a multispecialty physician group practice to provide all physician services to its members. The physicians in the group practice are employed by the group practice and not by the HMO. Physicians in a group practice share facilities, equipment, medical records, and support staff. The group may contract with the HMO on an all-inclusive capitation basis or on a cost basis.
In the network model, the HMO contracts with more than one group practice to provide physician services. These groups can be either multispecialty or small groups of primary care physicians (i.e., family practice, internal medicine, pediatrics, and obstetrics/ gynecology). Network model HMO’s may be either open or closed panel plans.
The individual practice association (IPA) involves physicians’ organizations comprised of community-based independent physicians, in either solo or group practices, who provide ambulatory services to HMO members. Like the staff model HMO, hospital care and specialty services not available through IPA-participating physicians may be purchased by the HMO from other area providers, either on a prepaid or fee-for-service basis. HMO relationships with an IPA may be established on an exclusive or nonexclusive basis.
The direct contract model HMO’s maintain contractual relationships with individual physicians in contrast to physician groups as in the IPA and network models. Unlike IPA models, direct contract model HMO’s retain most of the financial risk for providing physician services.
Thus, HMO’s are basically prepaid group practice plans that have an agreement with one or more hospitals for admission of enrolled members on a service-type basis, and a group of physicians organized into a cooperative to provide complete office and hospital care. Most HMO’s are organized as group models. HMO’s typically accept enrollment only from clearly designated groups, such as employees. Of any of several employers, or residents of a particular locality, although some may permit enrollment from the general population on an individual basis. The plans are designed to provide an economic incentive to accept focused access to health care providers. HMO’s also facilitated the development of managed care as a significant cost containment concept. Until recent years, most HMO’s operated as nonprofit organizations. The majority of new HMO’s, however, are for-profit organizations. Although many subscribers are covered by HMO’s that have been sponsored by consumer groups, a sizable and growing portion is covered by plans sponsored by insurance companies or Blue Cross/Blue Shield organizations. Physicians, hospitals, and labor unions also sponsor such plans.
Some insurers view HMO’s as competitors and disagree with their sponsorship by insurance companies. Others view them as a viable alternative method of financing and delivering health care that can be offered to employers as one of the products in their portfolio. A few insurers and Blue Cross/Blue Shield plans provide multiple-option plans (i.e., HMO or an indemnity plan with a PPO) under a single medical expense contract. These simplify plan administration and, normally, the entire contract is subject to experience rating.
The Blue Cross and Blue Shield Association coordinates the 58 Blue Cross/Blue Shield plans that operate statewide or regionally across the nation, mostly as nonprofit hospital and medical service corporations. These plans have tended to dominate the market for basic medical coverage in many geographic areas because of lower premiums from a favored tax status with the majority of states, and because of close ties to the hospitals and organized medical societies in the localities that they serve. Major medical and group dental insurance is also often available from Blue Cross/Blue Shield plans. At the end of 1996, more than 67 million persons were covered under Blue Cross and Blue Shield plans.
Blue Cross plans are nonprofit hospital expense prepayment plans. Most plans were organized by hospitals in the area served by the plan. Historically, member hospitals usually elected the board of directors, which normally included members from the public and the medical profession, as well as hospital administrators. Today, the composition of the boards has changed significantly to reflect more business and consumer representation. The plans provide for hospital care on a service-type basis, by which Blue Cross enters into contracts separately with member hospitals for certain types and amounts of hospital services and then reimburses the hospital directly for those covered services rendered to plan subscribers. The subscriber, the Blues’ term for the insured, is billed only for those services not covered by Blue Cross and, unlike commercial health insurance; there usually is no direct payment to the covered person.
The majority of Blue Cross plans are coordinated with Blue Shield plans. Blue Shield plans are nonprofit organizations offering prepayment coverage for surgical and medical services performed by a physician. Independently organized on a state or regional basis within a state, these plans are members of the National Association of Blue Cross and Blue Shield Plans and are now commonly controlled locally by a board of directors representing both the consumer and the medical profession. As in the case of Blue Cross, each plan operates autonomously, but the National Association’s comprehensive contract definitions assure common administration from plan to plan for subscribers in large national or multistate groups.
The typical Blue Shield plan provides benefits similar to those provided under the surgical and physicians’ expense benefit provisions of commercial health insurance policies. Blue Cross/Blue Shield major medical coverage is available on both a group and an individual basis; the major medical plans resemble those of commercial insurers. A deductible is involved and the subscriber usually must pay a 20 percent coinsurance until co-payment expenses reach a certain amount, after which no coinsurance applies, the benefit maximum for major medical expense may be $250,000 or more. Many, if not most, Blue Cross/Blue Shield plans offer comprehensive major medical for their local groups.
The distinct advantage enjoyed by Blue Cross/Blue Shield has been the favorable tax treatment given these organizations. Although commercial insurers have long been subjected to federal income taxes, a variety of state taxes—including a significant tax on premiums received—and even certain local taxes, Blue Cross/Blue Shield organizations traditionally have been virtually immune to significant state taxes and are afforded relatively favorable treatment under the federal income tax laws. The trend at the state level, however, seems to be to tax the Blues as any other health insurer, and the Tax Reform Act of 1986 eliminated their complete exemption from federal income tax. Although the tax act eliminated complete exemption, various deductions result in an average effective tax rate for Blue Cross and Blue Shield plans that is below the average tax rate for insurance companies.
The Blues historically have been among the largest indemnity insurers in the United States and they collectively make up the largest health care entity in the country. They have responded to market demand for managed care products and services. Today, Blue Cross and Blue Shield plans collectively comprise one of the largest providers of managed health care in the United States. More than 44 million people are enrolled in a Blue Cross and Blue Shield managed care network. From 1986 to 1998, enrollment in such managed care plans increased from 13 percent to 64 percent of total, collective Blue Cross and Blue Shield enrollment.
In the 1970s and the 1980s, there was a consolidation of most Blue Cross and Blue Shield plans. In nearly all cases, this involved a complete merger; in a few instances, the consolidation was partial, resulting in a single staff but separate governing boards. To compete with organizations with large amounts of capital or direct access to capital markets to fund future growth, some plans have converted to for-profit status. Others have demutualized, and still others are consolidating or affiliating to form regional organizations. Although consolidation will provide the capital resources and economies necessary for geographic expansion and may relieve some of the pressure on profit margins, the Blue Cross and Blue Shield plans will need to continue to increase enrollment to compete successfully.
Helping employees improve their health status and reduce the probability of preventable risks is the single most significant approach to reducing the number and severity of health problems. Health promotion and disease prevention activities such as smoking cessation, high blood pressure detection and control, nutrition counseling, weight management, exercise, back injury prevention, and stress management can all be instrumental in managing health care costs.
Although promotion of healthful employee habits does not necessarily require extensive company resources for the program to be effective, it does require the commitment and encouragement of top management. Some low-cost yet potentially effective activities include such efforts as encouraging exercise and weight control by establishing company running or walking teams, providing space for before or after work aerobics classes, providing low-fat, low-salt foods in the company cafeteria and vending machines, and holding periodic health education and screening programs to teach about and detect serious illnesses. Savings associated with health promotion activities are not often immediate and are smaller the higher the employee turnover rate. Many researchers are convinced, however, that such activities should facilitate a healthier work force and lower total health care expenditures.
Employee assistance programs (EAPs) provide a broad range of services including counseling for marital and family problems, job-related problems, and emotional disturbances as well as alcohol and drug abuse problems. To implement such programs, larger employers frequently employ full- or part-time personnel for in-house counseling and referral of employees to local services. Smaller employers may establish such programs by contracting with an outside consulting service. In lieu of a formal employee assistance program, employers can also encourage self-referral by providing a community resource guide to employees.
Maternal and Well-Baby Care Programs
As an increasing number of women of childbearing age have entered the work force, greater emphasis has been given to maternity and children assistance programs as part of corporate health insurance plans. This interest was enhanced by the 1978 Pregnancy Disability Amendments to the 1964 Civil Rights Act requiring that health care benefits for maternity be the same as health care benefits for other conditions. Corporate prenatal programs include expense associated with prenatal/obstetrical, “well-baby” and “well-child” care. Medical costs for low birth-weight and preterm babies can range from $15,000 to over $100,000, compared with roughly $3,000 for the birth of a normal weight baby. In view of the costs involved, corporate prenatal programs can be cost-effective. In addition, sick babies may also delay or prevent a female employee from returning to work. Such services include physical visits, immunizations, well-newborn care, health education, developing screening, clinical, laboratory, and radiological testing.
Maternity care is one of the most frequent reasons for hospitalization. The birthing center concept (or hospital short-stay program for maternity) is an effective means of minimizing costs associated with routine maternity care. Birthing centers are usually freestanding facilities separate from a hospital. These facilities, intended for low-risk pregnancies, provide midwifery or maternity services generally delivered by a physician. The mother and child are discharged within 24 hours of delivery in most cases.