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Employer Direction in Healthcare Coverage: Growing Dissatisfaction Leads to New Strategies

Supplements and Featured PublicationsDecision Maker News in Managed Care - Proceedings from the 2004 Cambridge Healthcare Summit, Part II
Volume 10
Issue 3 Decision

Based on a group discussion of managed care consultants at the Cambridge Healthcare Summit, held February 25-27, 2004, this article discusses employer direction in determining healthcare coverage. The consultants delineated the current state of affairs, suggested a preferred situation, and developed a set of workable solutions.


Mounting dissatisfaction with the current state of affairs in employee healthcare coverage has caused employers to become more actively involved in processes that traditionally the healthcare industry itself has handled. Employers feel that they are hitting price ceilings in healthcare premiums, and they are compensating by shifting costs to their workers, but even cost shifting is reaching a plateau. Furthermore, it may not save money if, in the end, it leads to poorer compliance with preventive and therapeutic measures among employees, resulting in worse health outcomes.

Employers are generally unhappy with the healthcare system at all levels (Table 1). They feel that the health plans have failed for a variety of reasons. One important reason is that employers don't know the actual costs of healthcare. If they did, they might realize that they are getting value for their money. There is also a lot of confusion about the different types of health plans being offered, such as health maintenance organizations, preferred provider organizations, and others. Because of this confusion, there is a lack of objective standards for judging quality, and employers have no way to tell if they are getting value for their money.

Healthcare costs are rising much faster than inflation overall, which frustrates employers. They don't understand why costs are so high and, as a result, resentment builds against the health plans. Employers fail to judge cost against the value of what their employees receive and what they, in turn, receive from healthy employees (eg, productivity, job satisfaction, relief from "presenteeism" [the employee is on the job but not performing at 100%] versus absenteeism, and employee retention).

Employers who can no longer afford health benefits may opt out of providing benefits all together, outsource employees, or shift employees from full-time to part-time status.

The "widget mentality." Many employers have a "widget mentality" when it comes to health plans. In their business they know all the variables and costs that go into making a product profitable. If you change one variable, the profit changes one way, or if you change another variable the profit changes another way. This is called the widget mentality. Employers expect this same type of mentality from health plans. The problem is that healthcare depends on consumer and provider behavior and many other human factors and cannot conform to "widget models."

Employers faced with a variety of more expensive plans and benefit packages are increasing their role in providing healthcare because they feel that they will do a better job if they are more involved. But by trying to take some control of this complex system, they are adding to its complexity.

Employers are not the only ones frustrated–their employees are as well. As increasing costs for services, drugs, and devices burden health plans, patients faced with increasing premiums lose sight of the value of their coverage and the services they receive. Since they are often insulated by the health plans from costs, they cannot understand why their premiums are rising. Furthermore, a pervasive sense of entitlement often leads them to focus on what they don't get, not what they do. Patients want to receive the latest in technology at the prices of a decade ago. Health plans need to give patients an awareness of costs so they can see the value of their benefits.

Serving the health needs of one versus many. Two overriding problems face the health plans. First, since their inception, the medical model has focused on the physician—patient interaction. That relationship aims to provide the best care for that individual patient. But health plans deal with patient populations, and the confluence of this one-on-one mentality with a bigger view of population and public health management is where conflict occurs.

Second, health plans have oversold themselves to employers. They claimed that prevention would lead to lower costs but did not tell employers it would take time to see the results. Prevention will be cost effective in the long run but has driven up costs in the near term. Employers are tired of waiting for results. As a result of the insurers' inability to document improved outcomes and cost savings well, employers do not see what return they are getting on their investment.


Health plan and employer collaboration. In terms of specific actions, the workgroup first proposed that health plans and employers jointly develop patient incentives for compliance and wellness promotion. One example of this is if a patient has all 4 Health Employer Data and Information Set (HEDIS) diabetic tests completed, their copays would be waived for the rest of the year. Other incentives could be gift certificates or movie tickets to reward patient compliance. Informing the employer of the patient's compliance (with the patient's permission) would show they are getting value for their healthcare premiums. A similar reward from the employer, too, would reinforce those behaviors.

Health plans could also develop regular communication channels with employers, either monthly or quarterly, about medical management programs, successes, and levels of potential and actual savings. In addition, they could learn from the employers what aspects of programs they believe are beneficial for their employees. This would be an improvement over the situation today where communication between health plan and employer is only sporadic and often centered on haggling over price.

One workable solution to this problem is developing a joint task force to coordinate the roles and functions of various departments and jobs within the health plan and within the contracting business. Working together, the employer and health plan would determine who has the responsibility of informing employees about their benefits, getting employee feedback about service, and determining what other benefits employers want, what they are willing to trade for them, and assigning responsibility to work out different issues (Table 2).

Other functions of the task force should be to analyze absenteeism, workers' compensation trends, and other health issues that affect productivity for the employer and increase healthcare costs for the health plan. Working together, they can also analyze the best insurance choices for the employer, and the health plan can institute a lobbying strategy to level the playing field among health plans, indemnity plans, and self-insurance, pointing out to employers mandated benefits and regulations for each and tradeoffs provided by the latter 2 choices (including possibly lower coverage).

Sharing information. By sharing HEDIS measures and trends, health plans can demonstrate to employers that patients are getting better care. Health plans need to work with HEDIS, the Joint Commission on Accreditation of Healthcare Organizations, and other accrediting organizations to develop outcome measures, eventually forming a national outcomes data warehouse that could be used to establish regional and national benchmarks. Employers would use these benchmarks as a reference when choosing a health plan. Transparency in the cost of care is essential if health plans are to be able to show employers where their money is going and what it is buying, dispelling the notion that healthcare is a big black hole they just throw money into. Present models incorporating costs and outcomes are "all very fuzzy," according to the consultants, and employers do not take them seriously. Open accounting is one way to start to address the need for transparency.

Actual case examples can lend credence to aggregate figures about the drivers of cost in a plan. Knowing a business spends X million dollars a year on cardiac care is one thing, but if employers see all the costs of a real coronary artery bypass graft surgery–anesthesia, surgeon, hospital stay, statins, beta blockers, cardiac rehabilitation, and back-to-work time–they may better accept the true costs of care and see the value they and their employees are getting for the money they put in.

Lastly, the consultants suggested that health plans have some work to do internally. They need to work out fair reimbursement strategies that will prevent conflicts between physicians and hospitals (eg, freestanding outpatient surgery or colonoscopy centers vs inpatient procedures). In this regard, they may have to lobby to have regulations changed that prevent providers from profiting if efficiencies and profits are realized elsewhere in their system.

Health plans also need to have the means to document to employers the failure of the widget mentality, demonstrating that healthcare is not a "widgetizable" commodity. Finally, medical management and sales functions must be coordinated so that they do not work at cross-purposes. If the former works diligently to reduce cost trends by small increments but sales is telling employers about the huge cost savings they will have, employers will be disappointed when that rosy scenario does not come to pass and blame the health plans for their failure to control its costs.

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