|University of Minnesota Health Plan Task Force||January 14, 1998|
|Comparison of Health Insurance Purchasing Alternatives|
|Executive Summary||Introduction||Current Shortcomings||Trends||Alternative Models||Profiles||Retirees||Further Analysis||Summary|
|Appendices: 1, 2, 3, 4, 5, 6, 7, 8||Glossary|
Each purchasing option discussed below is a different combination of the financing and decision-making alternatives outlined above. The options are as follows:
The comparative benefits and challenges of each approach are addressed in turn, starting with joining the Buyers Health Care Action Group.
The State Employee Group Insurance Program (SEGIP) has been an associate member of BHCAG since 1995. BHCAG was organized in 1988 and by 1993 became the second largest purchasing pool in the state, with SEGIP as the largest pool. Enrollment in SEGIP has remained fairly constant in the past five years, reaching 60,000 employees in 1997. University faculty and staff were 14,279 of the 60,000. The total of 156,000 employees, dependents and retirees were eligible for health benefits sponsored by SEGIP. Enrollment in BHCAG has increased from 90,000 in 1994 to 125,000 in 1997. The total eligible population of employees, retirees, and dependents in BHCAG member companies reached 425,000 in 1997. As the two dominant purchasers of health insurance in the state, SEGIP and BHCAG share similar interests and concerns about changes in the health care market.
BHCAG is currently a coalition of 28 large, self-insured employers representing 425,000 employees, retirees, and dependents. 120,000 employees in these 28 employers enroll in Choice Plus. The 28 employers that are full members of BHCAG as of December, 1997 include:
BHCAG’s approach to purchasing medical services by “direct contracting” represents the latest employer response to organizational changes in the Twin Cities market. Physicians, clinics, and hospitals organized into nineteen different Care Systems that bid to provide services to employees of BHCAG member companies. The physician network for Choice Plus is based primarily upon the hospitals and physicians with whom HealthPartners had ongoing contractual relationships. Most employers offered employees the Choice Plus health plan in addition to one or more pre-existing indemnity and managed care plans, while four employers offered Choice Plus exclusively. The majority of employers that offer more than just the Choice Plus plan are phasing out their other managed care plans to eliminate duplication in provider networks. Indemnity plans continue to be offered for employees who prefer non-managed care plans, although these plans tend to have significant cost-sharing.
The BHCAG model combines self-insurance of employee health insurance with direct contracting with physicians for medical services. Direct contracting is defined as a contract for health care services offered by a provider sponsored organization, such as a Physician- Hospital Organization (PHO), to an employer in which the PHO accepts the risk for utilization of health care services above the anticipated level. The direct contracting that BHCAG employs is slightly different than the arrangement defined in a recent state report on direct contracting. In February 1997, the Departments of Commerce and Health submitted a report on direct contracting to the Legislature entitled “Direct Contracting for Health Care Services”. This report cited several possible advantages of direct contracting:
Several possible disadvantages were also cited:
Published information by both BHCAG and the Minnesota Department of Employee Relations (DOER) indicate a strong interest by DOER in offering BHCAG’s Choice Plus product. Adoption of the BHCAG model would require the University to self-insure the risk for University faculty and staff, as BHCAG member companies do for their employees. The University population probably is large enough to minimize any risks that the University would face in self-insurance.
If DOER becomes a full member and the University remains with BHCAG, then the University has two ways to approach this decision, corresponding to two ways that BHCAG member companies structure their employee health benefits. Several member companies offer only the Choice Plus health plan, while several other member companies offer the Choice Plus plan as well as multiple, conventional health plans that were offered prior to BHCAG’s formation. Each approach has unique costs and benefits, although most employers are moving towards offering the Choice Plus health plan exclusively.
The University may want to consider joining BHCAG with the State and obtain health insurance by “direct contracting” and “self- insurance”. Should the University decide to join BHCAG via SEGIP, the experience of member companies that offer only the Choice Plus plan and the experience of member companies that offer additional plans should be compared.
Four BHCAG member companies, including the Carlson Companies, offered only the Choice Plus health plan to their employees. These employers replaced their previous plan offerings with Choice Plus which offered employees a choice of 19 different sets of multispecialty groups and hospitals to choose from. This replacement was undertaken to simplify the health benefits offered to Twin Cities employees which, in turn, reduced Carlson Companies’ administrative costs.
Carlson Companies Inc. offers employees only the BHCAG Choice Plus health plan and charges monthly employee premiums that increase with each Cost Group. Employee premiums for single coverage are $10.64, $17.56, or $24.48 for Cost Groups I, II, or III, respectively. Employee premiums for family coverage are $54.66, $63.66, or $75.43 for the three respective Cost Groups. Total premiums were not available from Carlson Companies Inc. See Appendices 5 and 6 for more comparison information.
Lessons from these employers can be applied to the University’s health benefits offerings. The possible advantages and disadvantages of offering only the Choice Plus health plan are listed in Table 2 below.
|partnership with a stable organization that has established relationships with providers in the community,||increased risk to the University by self-insuring entire population,|
|savings generated by purchasing power of a large, pooled population,||University of Minnesota Physicians are not an integral part of any care system but acts as a tertiary care referral network,|
|care systems in Duluth area exist in current Choice Plus health plan,||no care systems are currently available to the Crookston and Morris campuses|
|exemption from state mandated benefits, premium taxes, and other insurance regulation by self- insuring||University would have a much smaller voice than in its current relationship with SEGIP|
These are the possible advantages and disadvantages of replacing the multiple health plans currently offered with Choice Plus exclusively. The last consideration of this purchasing strategy has to do with the four questions that should be asked in evaluating all the purchasing strategies. These questions were first mentioned on page 3 and are listed again here:
In the BHCAG model, the insurance risk lies with the employer since each employer self-insures the risk of its own employees. The degree of liability the University would be exposed to can be limited by working with a reinsurance company that takes responsibility for all claims above $50 million, for example.
The costs of total replacement with the Choice Plus plan cannot be specifically assessed without detailed actuarial data. The weighted average total premium for single coverage in 1998 is estimated to be $176.39, and the corresponding total premium for family coverage in 1998 is $440.51. These premiums are averaged over all University employees enrolled in health plans available at the Twin Cities campus. Total premiums for single and family coverage, as well as employee premiums, are likely to be higher in a Choice Plus plan for employees that currently enroll in the lower cost health plans, but lower for employees that enroll in the State Health Plan. Administrative costs are likely to be comparable or lower since only one health plan with three different cost groups would have to be administered. No dollar figures can be provided for any of these costs. BHCAG and SEGIP would need to be contacted to obtain the actuarial data necessary to provide these figures.
Problems with providers would be simplified in the BHCAG model because the purchasing power of SEGIP would be greatly enhanced by adding the clout of the BHCAG member companies. Care systems have to compete with one another for enrollees and would have to be responsive to University needs to remain competitive. Problems with the carrier are not relevant in this self-insured arrangement because the employer is the carrier. In this approach, the University would have a much smaller voice because it would represent only 15,000 of 125,000 employees enrolled in the Choice Plus health plan, instead of representing 25-33% of all enrollees in the purchasing partnership with SEGIP. The most important pieces of information needed to evaluate this arrangement, which is not currently available, are the total premium and administrative costs to the University.
The decision to join BHCAG and to offer their Choice Plus health plan in no way precludes the University from continuing to offer existing health plans to faculty and staff. This option provides both flexibility and diversity in health plan offerings, allowing the University and SEGIP the freedom to compare the experience of the two models directly. The University and SEGIP benefit from the negotiating power of BHCAG and can use this power to influence the outcome of annual negotiations at the Joint Labor-Management Committee.
Several other employers in BHCAG maintained their prior, conventional health plan offerings (comparable to the seven plans at the University), and simply added the Choice Plus health plan. Cargill and Jostens are the two BHCAG member companies that offered one health plan in addition to the Choice Plus plan that were contacted for information.
Cargill employees with single coverage had to pay $10.00, $20.00, or $30.00 as a per month employee premium contribution for Choice Plus Cost Groups I, II, or III, respectively. Employees with family coverage had to pay $45.00, $70.00, or $95.00 as a per month premium contribution, respectively. The two other options available to Cargill employees were indemnity plans called Unicare Options One and Two. The single coverage employee premiums per month were $30.00 and $15.00, respectively. The family coverage employee premiums per month were $105.00 for Option One and $30.00 for Option Two.
These sizable employee premium differences were based on differences in deductibles and annual out-of-pocket maximums between the two indemnity plans. The Unicare Option One has a $250 single coverage deductible and a $600 family coverage deductible, while Option Two has a $500 single coverage deductible and a $1000 family coverage deductible. The single and family annual out-of-pocket maximums are $2000 and $4000 for Option One and $3000 and $6000 for Option Two, respectively. All other features of the Unicare plans, including covered benefits, are the same for the two Options. Benefits are covered at 80-90% for most services, including hospitalizations, mental health, and physician office visits. These benefits are less generous than the Choice Plus in-network coverage, but more generous than the Choice Plus coverage of out-of-network services. See Appendices 5 and 6 for more comparison information.
Jostens also offers one indemnity health plan alongside the Choice Plus plan managed by BHCAG. Nine hundred and seventy nine employees are eligible to enroll in these plans, and all but sixty nine employees have some type of health insurance. 704 of the 910 enroll in the Choice Plus plan. The indemnity plan, called MedCare 500, has total premiums per month of $171.00 for single coverage and $509.00 for family coverage. The employee portion of the total premium is $9.00 for single coverage and $36.00 for family coverage. This indemnity plan requires a $500 and $1000 deductible for single and family coverage, respectively. All other services are covered at 80%. Again, these benefits are less generous than in-network services, but are more generous than coverage for out-of-network services in the Choice Plus plan.
The total premiums per month for the Choice Plus are $177.00, $182.00, or $188.00 for single coverage in Cost Groups I, II, or III. Total premiums per month are $531.00, $546.00, or $564.00 for family coverage in Cost Groups I, II, or III. The employee portions of the premium for single coverage per month are $15.00, $20.00, or $26.00, and the employee premiums per month for family coverage are $58.00, $73.00, or $91.00. These employee premiums are significantly higher than the indemnity plan’s premiums, even for the lowest Cost Group I. Deductibles and annual out-of-pocket maximums are lower in the Choice Plus plan which explains a large part of this difference. The Choice Plus plan also covers preventive services, eye/ear exams, and chiropractic care that are not covered in the indemnity plan.
The advantages and disadvantages of this strategy include the following:
|broad range of choices for faculty and staff||complicated comparison of benefits and costs in the conventional and care system models|
|greater leverage in negotiating health benefits with existing health plans||risk adjustment in care system model would have to be dropped or extended to existing plans|
|ability of employees to move across care systems in Choice Plus plan||health plans may actually increase premiums in first few years because of uncertainty in expected enrollment|
|possibly greater dispersion of risk and selection to reduce burden in SHP||Choice Plus and current managed care plans would be duplicative to some degree|
The answers to the four questions about risk, costs, provider problems and carrier problems are similar to the previous discussion of replacing the existing plans with Choice Plus, but adds a level of complexity. The Choice Plus plan has several features that are dissimilar to the current arrangement that would add administrative costs, in particular the self-insurance of Choice Plus and the risk adjustment mechanism that is used to determine payments to each care system. All BHCAG member companies self-insure their employees enrolled in Choice Plus and the University would initially face uncertainty in setting total and employee premiums in this plan because of the uncertainty in forecasting expected medical expenses that would be paid with University funds. Underestimating the expected medical expenses would expose the University to potentially significant costs, while overestimating expenses and total premiums might make the Choice Plus plan unattractive to faculty and staff.
If risk adjustment was not applied to the non-Choice Plus health plan offerings, the adverse selection that the State Health Plan might expect to receive would not be reflected in its revenue. Care systems in this combined strategy would not face the same risk of enrolling a relatively more costly population, because the increased risk would be reflected in their payments and this inconsistency would place the State Health Plan on a more uneven playing field than current exists. Implementing a risk adjustment system could be costly in terms of personnel and computer resources.
Employees might benefit in the case of problems with providers and carriers because employees could buy into the flexibility in providers that is offered in the Choice Plus plan. In addition, the current health plans might be forced to charge lower total premiums to avoid losing premium revenue to the care systems in Choice Plus. To better understand the cost effects of this combined purchasing strategy, the experience of BHCAG member companies that have a similar arrangement (e.g. Cargill and Jostens) would need to be explored. See Appendices 5 and 6 for more comparison information.
A variant of joining BHCAG is to adopt the BHCAG model to satisfy the particular needs of State and University employees. SEGIP represents 156,000 State of Minnesota and University employees that is large enough to bid directly with the care systems that were established to respond to the BHCAG proposal. The advantages and disadvantages of this independent adoption of the care system model are listed in Table 4.
|University can design plan to faculty and staff needs||Significant costs to starting a new model and negotiating with care systems|
|Current shortcomings that are also not addressed in BHCAG plans can be fixed||Loss of purchasing power by working with BHCAG|
|Faculty and staff can switch providers or systems more easily than in current system||UMP does not currently have its own care system which faculty and staff would want|
If the University chose to adopt the care system model with SEGIP independent of BHCAG, it would face a number of new issues whether it added Choice Plus to the current offerings or replaced the current offerings with Choice Plus. The total and employee premium cost implications are uncertain at this time, because actuarial data on the medical experience of the University is unavailable. Cost estimates of this approach can only be estimated with assistance from SEGIP and possibly HealthPartners, the health plan administrator of BHCAG’s Choice Plus health plan. The University would have to self-insure all costs of enrollees that joined a Choice Plus-type product because the care systems are not in the business of insurance and are not currently prepared to take on this responsibility. Administrative costs would increase slightly, but the University and SEGIP would have much greater control over the design and structure over health benefits than if SEGIP joined BHCAG as a full member.
Current shortcomings in the benefit design could more easily be addressed because the University and SEGIP would, in essence, be the carrier and could include any benefits agreed upon in the Joint Labor- Management Committee. In this purchasing strategy, the University would merely have to negotiate with SEGIP on design changes and not with the full BHCAG steering committee, on great advantage to this approach. This independent adoption strategy would not take advantage of the greater purchasing power that would be available by joining BHCAG directly. In particular, the University of Minnesota Physicians could be added more easily than if the SEGIP joined BHCAG because all parties have expressed an interest in improving access to University providers.
The final variant on the BHCAG model would be to strike out independently and to adopt the BHCAG model for use by University faculty and staff in the Twin Cities, Morris, Crookston, and Duluth. Self- insurance of just the University faculty and staff would introduce an array of benefits and risks that are not currently relevant in the current purchasing partnership with the state. The advantages and disadvantages of this purchasing strategy are listed below in Table 5.
|Not required to provide mandated benefits, pay premium taxes, and comply with other insurance regulations||A few high cost cases can drive the University insurance account into a deficit|
|University could obtain a benefit design that better matches needs of faculty and staff||Loss of purchasing power without State employees|
|The State might be more willing to meet University needs if this is seen as a realistic option||UMP may not be able to create a (primary) care system to address identified need for one|
|BHCAG model gives employees freedom to move across care systems in a cost group||new set of administrative costs would have to be taken on by the University|
This purchasing strategy would entail the same risk of self- insurance as all previous BHCAG options. However, there are several unique aspects to this purchasing strategy. The University would have to self-insure a smaller group than the full SEGIP population which would decrease the predictability of medical expenses. This strategy would provide the greatest flexibility and freedom in benefit design to address the shortcomings of the existing plan offerings. This freedom would come at some cost, however, because the University would lose some of the purchasing power it currently enjoys by buying health insurance with SEGIP. If the faculty was the only group to separate from SEGIP, its purchasing power would shrink simply because the group would be one-twelfth of its current size. The University would also have to take on the full costs of establishing and administering health benefits that are currently taken on by the Department of Employee Relations. These costs may be justified if the University faculty is willing to tradeoff potentially higher total and employee costs for greater freedom in plan design.
The most radical option would be to scrap the current system in entirety and to obtain health insurance from only one health plan. More large, Minnesota employers use total replacement than any other purchasing strategy. Seventy percent of employers in the metropolitan area offer one health plan to employees (Kathy Burek, Testimony, November 1997). This purchasing strategy has several possible benefits and costs that should be considered carefully, particularly because of this strategy’s implications for outstate employees. These benefits and costs are in Table 6.
|“Winner take all” approach forces carriers to bid aggressively to insure the entire eligible population||Many employees may have to switch providers every time there is a change in carriers|
|Administrative costs and responsibilities of managing and negotiating health benefits are simplified by dealing with only one carrier||Considerations for outstate employees will significant narrow the range of feasible options, and may actually drive the outcome|
|Stability of provider network||There is no intra-employer competition amongst carriers to keep premiums low|
|The University will have one carrier dedicated to serving the needs of faculty/staff||Retirees not enrolled in Medicare may have problems|
The insurance risk in a total replacement strategy can either be borne by the University or the carrier, depending upon whether or not the University self-insures the sole health plan. The greatest cost savings in this purchasing strategy comes during the bidding process, when health plans try to offer the lowest total premium to win the University’s entire population. The obvious downsides are the fact that the University is locked into a relationship with only one carrier and loses the benefits of having multiple health plans competing for enrollees. Adoption of the total replacement strategy would also require many faculty and staff to switch providers if the new health plan did not add them to its provider network. Both Macalaster College and the City of St. Paul employ this purchasing strategy and their total premiums are a bit higher than the weighted average total premium faced by University faculty and staff. Administrative costs would be simplified for the University and SEGIP by only having to deal with one carrier, but problems with providers and the carrier might be more difficult to resolve than in some of the other purchasing strategies.
The University could maintain its current relationship with the State. In this case, health benefits for University employees would be determined by the Joint Labor-Management committee which recently increased University representation from one to two members. There is an array of costs that are required in other alternatives that are minimized by continuing to purchase health insurance with the state. This is the strongest argument to maintain the status quo. The argument that the interests and concerns of University faculty and staff are not well represented at SEGIP may be weakened if the State increases the University membership from two to three.
The University will still have little control over organizational changes in the Twin Cities market and changes in health plan offerings, but remaining with the state will continue to give the University the greatest possible purchasing power. In light of the increase in University representation on the Joint Labor-Management Committee, there are several advantages to maintaining the existing relationship. The differing objectives of University and non-University members of the Joint Labor-Management Committee may still be a problem. The advantages and disadvantages of this strategy are listed in Table 7.
|Greatest possible purchasing power available, with the exception of BHCAG, which translates into lower premiums||Issues specific to University faculty are not reflected in current health plan design (e.g. out-of-state coverage for sabbatical)|
|The University does not directly take on the administrative costs and responsibilities of managing and negotiating health benefits||Outcome of negotiations are primarily union-driven; issues for union are in some respects different than our issues|
|Increased representation in 1998 will provide direct faculty/staff input||University cannot offer separate plans that would address shortcomings|
|Some of faculty and staff needs are also concerns of labor unions||We have access to data on our experience for internal analyses|
In a similar vein, the University could part ways with the State and actively negotiate health insurance with multiple health plans. By negotiating health benefits directly for University faculty and staff, current shortcomings in the current purchasing strategy with the state can be addressed more directly. If the University population is a higher average risk than the total SEGIP population, and the size of the purchasing pool is reduced, higher premiums for the same plan may result. In addition, a host of administrative costs and responsibilities would be incurred by the Employee Benefits Division that are currently handled by SEGIP. The full array of advantages and disadvantages to this approach are listed in Table 8 below.
|Specific needs of faculty and staff can be directly addressed in plan design||Potential increase in premiums from increase in average risk and decrease in size|
|UMP (and Boynton) can be added to any and all networks via RFP process||New administrative costs and responsibilities for Employee Benefits|
|Greater control over the outcome and more likely to get plans that meet most needs||University will have lower purchasing power than in current relationship with state|
|University has greater freedom to join BHCAG or pursue new strategies that State doesn’t pursue because of union constraints||Negotiations will be complicated because of need to address needs of outstate employees|
Answers to the four questions about risk, costs, and problems with providers and carriers for this strategy are similar to the answers for adopting the BHCAG model without SEGIP (see page 20). The insurance risks in this strategy would still lie with the carriers that offer the managed care plans (e.g. Medica/Allina and Health Partners). The University would become directly responsible for self-insuring faculty and staff that enroll in the State Health Plan and the State Health Plan Select. To the degree that these enrollees were higher cost than non- University enrollees, the total and employee premiums for these two health plans would increase. The administrative costs of separating from the State and having to contract directly with these health plans would be significiant. Several human resources personnel would have to be hired to take over responsibilities that are currently handled by the Department of Employee Relations (DOER).
There are a number of advantages to this purchasing strategy. Problems with providers, carriers, and benefit design would be easier resolve because the Joint Labor-Management Committee would no longer be the decision-making body for health benefits. Access to University of Minnesota Physicians and out-of-area coverage could easily be added to the existing benefit design. The University would also be able to implement a domestic partners policy and possibly rationalize the duplicate coverage that some employees experience if both spouses work at the University. As mentioned earlier, these benefit improvements would come at greater cost, but the University would have greater flexibility in consideration these changes than is currently possible under the Joint Labor-Management Committee process.
The last purchasing strategy represents a change that several public and private purchasers are experimenting with. Medical savings accounts (MSAs) are tax-exempt accounts, similar to existing flexible spending accounts, which can be established to 1) allow for payment of out-of-pocket medical expenses (e.g. coinsurance, deductibles, uninsured care like eyeglasses), and 2) allow for the accumulation of savings to pay for future medical expenses (MDH, January 1996). MSAs are designed to be used in conjunction with high-deductible health plans, which are not commonly offered by managed care companies like Allina and HealthPartners. This type of insurance arrangement is currently available to a more limited extent with the health care reimbursement account/flexible spending account available to University faculty and staff. The advantages and disadvantages of the MSA/FSA approach are the following:
|More employee control over health spending||People may forgo preventive services|
|Greater cost-consciousness in use of medical services||MSA users will probably have to enroll in non-managed care plans to enjoy benefits|
|Lower health plan administrative costs because fewer insurance claims submitted||University will face higher administrative costs to process more MSA claims|
|More direct choice of physicians||Employee pool may be further segmented|
The University does not currently have the administrative and computing capability to establish a medical savings account program, nor would these accounts be exempt from taxation under current Federal regulation. Greater education and employee use of flexible spending accounts is a feasible variation to this option. This option could someday address the need to rationalize coverage for families who currently are required to have University health insurance even though they are covered by a spouse’s plan. To date, the University does not have a full-fledged flexible benefit program in which health insurance dollars could be spent on other benefit options. Work on developing these options must first be undertaken by the Office of Human Resources before these benefits can be offered to University faculty and staff.
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