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UltraLink - FOCUS...on benefits
June 2004
CalPERS Eliminates High-Cost Hospitals From HMO Network
In the latest twist on tiered hospital networks, the California Public Employees' Retirement System (CalPERS) voted recently to eliminate 38 high-cost hospitals from its Blue Shield HMO network. Members who want to maintain access to these hospitals will need to switch to a more expensive health plan. Approximately 415,000 of CalPERS' 1.2 million members are currently enrolled in the Blue Shield HMO.
With premiums for CalPERS health offerings increasing more than 50% over the past 3 years, officials contend they have a responsibility to keep premiums affordable. Asking individuals to pay more for choosing expensive hospitals is one way to accomplish that. The hospitals argue, however, that they are simply covering their costs - which have increased partly as a result of state-mandated nurse staffing ratios and seismic upgrades. Officials at Cedars Sinai Hospital in Los Angeles, one of the 38 expected to be dropped, note that they maintain only a 3% operating profit margin while providing a wide array of complex services at volumes that support patient safety.
Hardest hit will be the approximately 50,000 CalPERS members whose primary care doctors are affiliated with Sutter Health, as thirteen of the 38 hospitals to be eliminated are owned by Sutter. After CalPERS rejected what Sutter described as a 'generous offer,' no further negotiations are expected. However, final decisions on CalPERS' 2005 benefits and pricing will be made in mid-June and hospitals who agree to Blue Shield's contracting requirements by then may yet be offered through the HMO.
CalPERS is the nation's third largest purchaser of health care after the federal government and General Motors. Long seen as a bellwether of health purchasing trends, their move to eliminate costly hospitals is expected to encourage other large purchasers to do the same.
Employer Coalitions to Address the Uninsured
More than 50 Fortune 500 corporations, including Sears Roebuck, IBM, Textron and others, have formed the Affordable Health Care Solutions Coalition, aimed at helping currently uninsured working Americans to get affordable health coverage.
Over 43 million Americans - about 17% of all those under age 65 - are uninsured. Federal, state and local governments currently fund much of the $125 billion in care provided to the uninsured, primarily through disproportionate share payments to hospitals. Some of these costs remain unreimbursed, however, driving up hospital charges to other payers.
The coalition intends to pool their uninsured workers and dependents to create a single group, and will then seek bids from health plans. The aim is to work with one national carrier who will offer a range of coverage choices at varying prices. Uninsured workers to be included in the pool will be part-time employees, contract workers, consultants, pre-65 retirees, COBRA participants who have exhausted their benefits and students no longer eligible under their parents' plans.
The same group of employers is forming a second coalition, the Regional Health Care Quality Initiatives, which will establish purchasing coalitions in areas where member companies employ at least 5% of the workforce. In these areas, in addition to well-priced coverage, the participating health plan will be expected to provide detailed data on the quality and efficiency of hospitals and physicians to support informed decisionmaking, and will also be expected to offer the plan to small employers. Regions selected for these initiatives include Detroit, Dallas-Fort Worth, Chicago, Atlanta, New York and Los Angeles.
Copays, Compliance and Cost in Chronic Illness
While most employers are shifting health costs to employees, Pitney Bowes has taken the opposite track - selectively - with great success. As reported recently in the Wall Street Journal, Pitney Bowes' medical director reasoned that if medicines for certain chronic conditions, notably asthma and diabetes, were more affordable, employees would use them more regularly and thus avoid the expensive complications and exacerbations of these diseases.
Tiered pharmaceutical coinsurance had helped Pitney Bowes manage its pharmacy cost, keeping trends lower than the national average since implementation. However, predictive modeling indicated that it was those employees with chronic conditions who did not regularly refill their prescriptions who were at highest risk of going from "low cost" to "high cost." So the company decided to reduce the coinsurance on asthma and diabetes drugs to 10% and see what happened.
Despite an increase in spending on maintenance drugs, overall prescription costs for asthmatics and diabetics decreased about 10% annually, while pharmacy costs for the entire Pitney Bowes employee group increased 11%. Emergency room visits dropped 35% for diabetics and 20% for asthmatics and they experienced fewer hospital admissions and office visits. The bottom line: overall health costs decreased 12% for diabetics and 15% for asthmatics.
Pitney Bowes' success, along with recent studies showing that those with chronic conditions begin to skip refills as copays increase, suggests that fine-tuning of the pharmacy benefit may be in order. In addition to the "different copays for different diseases" approach, some employers are considering eliminating copays and coinsurance altogether on low-cost generics so as to encourage compliance with drugs that can prevent disease progression or complications.
Financial Incentives for Worksite Wellness Grow
A 2003 study by Hewitt Associates indicates that 40% of companies surveyed provide some sort of financial incentive for healthy living, up from 14% in 1993.
IBM recently initiated a program wherein employees are paid a $150 one-time bonus for exercising at least 3 times per week for 10 weeks. Fifty-seven percent of the company's U.S. employees have signed up for the program, which is open to employees until September. While the company could spend as much as $14.5 million if all employees participate, one IBM medical director believes - based on industry research - that they will realize $4 per employee in decreased medical costs and $5 per employee in increased productivity for each $1 spent, over a 5-year period.
Other financial incentives for participation in worksite wellness programs currently in use include lower deductibles and/or premiums for those who participate and cash coverage of health and fitness related items such as running shoes.
Same-Sex Marriage Complicates Benefits Programs
One state's legalization of same-sex marriage raises complex questions about benefits coverage and administration. While the marriage ruling in Massachusetts affects state regulation of health benefits, retirement plans, personnel records and taxes, federal law - which does not recognize same-sex marriage - is often in conflict. The picture is further complicated for companies that do business in other states in addition to Massachusetts. Companies based in MA but with employees who live and work in other states, and those based in another state but with employees in MA, will need to make decisions about benefits for same-sex couples in and out of Massachusetts. Some Massachusetts employers are expected to discontinue domestic partner benefits, since those were initially implemented to allow coverage of same-sex partners who couldn't marry.
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