UNDERSTANDING THE COSTS OF BENEFITS

by Sue Mills

"Average premium increases for health maintenance organizations are rising 8% this year" reported the Orange County Register on Wednesday, January 6, 1999 after Towers Perrin, a human resource consulting firm released their latest survey. This is twice the increase of 4% for previous years. Another study released the same week conducted by a New York consulting firm and based on a survey of 25 health insurers, predicted a 5.6% increase in health benefit cost for HMOs. Dale Buss of the Wall Street Journal Interactive Edition stated that "premium increases in health policy renewals for 1999 are running as high as 50% for some small competitors."

In nearly every news outlet whether print, television or internet, there is daily news about increasing health care costs, health care provider consolidation or bankruptcy, new technology and consumer outrage at the restrictions imposed by managed care.

Medical insurance companies, including HMOs, are being forced to become profitable after years of losses or marginal profits. The starkest example is Kaiser Permanente. A year ago Kaiser startled it members and employer groups by announcing a $270 million loss for 1997, even as it expanded membership by 19%. Recently announced 1998 results are as dismal, $288 million loss with much of it coming from California. Therefore, Kaiser premium increases of 9% to 12% are common.

Kaiser isn't alone. Most HMOs are either marginally profitable or losing money. Now the quest for membership growth that has marked the past few years is transformed into the quest for profit. The net result is across the board premium increases.

Some health care providers have taken a different route, either merging with other companies or being purchased outright. Several years ago Aetna merged with US Healthcare then gobbled up NylCare. Recently, Aetna announced the proposed purchase of Prudential. Here in California Pacificare purchased FHP who had previously purchased TakeCare.

The number of large carriers capable of nationwide coverage has shrunk to a handful while the number of regional HMOs also continues to decrease. Less competition in the marketplace leads to upward pressure on premiums.

Adding to the conundrum is technology. New treatments have prolonged life for many people. Transplants are a common procedure which in themselves are expensive, but for each transplant patient antirejection drugs are a way of life. In one liver transplant case the annual drug cost is $6,000, a cost that continues for the life of the transplant recipient.

A whole new generation of drugs has arisen through genetic engineering. Enbrel, a new rheumatoid arthritis drug, has had remarkable results in patients with even the most severe arthritis. But the cost reported in the media is around $1,000 per month. Then there are the new "entitlement" drugs, like Viagra, that further add new and expensive costs to healthcare.

Over the past few years managed care has been largely responsible for reducing overall medical care costs that have resulted in stable or decreasing premiums. HMOs in particular have been successful in controlling costs. But the excess has been wrung from the system and other tactics must now be used to control future costs.

One of those cost control measures is to restrict choice at the consumer level while maintaining the highest level of health care. Restricting access to specialists, some therapies and prescription drugs have resulted in consumer outrage. Nearly every day there is a new story of an HMO unreasonably restricting access to care that the patient, and sometimes the physician, has deemed necessary.

A strategy that many health care providers are using to reduce prescription drug costs is the formulary. A formulary is a list of products that the plan will pay for. In many instances there are several drugs that treat the same condition. By selecting one or two of the drugs, the HMO can negotiate lower prices.

But many who use specific drugs don't want to give them up solely because the HMO requires it. In most cases, however, if the new drug is not effective or causes undesirable side effects, the physician can petition the HMO to pay for the original drug. If the formulary drug does not work or causes unreasonable side effects, the physician must contact the HMO for an exception. This process may be inconvenient for both the patient and the doctor, but it saves the HMO money which is then translated into controlling premiums.

One California HMO has moved aggressively to switch patients from Prozac to another drug, Paxil. Both drugs are antidepressants which are chemically very similar but not exact, particularly where side effects are concerned. If the physician finds it necessary for a patient to remain on Prozac the doctor calls the HMO with the reasons for continuing Prozac. Even with the formulary restriction, nearly one third of the prescriptions for this class of antidepressants is Prozac which validates the HMO's position that it will be flexible if the non-formulary drug is the best drug for the patient.

There is no doubt that the driving force for these restrictions is cost. In this case the cost of Prozac is 61% higher that Paxil. And antidepressants are routinely the number one drug dispensed or employer groups. If it isn't number one, then it is almost always in the top five. This simple change can save an HMO significant bottom line dollars.

The new consumerism is also adding to costs through legislation. One new California law ensures that a patient can continue a particular drug if it is dropped from the formulary or if the patient switches health plans. Looming again this year is the Federal Patients Bill of Rights which if enacted will add significantly to health care costs. All of these laws thwart the carriers efforts to control costs.

So what is a company to do? This is going to be a challenging question for many companies. Now when a large increase in premiums is presented at renewal there are fewer players in the market to approach. T he remaining carriers that are writing business that is profitable which in many cases means an increase even before the underwriter sees the request for proposal.

In many cases employees will be asked to contribute part of the increased costs. At the same time these employees may also see an increase in their out of pocket costs for plan benefits. It will be very important that each company work closely with their broker or consultant to proactively assess the market and limit the increases that are expected.

These exercises still do not address the core issue. Costs will continue to increase particularly with the new technology and drugs being announced nearly every day. Employees and their dependents need to be educated concerning the need for some management in their health care regime. True, trying a different drug may be inconvenient, especially if it doesn't work as well or has side effects. But only through these management controls can employers continue to afford health care coverage for their employees.

Almost all health care providers have flyers or payroll stuffers to help educate their plan participants. Many have monthly newsletters that go directly to the employee's home. They can also conduct meetings on site to educate participants about how to use the plans, particularly the HMOs which are the most restrictive.

Every HMO has a grievance process outlined in the certificates each participant receives. In many cases where employees complain about not receiving a service they feel they need, they have not gone through the grievance process. By going through this process the employee or the primary care physician is given the opportunity to request an exception from the HMO or to receive a service that was either denied or isn't part of the benefit plan. Many of these requests, properly documented, are granted.

And don't depend on the physician to know everything about a given plan or insurance company. Every doctor's office handles many different medical plans all of which may have different procedures. And when visiting a doctor who may be prescribing medication, be familiar with the drug formulary and encourage the doctor to prescribe a drug that is on the formulary.

If employees know how to use their managed care plan and the reasons for some of the inconveniences we will go a long way towards controlling some of the spiraling health care costs. Meanwhile, work with your broker early to determine the renewal that can be expected and how to handle the renewal if any increases are deemed unacceptable.

Written by Sue Mills, Senior Account Executive for HCM Benefits, Inc. For more information, contact her at 310/543-9995.

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