National Business Group on Health
August 2010
Large Employers' 2011 Health Plan Design Changes
By Karen Marlo, Dannel Dan, and Craig Lykens
The National Business Group on Health conducted its annual plan design survey with members in the spring/summer of 2010.
Changes as a Result of Health Care Legislation
While there was uncertainty about the regulations determining grandfathered plan status, the majority of employers (53%) were still planning to make changes to their plan designs.
Medical Plan Costs
Employers estimated an average increase in health care costs of 7.0% for 2010, with reported estimates ranging from a 2.7% decrease to a 14.0% increase. For 2011, employers are estimating a slightly larger increase, an average trend of 8.9%.
In 2011, 63% of employers will be increasing the employee percentage contribution to premium costs, and 46% will increase out-of-pocket maximums, while 44% will increase in-network deductibles.
Consumer-Directed Health Care
Of the respondents, 61% will offer a CDHP in 2011. Of those offering a CDHP, 20% indicated that they will or have moved to a full replacement plan (i.e., no other option), up from 10% in 2010. The most common type of CDHP employers will offer in 2011 is a high-deductible health plan (HDHP) with a health savings account (HSA) (64%).
Pharmacy Benefits
To manage pharmacy benefits, the techniques employers are most likely to use are prior authorization (73%), followed by step therapy (63%), three-tier design (63%), and mandatory mail order for maintenance medications (47%).
Retiree Health
Very few employers offer retiree health benefits for new hires, with 18% offering coverage to pre-65 retirees and 11% offering post-65 supplemental coverage to new hires.
The top strategies being used to control retiree health care costs are caps on company contributions (46%), increasing employee contributions (37%), and eliminating coverage for future retirees (33%).
Comment: The National Business Group on Health represents primarily Fortune 500 companies and large public-sector employers with self-insured health benefit programs. Because of their market power and their ability to eliminate the risk pooling function of private insurer intermediaries, you would think that these large employers would be immune from the high health care costs inflicted on the rest of us by our dysfunctional system of financing health care, but you would be wrong.
This report shows that escalating health care costs continue to plague our nation's largest employers, so much so they they are turning to some of the same ill-advised cost containment measures used throughout our system. Amongst the most perverse is that they are shifting ever more costs to those individuals who most need to be protected by the benefit programs - their employees and family members who have health care needs. It is bad enough to have health problems, but it is even worse to be financially penalized for having them.
Why is it that these large employers, with their tremendous purchasing power and ability to bypass the extortion of risk-bearing private insurers, have been unable to control their health care costs? The reason is quite simple. Our fragmented, dysfunctional, multi-payer system permeates the entire health care delivery system, and these employers are unable to function in an isolated delivery system that has not been damaged by the financing perversities.
Let's look at some of the excess costs that they face. First, U.S. health care prices are the highest in the world. Even with their purchasing clout, the employers are not able to slow the unrelenting escalation in health care prices; they still have to pay prices close to those negotiated by the private insurance industry. In fact, most of them use private insurers for administrative functions such as claims processing, so they're playing the same ball game.
Second, and most importantly, the health care delivery system has built into it very high administrative costs due to the necessity of interacting with a multitude of payers, each with different contract requirements. There is no way that large employers can avoid paying these excess costs because they are fixed costs built into the delivery system.
It is true that large employers escape some of the costs of private insurance, such as the expense of marketing health plans, or the necessity of paying profits to investor-owned insurance companies. However they are exposed not only to the massive indirect administrative costs imposed on the health care delivery system, they also have their own excessive administrative costs.
The U.S. model of health care financing depends on provider networks, and these large employers must either establish their own networks, or, much more likely, rent these networks from the private insurers. It defies logic that they should pay extra to take choice away from patients, but they do. (Keep in mind that Medicare controls prices without the need of establishing restrictive provider networks.)
They also must either establish their own claims processing system, or again more likely, use private insurers or claims processing managers which profit from the services they are selling to the employers.
With the increase in consumer-directed health care plans employers have increased administrative responsibility for managing the various cost sharing provisions, ranging from tallying services before the deductible is met to management of payments from health savings accounts.
It is easy to see why being self-insured has not protected these large businesses. Their direct insurance-type administrative costs may be comparatively low, but the costly burden of our dysfunctional financing infrastructure has been placed upon the entire health care delivery system, and they must pay for that. (Yes, I repeat myself, but this is the crucial take-home message.)
Although some might want to give the private insurers a pass because the employers are not dependent on them for risk pooling, that would be a mistake. The private insurers and their political supporters are very much to blame because they have perpetuated this dysfunctional financing system that the large employers have been unable to penetrate. The politicians perhaps bear the greatest blame because they have supported the private insurance industry at a great cost to the rest of us.
What the United States lacks that all other industrialized nations have is a monopsony (single purchaser) to purchase health care. Even in those nations with multiple payers, government oversight pulls them together as a de facto single purchasing entity. In the private sector, a monopsony can be as evil as a monopoly, but a public monopsony is different because it purchases health care for the benefit of the nation's patients.
Our nation's largest employers, with all of their purchasing power, still lack the strength of a monopsony. They are making a tragic mistake in trying to solve their problems by passing more of the health care burden onto their workers.
If the leadership of the business community had just a little bit more vision, they would realize that it is time to establish a monopsony that would not only control their costs, but would work for all of us. The ideal monopsony for this nation, of course, would be an improved Medicare that covers everyone.
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