Quote-of-the-day mailing list
-------- Original Message --------
Subject: qotd: Important! Large self-insured employers are bailing out
Date: Thu, 27 Sep 2012 12:18:58 -0700
From: Don McCanne <firstname.lastname@example.org>
To: Quote-of-the-Day <email@example.com>
The Wall Street Journal
September 26, 2012
Big Firms Overhaul Health Coverage
By Anna Wilde Mathews
Two big employers are planning a radical change in the way they provide
health benefits to their workers, giving employees a fixed sum of money
and allowing them to choose their medical coverage and insurer from an
Sears Holdings Corp. and Darden Restaurants Inc. say the change isn't
designed to make workers pay a higher share of health-coverage costs.
Instead they say it is supposed to put more control over health benefits
in the hands of employees.
The approach will be closely watched by firms around the U.S. If it
eventually takes hold widely, it might parallel the transition from
company-provided pensions to 401(k) retirement-savings plans controlled
by workers and funded partly by employer contributions. For employees,
the concern will be that they could end up more directly exposed to the
upward march of health costs.
"It's a fundamental change…the employer is saying, 'Here's a pot of
money, go shop,' " said Paul Fronstin, director of health research at
the Employee Benefit Research Institute, a nonprofit. The worry for
employees is that "the money may not be sufficient and it may not keep
up with premium inflation."
Darden did say that employees will pay the same contribution out of
their own pockets that they currently do for approximately the same
level of coverage. Employees who pick more expensive coverage will pay
more from their paychecks to make up the gap. Those who opt for cheaper
insurance, which may involve bigger deductibles or more limited networks
of doctors and hospitals, will pay less.
"It puts the choice in the employee's hands to buy up or buy down," said
Danielle Kirgan, a senior vice president at Darden. The owner of chains
including Olive Garden and Red Lobster will let its approximately 45,000
full-time employees choose the new coverage in November, to kick in Jan.
1. Darden says that employees with families to cover will be given more
money to buy insurance than employees covering just themselves.
The hope is that insurers will compete more vigorously to get workers to
sign up, which will lower overall health-care costs. Darden and Sears
are both currently self-insured, meaning that the cost of claims each
year comes out of company coffers.
Several big benefits consultants and health insurers are betting on the
employee-choice model. Major consulting firm Aon Hewitt, a unit of Aon
PLC, is behind the insurance exchange that Sears and Darden will use,
while rival Towers Watson TW & Co. in May bought Extend Health Inc., an
online marketplace used by employers to hook retirees up with Medicare
coverage. It plans to expand the marketplace to include active workers
buying individual plans, starting in 2014.
"Within the next two or three years, it's going to be mainstream," said
Ken Goulet, executive vice president at WellPoint Inc. The insurer will
roll out a product next year called Anthem Health Marketplace that lets
employers offer a variety of its plans to workers, paired with a fixed
contribution. Mr. Goulet said it is close to signing up more than 30
midsize and large employers for early next year, including one with more
than 50,000 workers.
Exchange operators today say they offer employers more predictable
costs, as well as potential savings gleaned from workers' voluntary
choice of skinnier coverage and competition among insurers offering
plans on the exchanges.
Comment: Many larger employers have said that they do not want to be
the first to initiate major structural reforms in their employee health
benefit programs - reforms that would bring the employers relief but at
a cost to their employees - but that they would quickly follow others
out the door. It looks like the door has opened.
This is a very fundamental change in employee health benefit coverage.
The Affordable Care Act relies heavily on self-insured large employers
maintaining their coverage of a large percentage on America's workforce,
so that the Act can concentrate on lower-income and uninsured
individuals. Under the radical change described in this WSJ article,
employers will discontinue their self-insured programs and switch to a
defined contribution - a specific dollar amount that employees will use
to shop for health plans in these employer insurance exchanges.
There has been considerable discussion recently over converting Medicare
to a defined contribution - premium support or voucher program - in
which the costs to the government would be fixed to some index of
inflation, whereas the greater increases in health care costs would be
borne by the Medicare beneficiary. Thus health care would become less
and less affordable, especially for those with greater health care needs.
With this move by employers, they are putting in place the same perverse
defined contribution approach which we have determined would be so
destructive to our Medicare program. And, oh yes, the benefits
consultants and health insurers are jumping in to draw off even more
health care funds in administrative costs - already one of the greatest
burdens in our health care system. The executive vice president of
WellPoint says, "Within the next two or three years, it's going to be
Further, as was reported in yesterday's Quote of the Day, over 90
percent of individuals do not select the Medicare Part D drug plan that
would be best in their individual circumstances. It shows that health
insurance shoppers really do not know how to shop for health insurance.
Obviously comprehensive health plans are much more complex, and it would
be virtually impossible for individuals to select the best plan, even
with the language of simplified plan descriptions called for in the
Affordable Care Act.
In fact, several studies have shown that most individuals select plans
based primarily on the lowest net premium, with very little attention
paid to plan benefits and cost sharing. The most common strategy for
insurers to keep premiums low is to use large deductibles and
coinsurance, though they also manipulate benefits and provider networks
to reduce costs. Besides the increasing deductibles, coinsurance is
particularly a problem since it is a percentage of the charges rather
than a dollar copayment which is usually much smaller. Low premium plans
tend to set coinsurance rates at very high percentages. As this article
states, the savings will be dependent upon "workers' voluntary choice of
skinnier coverage." It's all the workers' fault!
It is likely that the initial defined contributions will be fairly close
to the amounts that employers are currently paying for the health
benefit programs, so the immediate impact will not be transparent. Only
after many employees face bankrupting medical debt - a phenomenon that
will increase as the employer contribution buys ever less insurance -
will the implications be clear. It is tragic that so many will have to
experience financial hardship before we are ready to get serious about
fixing our system by enacting an improved Medicare for everyone.
Haven't we had enough policy discussions to understand what is
happening? Why aren't we doing anything?
By the way, just in case you didn't get the gist of today's message, OUR
NATION'S LARGE SELF-INSURED EMPLOYERS - THE MAINSTAY OF HEALTH CARE
COVERAGE IN AMERICA - ARE BEGINNING TO ABANDON THEIR HEALTH BENEFIT
PROGRAMS AND SHIFT THE RISKS TO THEIR EMPLOYEES.
Civil disobedience anyone?