4
What Does Employer Management of Health Benefits Involve? Overview and Case Study

"Debugging" is not something done on the rare occasions when things go wrong but is an expected part of making a program work.

Jeffrey Pressman and Aaron Wildavsky, 1973

OVERVIEW

American employers—in varying degrees—have voluntarily undertaken responsibilities for making health insurance work that are unknown to most of their counterparts in other advanced industrial countries. Moreover, in each decade since employers first began to get significantly involved with health benefits over 50 years ago, the diversity of their options and the complexity of actually implementing them have grown. Accelerating innovation in biomedical science and medical specialization have interacted with rapidly growing costs, an increasing pluralism in health care delivery and financing, and diverse regulatory mechanisms to create an increasing array of matters that require judgment by health plan sponsors and an enlarged range of options for exercising that judgment. Increasing costs have, in particular, motivated many employers to increase their oversight of employee health plans and expand their participation in plan management.

Matching this diversity of responsibilities and opportunities is the diversity of employer circumstances, capabilities, and preferences, which leads to further variability in employee health benefit programs and their management. By choice or necessity, many smaller employers delegate virtually all tasks to the insurer for their health benefit program. For the very smallest employers, "the glove compartment in their pickup truck may be the file drawer for their employee health benefits program" (Polk, 1992). At the other extreme, a few large employers take on almost all insurance and administrative functions themselves, shouldering risk, directly paying claims, negotiating with health care providers, and auditing payments and utiliza-



The National Academies | 500 Fifth St. N.W. | Washington, D.C. 20001
Copyright © National Academy of Sciences. All rights reserved.
Terms of Use and Privacy Statement



Below are the first 10 and last 10 pages of uncorrected machine-read text (when available) of this chapter, followed by the top 30 algorithmically extracted key phrases from the chapter as a whole.
Intended to provide our own search engines and external engines with highly rich, chapter-representative searchable text on the opening pages of each chapter. Because it is UNCORRECTED material, please consider the following text as a useful but insufficient proxy for the authoritative book pages.

Do not use for reproduction, copying, pasting, or reading; exclusively for search engines.

OCR for page 121
Employment and Health Benefits: A Connection at Risk 4 What Does Employer Management of Health Benefits Involve? Overview and Case Study "Debugging" is not something done on the rare occasions when things go wrong but is an expected part of making a program work. Jeffrey Pressman and Aaron Wildavsky, 1973 OVERVIEW American employers—in varying degrees—have voluntarily undertaken responsibilities for making health insurance work that are unknown to most of their counterparts in other advanced industrial countries. Moreover, in each decade since employers first began to get significantly involved with health benefits over 50 years ago, the diversity of their options and the complexity of actually implementing them have grown. Accelerating innovation in biomedical science and medical specialization have interacted with rapidly growing costs, an increasing pluralism in health care delivery and financing, and diverse regulatory mechanisms to create an increasing array of matters that require judgment by health plan sponsors and an enlarged range of options for exercising that judgment. Increasing costs have, in particular, motivated many employers to increase their oversight of employee health plans and expand their participation in plan management. Matching this diversity of responsibilities and opportunities is the diversity of employer circumstances, capabilities, and preferences, which leads to further variability in employee health benefit programs and their management. By choice or necessity, many smaller employers delegate virtually all tasks to the insurer for their health benefit program. For the very smallest employers, "the glove compartment in their pickup truck may be the file drawer for their employee health benefits program" (Polk, 1992). At the other extreme, a few large employers take on almost all insurance and administrative functions themselves, shouldering risk, directly paying claims, negotiating with health care providers, and auditing payments and utiliza-

OCR for page 121
Employment and Health Benefits: A Connection at Risk tion. Most employers fall at various points in between these extremes, although the general trend has been toward more involvement or at least more active oversight. Neither employers nor their environments are static, so a report such as this one necessarily provides only a snapshot of the proverbial moving target. This section reviews some of the decisions, tasks, and options faced by those responsible for the design and maintenance of employers' health benefit programs, considers sources of diversity in the actions taken, and briefly describes some of the organizations that supply various kinds of services to employment-based programs. The next section presents a partly real, partly hypothetical case study that attempts to provide a more vivid sense of the policy, technical, and interpersonal challenges that can be involved in offering employees a health benefit program. A subsequent section selectively contrasts this core case with the situations faced by one much smaller organization and one much larger organization in order to illustrate further the diversity of employer and employee situations and the tangled issues of equity that employers and employees confront in considering various options. The final two sections examine how the roles of employees and health care providers in health benefit management are particularly affected by the link between employment and health benefits. Types of Decisions, Tasks, and Options In considering the advantages and disadvantages of employment-based health benefits, it is important to understand what responsibilities and tasks may be assumed when an organization decides to offer employee health benefits. Building from the discussion in Chapter 3, Table 4.1 depicts major categories of decisions and options that employers may face once they make the fundamental decision to offer health benefits. As will be made clearer shortly, not all items are relevant for all employers. Sources of Diversity in Program Design and Management What information, organizational characteristics (e.g., demographic structure of the work force and site[s] of operations), and principles guide employers' decisions about the design and operation of health benefit programs? How much do employers rely on consultants, brokers, and other outsiders? How are day-to-day matters managed, for example, the monitoring of plan utilization and expenses and handling employee complaints or problems? What tax, antidiscrimination, insurance, liability, and other legal constraints or concerns must be considered? What is involved in changing a health benefit program? Answers to these questions are far from straightforward—as might be

OCR for page 121
Employment and Health Benefits: A Connection at Risk TABLE 4.1 Selected Types of Decisions, Tasks, and Options Faced by Organizations That Choose to Offer Employment-Based Health Benefits Identification and Analysis of Alternatives • Employer's staff • Agents and brokers • Outside consultants Definition of Eligible Participants in Health Plan • Employees, full-time or part-time • Dependents of employees • Retirees, under or over age 65 Decisions About Health Plan Options • Single plan • Multiple plans, multiple carriers • Multiple plans, consolidated carrier(s) • Conventional and/or network plans • Care directly provided by employer • Flexible benefit plan • Other health-related benefits Determination of Scope and Depth of Coverage • Generally covered services, providers, sites of care • Specific technologies (experimental, established, obsolete) • Amount of individual cost sharing • Incentives and disincentives for use of particular services or providers Decisions About Payment and Oversight • Care reimbursed under auspices of conventional or network health plan(s) • Care reimbursed under direct contracts with providers • Method and level of paying providers (may be determined by health plan) • Utilization review, delegated or internally administered • Claims auditing, delegated or internally administered • Analysis of health care financial and utilization data Choice of Risk Bearing/Funding Mechanism • Insured, fully or partly • Self-insured, fully or partly Options for Claims Administration • Delegated to one or more insurers or third-party administrators • Self-administered, fully or partly Other Tasks • Enrollment of health plan members • Payroll deduction of employee share of premium • Electronic submission of data to carrier Community Role • Complying with government regulations (e.g., ERISA, COBRA) • Participation in communitywide or business-specific activities • Lobbying for policy change at state or national level

OCR for page 121
Employment and Health Benefits: A Connection at Risk TABLE 4.2 Sources of Variation in Employment-Based Health Benefits Corporate Philosophy on Fringe Benefits Size of Organization Single State or Multistate Sites Demographic Structure of Active Work Force and Retirees Location of Headquarters and Other Major Operations • Region • Size, demographics, and other features of community • Characteristics of local health care delivery system and health insurance market Nature of Business • Prevailing benefits and traditions in key lines of business • Competitiveness in these lines of business • Competitiveness and other characteristics of relevant labor markets • Unionization and other work force characteristics (e.g., education, turnover, and age) • Profitability, stability • Health care services or supplies as a line of business, or health care organizations as major customers Legal Environment • State and federal statutes, regulations, and enforcement • State and federal case law expected given the variability of employment-based benefits related to employer size, location, corporate philosophy, and business sector. Table 4.2 summarizes some of the factors that contribute to diversity in employment-based health benefits. Table 4.3 suggests how just one factor—organizational size—may affect employer options and involvement in managing health benefits. The simplest function is to enroll employees in a health benefit plan; virtually all employers can do this. Even quite small organizations often have automated payroll systems that allow health plan enrollment, premium deductions, and other information to be entered, updated, and conveyed to others with relative ease—although the smaller the organization and the higher its employee turnover, the more of a problem these tasks become. More complex than these simple administrative activities are those that involve analysis of claims data, active oversight of insurers and administrative agents, offering choices among health plans, and direct negotiations with providers. Larger employers are likely to have specialized staff responsible for health benefits. They are also more likely to work with outside consultants who offer a variety of technical services, such as audit or analysis of health claims data, advice on benefit plan design, development of requests for proposals from insurers or others interested in competing for the account,

OCR for page 121
Employment and Health Benefits: A Connection at Risk TABLE 4.3 How Size May Affect How Employers Manage Health Benefits Options and Tasks for Employers <25 employees 25-200 employees 201-999 employees 1,000-4,999 employees 5,000-9,999 employees 10,000+ employees Offers health benefits P L Y Y Y Y Has dedicated health benefit staff N N N P-L Y Y Relies on agents or brokers Y Y P N N N Uses outside consultants N N P-L Y Y Y Enrolls health plan members Y Y Y Y Y Y Uses automated payroll system P L Y Y Y Y Submits data to carriers electronically N N P L Y Y Conducts independent audits of claims N N P P-L Y Y Analyzes detailed financial and utilization data N N P L Y Y Offers choice among health plans N P P-L Y Y Y Manages risk selection or risk adjustments among health plan options NA N P L Y Y Negotiates individually with health care providers N N N P P P Joins community coalitions to influence health care costs and delivery N N P P L-Y Y Fully or partly self-insures N N P Y Y Y NOTE: Y indicates usually yes; L indicates likely; P indicates possibly; N indicates not likely; and NA indicates not applicable.

OCR for page 121
Employment and Health Benefits: A Connection at Risk financial and other evaluation of proposals received, and advice on design of health promotion and other specialized programs. Some larger employers want to get deeply involved in the details of program design and management, whereas others want, by and large, to hand off the tasks to consultants and others. Owners or office managers of smaller organizations are likely to rely on insurance agents or brokers for advice and assistance.1 Depending on the health status and claims expense profiles presented by the organization, its financial strength, and its geographic location, finding an insurer may range from simple to impossible. Suppliers of Health Insurance, Administrative, and Other Services Even the largest employers rarely carry out internally all the tasks necessary to operate a health benefit program. For the most basic function of claims administration, 9 out of 10 self-insured firms contract with one of the hundreds of independent or insurer-owned third-party administrators (TPAs) (Woolsey, 1992a). Many of the well over 1,000 commercial insurance companies and the 73 Blue Cross and Blue Shield plans offer a broad range of claims and benefit management services in conjunction with or independently of their insurance functions. Businesses in some communities have formed coalitions to provide some of the same services. In addition to conventional insurers and TPAs, there are approximately 60 staff model health maintenance organizations (HMOs), 75 group model HMOs, 80 network model HMOs, and 360 independent practice associations (IPAs) (GHAA, 1991; Marion Merrell Dow, Inc., 1992). Over 40 percent of HMOs are sponsored by Blue Cross and Blue Shield plans or commercial insurers, but these plans account for just under 30 percent of total HMO enrollments. In addition, specialized networks have been created to cover dental, podiatric, vision, mental health care, and other services. Employers may purchase services from other organizations, which vary in scope from broad to narrow. They include utilization management organizations that review the necessity or appropriateness of health services; organizations that review the performance of utilization management organizations; case management firms that help manage services and costs for very expensive patients; accounting firms that audit claims and provide consulting and other services; firms that specialize in data analysis; and firms that specialize in health promotion and health risk appraisal. 1   An agent acts on behalf of an insurer to sell its products to individuals and groups. A broker, in theory, acts on behalf of an employer or other group in placing business with an insurer.

OCR for page 121
Employment and Health Benefits: A Connection at Risk Cooperative Efforts Business groups in several dozen communities have cooperated to establish coalitions to help inform employers about health care delivery and financing and, in some cases, provide utilization review, data analysis, and other services. In a few locations, public or private organizations have been created especially to assist employers, especially small employers, with the administrative side of insurance purchasing (Helms, 1992; Sailors, 1992). A frequently cited—and probably the best developed—example is the Council of Smaller Enterprises (COSE) established by Cleveland's Chamber of Commerce. Using the TPA subsidiary of its primary insurer, COSE collects premiums from member firms, makes lump sum payments to health plans on a monthly basis, handles changes in enrollment and questions from enrollees, analyzes utilization data, negotiates with insurers, and takes on the responsibility for marketing its services and products to small businesses (Alpha Center, undated; National Health Policy Forum, 1992). COSE's participating insurers (with the exception of three HMOs) medically underwrite group applicants and reject about 20 percent of business applications on that basis.2 Within groups, individual premiums are adjusted for age but not health status. Chapter 5 discusses this general purchasing concept further. A fundamentally different and apparently unique kind of employer cooperative action is found in Rochester, New York, where the largest employers in the community have maintained a 50-year commitment to community rating that has allowed small businesses and the self-employed to receive the same Blue Cross and Blue Shield and HMO premiums as such local giants as Eastman Kodak and Xerox (Taylor, 1987; Freudenheim, 1992b; Taylor et al., 1992). In addition, the large employers have supported communitywide health planning since the early 1960s, HMO development since the early 1970s, and innovations in provider payment. Many credit this support as a major reason that Rochester has a low percentage of uninsured individuals, a lower-than-average supply of hospital beds, a higher-than-average hospital occupancy ratio, and relatively low insurance premiums and per capita health care costs. 2   During its early years of operation in the 1970s, when there was no medical underwriting, COSE attracted older and sicker groups disproportionately. This essentially nullified the discount that had been negotiated with the local Blue Cross and Blue Shield plan. This led the organization to allow medical underwriting. The local Kaiser plan does not medically underwrite, and it expected to suffer from adverse selection. In analyzing its business, however, Kaiser found that it was getting less-risky small groups through COSE than it was securing through its own efforts—perhaps because the other plans were using such strict underwriting that many of the rejected applicants who turned to Kaiser were relatively low risk (National Health Policy Forum, 1992).

OCR for page 121
Employment and Health Benefits: A Connection at Risk CORE CASE STUDY The following case study is included here for two reasons. First, the diversity of employer activities in health benefit management makes orderly and comprehensive discussion of the topic difficult; the case study is a simplifying device. Second, the case study is intended to make more vivid the demands of responsibly managing an employment-based health benefit program. The case is also designed to illustrate the impact on individual employers and their employees of developments in the larger health care environment such as rising costs, debates about equity and risk sharing, and innovations in health plan design. Although many of the data are adapted from real organizations, the case itself cannot be read as a true or even average story, as an illustration of a perfect process, or as a process or outcome that the committee necessarily endorses. For an organization of the size depicted in the case study, the degree of internal analysis and employee involvement is probably atypical. The Organization and Its Environment The organization has about 1500 nonunionized employees, about half professional and half administrative and clerical. Turnover is moderate. The average age of employees is about 40, and the organization has approximately 5 active employees for every retiree. Employees reside over a wide urban, suburban, and rural geographic area surrounding the organization's offices. The organization has a small clinic that provides some routine medical care, such as allergy shots. The metropolitan area is plentifully supplied with primary care and specialist physicians, hospital beds, tertiary care services, and other health care providers. Several dozen insurers market coverage in the area, and most of the major ones have organized HMOs, PPOs, and other kinds of network health plans that compete with several locally created plans. The business community is not particularly active in health care issues, although there is a nascent purchasing coalition for small and medium-sized firms. The state has the usual array of mandated benefits but no rate-setting commission, anti-managed-care laws, or state insurance pool for high-risk individuals. Health care providers complain about Medicare and Medicaid payment levels. Nevertheless, the reimbursement formulas for these government programs have left providers better off than their counterparts in many other areas and less likely to seek offsetting revenues from private purchasers of medical services. History As with most organizations, the health benefit program has evolved through a combination of marginal year-to-year adjustments punctuated by

OCR for page 121
Employment and Health Benefits: A Connection at Risk a few more substantial shifts as costs rose or as the program needed to adapt to changing health care delivery and financing arrangements. The original program was adopted in the 1950s, quite early for an employer whose employees were not represented by a union. It was designed to cover full-time workers, part-time workers working 20 hours or more, spouses and children of these workers, and retirees. Employees were initially required to pay 60 percent of the premium, a contribution that came to $1.50 per month for individual coverage and $3.50 for family coverage; retirees with more than 25 years service paid no premium, and other retirees paid the same share as active employees. Inpatient hospital and physician services were fully covered in the original plan, but outpatient care was more limited. A separate plan to cover catastrophic expenses was added after the first few years. After 10 years (in the early 1960s), the employee contribution to the premium for the basic plan had risen to $2.50 and $5.90 per month for individual and family coverage, respectively. By the mid-1970s the organization was paying 75 percent of the premium to stay competitive in the local labor market. It added a large staff model HMO as an option for employees and established a yearly open enrollment process. During the first open enrollment, 15 percent of employees opted for the HMO, which cost them $12.50 a month for individual coverage, compared with $5 for the original plan. Shortly thereafter, the organization, which had grown increasingly unhappy with the claims service and the benefit structure provided by the original insurer, switched to a competitor for its indemnity plan. Program changes were communicated to employees through memos and plan booklets. During the 1980s the organization added four more HMOs as options for employees, all independent practice association (IPA) plans. Four plans were needed to provide sufficient geographic coverage. Five years earlier, the organization had made substantial changes in some aspects of its health benefit programs, mainly in response to the rapidly rising cost of the indemnity program, especially the cost for retirees. (All the retirees not eligible for Medicare were in the indemnity plan, and 95 percent of the rest had Medicare supplemental coverage under the indemnity plan.) Taking the advice of an outside consultant, the organization changed coverage for Medicare-eligible retirees so that the combination of Medicare and organization benefits would not exceed the benefits available to active employees. It also instituted the same premium cost-sharing requirements for retirees as applied to active workers. For all enrollees in the indemnity plan, the deductible was doubled; first-dollar coverage was eliminated for hospitalization costs but provided for preadmission testing, outpatient laboratory and X-ray services, and outpatient surgery. Hospice benefits and provisions for preadmission and continued stay review and case management were instituted. The organization also established a limited program of flexible benefits that either provided $500 in

OCR for page 121
Employment and Health Benefits: A Connection at Risk taxable extra income or provided for a nontaxable reimbursement account for medical care or dependent care. Considering New Options In the late 1980s the organization's management became concerned about the continued viability of the indemnity option. That plan's premiums had jumped by increments of 25 percent and more per year, and it was losing younger people to the HMOs while retaining the older and more costly employees. The premiums for the original HMO also were going up about 15 to 20 percent each year, as the average age of its members increased and the IPAs enrolled more new, young employees. Concerned that the indemnity plan might become prohibitively expensive and that the insurer might on short notice decide to withdraw, the organization's top management took action. It decided that a comprehensive look at the health benefits program was in order and that new ways of structuring the program and stabilizing its costs should be examined. It established several provisional objectives for a new program. The program should continue to be attractive for recruiting high-quality professional and other staff (i.e., be reasonably competitive with the health benefits offered by similar organizations); include at least one network plan and one plan that does not lock employees into a closed provider network; substantially reduce the degree to which higher-and lower-risk employees are segmented into separate risk pools; offer some real potential for limiting future escalation in total costs; and conform with applicable state and federal laws. The provisional strategy was to consider two major options: (1) a complete replacement program from a single carrier that provided employees with choices among a fee-for-service plan, an HMO, and a PPO; (2) a program that retained the staff model HMO, eliminated the four IPAs, and replaced the indemnity plan with a point-of-service (POS) plan. Another provisional decision was that the mental health benefits offered in the existing indemnity plan should be scaled back. The human resources staff had been advised that the existing benefits were more generous than was typical in the area and might be attracting higher-risk individuals to the organization and the indemnity plan. (A summary of the indemnity plan is included as part of Addendum at the end of this chapter.)

OCR for page 121
Employment and Health Benefits: A Connection at Risk Further Data Analysis To better understand what had happened with their health benefit program and to inform their evaluation of alternatives, the human resources staff concluded that they needed more data on the current situation. They decided that they needed to examine the profile of enrollments and premiums for the six health plans over the period from 1980 to 1990; the variation in enrollee demographics and utilization of services in the different health plans; the turnover in enrollment experienced by the different plans; and the distribution of very high cost employees and dependents across the plans. Some of this information was in the organization's files and required no special effort to array, at least for those data collected since personnel records were computerized in 1980. Putting together other information required more effort, and certain data were not available. In particular, the organization did not know the number of dependents covered under each plan, their age or income, and whether they were also covered under another organization's health plan. Even for employee enrollees, the organization had no information on individual health status or satisfaction with the selected health plan. It had some claims data only for the indemnity plan, but those data were difficult to interpret for several reasons. First, the full enrollment of both employees and dependents was not known (thus, the true denominator to calculate utilization and other rates was unavailable); second, the composition of its enrollment had almost certainly changed through selective loss of lower-risk enrollees from the indemnity plan (thus comparisons of utilization and payment rates over time would be distorted); and third, only certain limited inferences were possible for a group of this size.3 Table 4.4 shows some of the results of the analysis of available data. Overall, the indemnity plan had less than 50 percent of all enrollees, down from 70 percent less than a decade earlier. The average age in the indemnity plan was considerably older than for any of the network plans. The analysis showed no appreciable difference in the percentage of female and male employees enrolling in the indemnity plan, about half of each group. 3   In one respect, however, they had more data than they felt comfortable with. The carrier reported employee names with its monthly listing of claims, so personnel staff knew who the high-use enrollees were and what general types of services they or their family members were using. Given company policies regarding leave for illness and employee requests for some kind of information or assistance, staff were aware of some of these situations, but the claims data made the costs much more visible.

OCR for page 121
Employment and Health Benefits: A Connection at Risk posals. If there are any questions concerning this solicitation, please call (staff contacts) at (phone number). Section II Current Health Plan Coverage I. A census of plan participants with zip codes is included in the appendix of this RFP [not included in this excerpt]. In general, coverage in the various plans is as follows:   Individual Family Total Indemnity 375 250 625 All HMOs 410 265 675 Waived NA NA 200 Total Active     1500 Indemnity Retirees       Under 65 10 15 25 65 and over 150 95 245 Current Indemnity Plan Design Carrier Company Z Funding Fully insured—dividend experience rated Eligible Classes Salaried employees regularly scheduled to work half-time or more for at least 6 months Eligibility Date Immediate Deductible   Individual $200 Family $400 Coinsurance   Inpatient Hospital Charges 80% (after deductible) Inpatient Physician Charges 80% (after deductible) Second Surgical Opinions; Preoperative Testing; Outpatient Surgery; Birthing Center Charges 100% (no deductible) Emergency Accident 100% (no deductible) for outpatient expenses incurred due to an accident

OCR for page 121
Employment and Health Benefits: A Connection at Risk Convalescent Facility 100% (no deductible) Inpatient Surgical 80% (after deductible) Lab and X-ray 100% (no deductible) Home Health Care 100% (no deductible) Other Medical Expenses 80% (after deductible) Mental/Nervous & Substance Abuse* Inpatient Same as covered medical expense Outpatient 50% (after deductible); $50,000 lifetime maximum Out-of-Pocket Maximum (including the deductible)   Individual $1,000 Family $1,500 Lifetime Maximum None Section III Proposed Plan Design   ALTERNATIVE:   I II In Network     Copay (office visits) $10 $5 Coinsurance (outpatient surgery, hospital inpatient, X-ray & lab) 90% 100% Out-of-Pocket Maximum $1,000/$2,000 $750/$1,500 Coinsurance (mental and nervous/ substance abuse)** 90% (50% for outpatient)** 100% (50% for outpatient)** Prescription Drug Card     Generic $5 $5 Brand name $8 $8 Out of Network     Deductible $400/$800 $350/$700 Coinsurance 70% (50% for outpatient mental and nervous/ substance abuse)** 75% (50% for outpatient mental and nervous/ substance abuse)** * Expenses do not count toward out-of-pocket maximum. ** No expenses for mental and nervous/substance abuse count toward the out-of-pocket. Outpatient mental and nervous/substance abuse subject to a $50,000 lifetime maximum.

OCR for page 121
Employment and Health Benefits: A Connection at Risk Out-of-Pocket Maximum (including deductible) $2,500/$5,000 $2,000/$4,000 Outside Service Area     Deductible $200/$400 $200/$400 Coinsurance 80% (50% for outpatient mental and nervous/ substance abuse)* 80% (50% for outpatient mental and nervous/ substance abuse)* Out-of-Pocket Maximum (including deductible) $1,000/$2,000 $1,000/$2,000 In preparing your proposal, please note/provide the following: Only a point-of-service PPO will be considered; (the organization) wants employees to choose in-network versus out-of-network benefits at the time health services are needed as opposed to choosing one or the other at open enrollment. Retiree coverage is on a Medicare carve-out basis. Current pregnant IPA participants will be allowed to continue receiving care from their IPA obstetrician. For alternative I, provide the cost impact of decreasing the in-network out-of-pocket maximum to $750/$1,500. For each alternative, provide the cost impact of changing the prescription drug benefit to $8 generic/$10 brand name co-pays with card. a card with a $100 deductible and 80 percent coinsurance. no prescription drug card; benefits will be paid at the coinsurance level after a $100 deductible has been satisfied (this counts against the out-of-network deductible). For each alternative and for all plan designs (in-network, out-of-network, outside service area), provide the cost impact of limiting the mental and nervous inpatient benefit to 30 days per confinement and the outpatient benefit to $2,600 per year. Will either of these alternatives be in conflict with your interpretation of the (state) law? State which, if any, preventive dental services (routine cleanings and exams once every 6 months) are offered through your standard network benefits. If preventive dental services are not standard, provide the cost to add this coverage and outline the design. *   No expenses for mental and nervous/substance abuse count toward the out-of-pocket. Outpatient mental and nervous/substance abuse subject to a $50,000 lifetime maximum.

OCR for page 121
Employment and Health Benefits: A Connection at Risk Assumptions and Exhibits Please note that the attached exhibits [omitted here] are to be completed for each of the following funding approaches and alternatives below:  Fully insured—dividend experience rated. Minimum premium. The assumptions to be used: Cash flow exhibits are to be completed for each line of coverage separately. Rate all options on a zero dividend basis, net of commissions. Quote fully insured dividend experience-rated coverages with IBNR reserves. Minimum premium should be quoted with (the organization) holding the reserves and alternatively with your company holding the reserves. Provide costs for $85,000, $100,000, and $115,000 specific stop-loss levels with 110 percent and 120 percent aggregate stop-loss. Also provide costs for aggregate stop-loss only. Assume that the effective date of coverage is January 1, 199-, and that the existing carrier will administer IBNR liability. Use the present enrollment from the census as the average number of employees for the bid. Assume that there will be direct claims administration and certification of eligibility. A separate zip code listing of employees is included in the census, which must be matched to determine the viability of your provider network. Provide a comparison chart showing where your network(s) matches our population. Quote two-tier medical rates. Indicate any start-up costs, network access fees, and capitation fees separately. [exhibits omitted] Section IV Questionnaire Although your proposal may contain much of the following information, please prepare answers to the following questions, in the order in which they are asked. Please restate the question when providing your response. General Describe any variation in the proposed benefits that you would require. Please give the reason(s) for any variations.

OCR for page 121
Employment and Health Benefits: A Connection at Risk From what office(s) will the general administration of this case be handled? Who would be assigned to service the account? Would a dedicated claims payer be assigned to the group? Provide names, titles, addresses, and phone numbers. Please confirm in writing that no employee or covered dependent will lose benefits in switching to your program and that the actively-at-work requirement will be waived for all participants covered under the prior plan, including HMO participants and COBRA's. Also, please indicate how you would propose to handle "deductible credits" during the implementation phase if the change in carrier were made off anniversary. What are the applicable conversion privileges for medical benefits? What is the cost to the policyholder for each conversion? Describe the provisions of the proposed conversion coverage. How much advance notice would you require before taking over this account? Describe how you would handle implementation, and detail any additional expenses involved and indicate whether these expenses are included on your bid sheets. It is expected that individuals from your company will be available to aid in implementing the program. (The organization) must have the plan booklets by (date). If you are notified of your selection by (date), can you meet this deadline? Please provide a detailed list of your standard coverage exclusions (e.g., injuries sustained while committing a felony) and limitations (e.g., number of home health visits, number of days for hospice). Specifically identify your standard coverage for transplant benefits (heart, kidney, cornea)  hospice and home health care  durable medical equipment. Financial How long will you guarantee your proposal rates before implementation? The first renewal will be January 1, 199-. What is the maximum period for which you guarantee rates? In the event of a master policy termination, either on or off anniversary, what are the penalties (if any) to the policyholder? Claims Administration From what office(s) will claims be paid? How many processors would be involved in servicing this account? Is a toll-free phone number available for claims questions? What is the average wait time for the month of June at the proposed claims office?

OCR for page 121
Employment and Health Benefits: A Connection at Risk Please provide a sample of the statistical claims data that are normally provided as part of the "standard fee." What additional types of management reports are available and at what cost? What is your turnaround time in the claims office(s) that would be used by this client for non-coordination of benefits (COB) or otherwise "clean" claims? What percentage of claims would you expect to fall into this category? What are your companywide COB and subrogation savings as a percentage of incurred claims? Detail these savings by type of coverage, i.e., Medicare, workers compensation, other carrier liability, etc. Please list those services provided as part of your "standard fee." Do you provide complete Form 5500 information, as well as assistance with other governmental forms? To what extent is your claims payment system computerized? How long has the current system been in operation? Does your database maintain eligibility records and family history files? What levels of payment authority have been established for claims examiners? Can an examiner override the claims payment system? If so, is there a review by a second claims examiner (or supervisor)? What methods do you have to ensure that payments are being made to "legitimate providers"? What security safeguards do you have to prevent "in-house'' or "out-of-house" fraud? Who is assigned to handle quality control procedures? What percentage of claims are reviewed for accuracy, both before and after payment? Does the dollar level of the claim affect the review process? What types of external audits do you use to check large hospital and medical bills? Do you charge the client for the use of outside audit services? If so, how much do you charge? We may be required to have an outside auditor review your claims-paying procedures. Will this present any problems? Please furnish a copy of the payment explanation form and claims form used by the claimant. Does your adjudication system produce freeform memos requesting additional information? What special procedures are followed when a claim is denied in whole or in part? Will you accept financial responsibility for errors and overpayments made by company personnel in processing claims? Is there a separate charge for this? If so, how much? If employees identify erroneous charges in hospital bills, we would like to share some percentage of the savings with employees. Will this present a problem under the dividend funding arrangement?

OCR for page 121
Employment and Health Benefits: A Connection at Risk Managed Care Features Indicate the total number of individuals enrolled in your network in the metropolitan area. Provide information on all your networks nationally. How do you determine your service area (distance from residence zip code?)? Do you allow employees residing outside the service area to use network physicians and hospitals? Please explain your gatekeeper procedures, particularly in light of in-network versus out-of-network plan usage. Are any specific services not included in the network? What benefits are paid if the gatekeeper refers an employee to a specialist who is not in the network? How do you measure patient satisfaction with your providers? How do you handle inquiries and complaints? What goals have you established for the turnaround time from when information reaches you from the provider until a check is cut? What percent of the time do you achieve these goals? Would you consider guaranteeing this service level? How often do you provide employees with updated lists of network providers? What communication materials are available for employees? Are there separate fees for the hospital and/or physician network (network access fee)? Do the access fees vary by size of employer? Is there a charge for utilization review services? In the event of the termination of the plan contract, (the organization) would require access to and the right of ownership of all records. Will this requirement pose a problem for you? If so, how would you propose to resolve that problem? Please include the following documents with your proposal and a brief summary of each: sample of the contract that you would want (the organization) to sign  standard contract with a hospital  standard contract with a physician  standard contract (if any) with other health care providers, such as skilled nursing facilities, podiatrists, chiropractors, and urgent care facilities  physician application form  samples of standard reports prepared for employers  samples of custom reports that you have been able to produce for other employers and would be willing to produce for (the organization)  samples of any feedback reports that you routinely send to your providers

OCR for page 121
Employment and Health Benefits: A Connection at Risk samples of material that you will use to communicate with your network  a copy of your most recent financial statement. Provider Is your network hospital or physician based or both? On average, how long are your contracts with each provider (i.e., hospital and physician differentiated)? Are there inflation caps? How many physicians do you have under contract? What is your plan's definition of a primary care physician (general practice, family practice, internal medicine, gynecology, and pediatrics)? How many PCPs do you currently have? How many in your network are specialists? How many are Board certified? Board eligible? What criteria are used to select physicians? Board certification  Board eligible  Licensed  Graduate of U.S. medical school  Credentialing done by practicing physicians in community  Hospital admitting privileges  Other Are the physicians (segregate primary care and specialists) paid on a discounted fee-for-service basis, negotiated fees based on a specific diagnosis or service, or on a capitated basis? How often do these levels change? Be specific. What other health care providers do you have under contract? How are these other health care providers reimbursed? Please provide a current directory of all hospitals and physicians under contract. In which additional areas do you expect to have hospitals and physicians under contract by January 1, 199-? What criteria are used to select hospitals? What is the average discount available? How is it determined? Indicate the reimbursement system(s) under which you contract with physicians, specialists, and hospitals to provide services to the covered network population. For each hospital, indicate specific payment arrangement; and for each, estimate percentage reduction from charges: full charges only  discounted charges (specify percentage)  per diem (specify dollar amount)  DRGs (specify weights and the dollar amount to be applied to each case)

OCR for page 121
Employment and Health Benefits: A Connection at Risk capitated rate (specify monthly per individual dollar amount)  other (please specify method and rate). In addition, if you propose special consideration for "outlier" patients, show how you propose to define an outlier under each payment system checked and specify the payment amounts proposed. How are lab, X-ray, and mental health services provided by your network? Do you agree not to bill any network patient or his individual guarantor for amounts deemed inappropriate by your plan? What is the average length of participation of your physicians (separately identify PCPs and specialists)? What percent of physicians have left your plan in the last three calendar years? Please complete the following chart:   PCPs   1988 1989 1990 New       Left       Net       What are the criteria that hospitals and physicians must meet to continue in your network? What risk (i.e., financial liability) do the providers assume in contracting with your network? Is there a "withhold" provision, and, if so, how does this arrangement work? How much advance notice must the physician or hospital give you if they wish to cancel their contract with you? Do your physician and hospital contracts have a "continuation of care" clause that says that if a physician or hospital cancels or fails to renew their contract, care begun while a network provider will continue to be provided and reimbursed as if a network provider? Provide dollar equivalent reimbursements, in and out of network, for the following CPT codes, assuming zip code (xxxxx): CPT-4 90020 Office Visit—Complete 90060 Office Visit—Initial 70450 Computerized Axial Tomography—Head 10121 Incision and Removal of Foreign Body—Complicated 12013 Repair of Superficial Facial Wounds 25600 Radial Fracture 31625 Bronchoscopy

OCR for page 121
Employment and Health Benefits: A Connection at Risk 42820 Tonsillectomy/Adenoidectomy 44950 Appendectomy 49505 Inguinal Hernia 71270 Computerized Axial Tomography—Thorax 71550 Magnetic Resonance Imaging (MRI)—Chest Please describe your utilization review (UR) process, including hospital precertification, concurrent review, and large-case management. Do any of these procedures differ for in-network claimants versus out-of-network claimants; for example, who is responsible for handling the precertification in each situation—the physician or the patient? How do you set your criteria to ensure quality of care? What UR procedures do you apply to outpatient care, particularly outpatient surgery and office visits? Describe the effectiveness of your utilization review program including average days/1,000 admissions for medical, surgical, maternity, and mental/nervous admissions  demographics of the book of business supporting these data  statistical effectiveness of your outpatient review programs. How long do you store utilization data? What normative factors do you use when evaluating a hospital admission or length of stay? How do you control the number of referrals made by your physicians, and how do you encourage them to refer to other network providers? How do you identify providers that are overutilizers or underutilizers, and what do you do once you have identified them? Do providers bear any risk for overutilization? Does the network bear any risk for overutilization? Do you have any programs that specifically address mental health or substance abuse utilization? Please describe these programs. What percent of participating physicians do not accept new patients? What do you do to manage prescription drug charges? Section V Selection Criteria Information relevant to these criteria may be presented within the normal format of your proposal in response to this RFP. The criteria will be uniformly applied in the evaluation of the proposals.

OCR for page 121
Employment and Health Benefits: A Connection at Risk availability of a comprehensive range of managed care services providing value, access, quality, and accountability to (the organization)  ability and efficiency of the administrator to provide quality administrative and claims-processing services  net cost (cost of services, management of claim cost, retention)  maximum cost liability  overall response to the specifications as presented  the character, reputation, financial condition, and experience of the bidding company. Determination of Competitive Range and Contractor Selection The competitive range will be determined on the basis of the above evaluation factors and will be made up of all offerors whose proposal has a reasonable chance of being selected for award considering such factors. Award will be made to the responsible offeror whose proposal, conforming to the solicitation, is most advantageous to (the organization), the above factors considered.