F

Best Practices for Structuring and Facilitating Consumer Choice of Health Plans

Elizabeth W. Hoy, Elliot K. Wicks, and Rolfe A. Forland*

Introduction

As Medicare contemplates a system in which Medicare recipients would be encouraged to enroll in managed care plans, questions arise about the extent to which enrollees should be given a choice among different plans and how such choice should be structured to meet the needs of enrollees and to achieve objectives related to health care efficiencies. This paper reviews the experiences of private employer purchasing organizations in particular, and those of some public employee organizations as well, that have experience with consumer choice. The purpose is to see what lessons that may be applicable to Medicare can be learned.

Giving consumers a choice of health plans has two objectives: (1) to allow people to choose a plan and associated providers that best match their needs and preferences given the constraint of what they are able and willing to pay and (2) to create incentives for health plans to compete for customers both by becoming more efficient, and thus, less costly, and by improving

*  

All authors are affiliated with the Institute for Health Policy Solutions, Washington, D.C.



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--> F Best Practices for Structuring and Facilitating Consumer Choice of Health Plans Elizabeth W. Hoy, Elliot K. Wicks, and Rolfe A. Forland* Introduction As Medicare contemplates a system in which Medicare recipients would be encouraged to enroll in managed care plans, questions arise about the extent to which enrollees should be given a choice among different plans and how such choice should be structured to meet the needs of enrollees and to achieve objectives related to health care efficiencies. This paper reviews the experiences of private employer purchasing organizations in particular, and those of some public employee organizations as well, that have experience with consumer choice. The purpose is to see what lessons that may be applicable to Medicare can be learned. Giving consumers a choice of health plans has two objectives: (1) to allow people to choose a plan and associated providers that best match their needs and preferences given the constraint of what they are able and willing to pay and (2) to create incentives for health plans to compete for customers both by becoming more efficient, and thus, less costly, and by improving *   All authors are affiliated with the Institute for Health Policy Solutions, Washington, D.C.

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--> quality and levels of service. The underlying assumption is that if the first objective is achieved, the second one will follow: If people can choose among plans on a rational basis, they will choose plans that perform well; thus, plans must strive to improve performance to survive. People get what they want and need, and the system performs better. Achievement of these objectives requires that consumers have both the economic incentives and the kind of information that leads them to rationally weigh the marginal benefits and the marginal costs of various health plans and to choose the one that best matches their preferences. With respect to economic incentives, the key is to have people bear the full marginal cost of choosing a more expensive plan. With respect to information, the challenge is to give consumers sufficient information of the right kind, in a form that is understandable and simple enough to be manageable, so that they can validly compare plans. In structuring a system that allows consumer choice, the "organizers of choice"-whether they are large corporations, health purchasing groups of small private employers, or administrators of state employee benefit programs-must make decisions about a number of fundamental issues, bearing in mind how those decisions affect the probability that the system will achieve the objectives described above. Key issues include the following: How will health plans be selected? There are two basic approaches. The first is to establish criteria and then accept any plan that meets the threshold criteria. This approach would maximize the number of qualified plans and would have the organizers of choice play a more passive role. The second is to issue something like a request for proposals from potential health plans, asking for information that allows comparison of plans against specified criteria, and then to select only the best plans. This approach involves a more active role for the organizer of choice. That role can be expanded even further by having the organizer actively negotiate with health plans, bargaining for a better price or changes to improve efficiency, quality, service, and so forth. Because this approach of limiting the number of health plans can deliver a

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--> higher volume of business to the plans that are selected, they can more realistically anticipate economies of scale if they participate. This may give the organizers of choice more ability to achieve lower costs. To what extent will benefits be standardized to simplify plan-to-plan comparisons? Even with the best kind of information on price and performance differences among plans, it is difficult for consumers to weigh the relative costs and benefits of a large number of plans. If this comparison also involves many service coverage and cost-sharing differences from plan to plan, the likelihood that consumers will make rational choices is significantly reduced. The number of variables to compare and weigh against one another can simply be too great to be manageable (the task may be somewhat more manageable if the benefit differences are confined to differences in consumer cost-sharing liabilities). 1 For reasons such as these, the organizations described herein have adopted standardized benefit plan designs to one degree or another as a way of facilitating choice. Offering some differences in benefit levels may be desirable to accommodate different preferences and abilities to pay. How many and which types of benefit plan designs will be offered ? Ideally, it would be desirable to offer a sufficient number of plans of different kinds (health maintenance organizations [HMOs], point-of-service [POS] plans, and indemnity plans) to provide genuine choice and diversity but not so many as to make the process of comparison overwhelmingly complex. In some regions, the number or type of available qualified plans that are willing to participate may be so small that choice is necessarily limited. On the other hand, offering more than the optimum 1   For example, most consumers have a difficult time predicting whether or not they will need a given service. The choices of those consumers who do know they have a high probability of needing a service creates adverse selection for the plans they select. Although risk adjustment tools such as those developed in California can mitigate such problems, they are far less feasible without standardized benefits.

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--> number of plans may fragment the covered population and reduce the market clout of the purchaser. Furthermore, there is potential for major risk selection problems if there are too many health plans of different types. How will the employer's premium contribution be structured? To an employee, the price of a health plan is the difference between the premium and the amount that the employer contributes. So the employer's contribution policy can be expected to have a strong influence on employees' choice of plans. At one extreme, if the employer pays 100 percent of the premium for any plan, employees will have no incentive to consider price and will often choose whichever plan they believe to be the most generous. On the other hand, if the employer contributes a flat dollar amount that is no more than the cost of the least expensive plan, employees pay the full additional cost of any more expensive plan and thus have strong incentives to economize. If the employer pays a fixed percentage of any plan, the employer is subsidizing some, but not all, of the marginal cost of more expensive plans, so the incentives to economize are weaker than in the second approach but stronger than in the first one. Of course, the higher the percentage of premium paid by the employer, the weaker the financial incentives for consumers. How much and what kind of information will be given to employees to help them choose among plans? Who will convey the information and be accountable to answer consumers' questions? Ideally, before choosing a health plan, consumers would know and understand how plans differ with respect to price, covered benefits, organization, availability and range of medical providers and services, philosophy, flexibility in choice of providers, quality (in terms of structure, process, and outcomes), consumer satisfaction, and perhaps a number of other characteristics. The challenge for the organizers of choice is that not all of this information will be available for all (or perhaps any) health plans, consumers may not want all of this information, and they may have difficulty understanding much of it. Deciding what information to collect and make available and how to

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--> present it in a form that consumers will use and understand is a major task. Furthermore, consumers often want and need objective assistance in understanding health plan differences that relate to their particular needs and circumstances. How and through whom to provide such assistance is also an important consideration for facilitators of health plan choices. Case Studies Each of the following purchasers has deliberately adopted a consumer choice model as a means of achieving their purchasing objectives. These objectives may include reducing the cost of health coverage, improving access to health care services for the population served, and improving the quality of health care services and delivery. Each example offers a unique interplay of purchaser objectives, market characteristics, and philosophy. Xerox Xerox purchases benefits on behalf of approximately 48,000 U.S. employees, plus retirees and eligible dependents, spread geographically throughout the United States. Corporate health costs grew 51 percent between 1987 and 1990, leading Xerox to seek new alternatives for managing these rapidly escalating business expenses (Darling, 1991). Strategically, shifting more costs to employees was not an acceptable option and cutting benefits was not a desirable option. Thus, Xerox chose to apply the same ''total quality management" business strategy used in all other aspects of their business to the purchase of health benefits (Darling, 1992). Xerox's objectives were to structure a system that creates incentives for employees to move into more efficient HMOs, to increase the accountability of the HMOs contracting with Xerox, and to improve the health status of Xerox employees. To accomplish these objectives, Xerox chose a strategy to structure competition among plans based on value. This strategy includes similar health benefits across health plans, benchmark pricing, commitment to continuous quality management, information gathering and dissemination strategies to support continuous quality improvement (CQI), and consumer choice.

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--> HealthLink HMO Managers Prior to implementation of the HealthLink network in 1990, 40 percent of Xerox employees were enrolled in more than 200 HMOs nationwide. In an effort to create a national network of well-managed, high-quality HMOs, Xerox launched a competitive process to contract with HMO organizations that would help Xerox manage what would eventually become the nationwide HMO network. They asked those HMOs not only to provide health care services but to help manage other HMOs as well. Six national HealthLink managers (Kaiser, Blue Cross and Blue Shield of Rochester, UltraLink [created by FHP, Inc.], Prudential HealthCare System, The HMO Group, and U.S. Healthcare) were chosen to coordinate the contracting of HMOs. A seventh was added in 1994. HealthLink managers are responsible for conducting on-site surveys and other evaluations of HMOs to be offered through the network. Xerox selects the system managers, reviews and approves local plans for inclusion in the networks, establishes and refines the benefit levels and programs for individual plans, and manages and evaluates the performance of the network coordinators using reports and operational reviews. Once accepted into the HealthLink program, all billing and reporting for individual HMOs is consolidated through the network managers. The HealthLink program became operational in 1990. In 1990, Xerox employees were still allowed to select previously offered HMOs that were not yet selected for the HealthLink program. Beginning in 1991, new Xerox employees were only offered coverage through HealthLink HMOs or the self-insured fee-for-service (FFS) plan. Employees hired prior to 1991 are allowed to remain in non-HealthLink HMOs if they are currently enrolled in those plans; however, the cost-sharing requirements are structured to encourage enrollment in HealthLink HMOs (see below). Non-HealthLink HMOs are encouraged to qualify as members of the HealthLink network. Benefit Plan Design Xerox has not specified an exact detailed standard benefit

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--> plan design. All HMOs serving Xerox enrollees are required to cover all medically necessary and appropriate services, including reasonable coverage for organ transplants and for mental health and substance abuse treatment. In general, the range of services provided must meet those specified for federally qualified HMOs and must include more coverage for substance abuse treatment, rehabilitation services, and mental health and substance abuse services at a level between inpatient and outpatient (e.g., day/night care or a residential treatment option). Health plans are allowed to offer their richest standard plan design, but may vary benefits on items that are easy for consumers to understand and would not promote risk segmentation, such as modest copayments. For the first 4 years of the program, Xerox produced identical benefit summaries for every HMO to ease comparisons. For 1996, however, Xerox stopped producing the reports. There were several reasons for this change, including the following: The costs of collecting and verifying the information were very high; the general "lay" language of the reports sometimes created problems because of a lack of exact detail on covered and uncovered items; Xerox believed that plans should be responsible for producing the information and enrollees should be responsible for reading the plans' summaries and marketing materials; and often, the plan's marketing materials contained key information that was not easily incorporated into the plan summaries, yet was useful for making choices among health plans (such as the opening of a new health center or the addition of new services). Xerox reports that they have not experienced any significant problems with this approach to benefit plan design. Xerox health benefits management staff work closely with health plans to resolve any questions that arise if enrollees encounter a service that is perceived to be medically necessary but that was not disclosed by the health plan as a noncovered service. Retirees have been included in the program since its inception. Early retirees participate in the same manner as active employees. Xerox encourages the health plans to offer Medicare risk programs for retirees over age 65. Medicare-eligible retirees are eligible to select a Medicare risk program upon turning

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--> age 65, not just at open enrollment time. Xerox has experienced some administrative difficulties related to this program. Medicare requires that enrollees be allowed to disenroll from health plans at will; this is at odds with Xerox program rules, which allow one health plan change per year for cause. In addition, Medicare requires that enrollees be disenrolled from a health plan if the enrollee leaves the plan service area for more than 90 days. A number of Xerox retirees move seasonally, and thus cannot remain in the Medicare risk programs throughout the year. Benchmark Pricing A key component of the Xerox program is "benchmark pricing" to create financial incentives for consumers to realize the savings associated with choosing efficient HMOs. Xerox's contribution for health premiums is tagged to the "benchmark" plan in any given area. The benchmark plan is chosen on the basis of submitted premiums for a given year compared with the premiums of other HMOs in that geographic area. Consideration is also given to quality and performance measures; Xerox provides a $10 per month additional benefit—or "performance credit"—to health plans that are fully accredited by the National Committee for Quality Assurance (NCQA). If the employee chooses the benchmark plan, then Xerox pays 100 percent of the premium. If the employee chooses any of the other plans offered, then the employee pays the full difference between the premium for the plan chosen and that for the low-cost plan. Cost sharing in the FFS plan is structured to appropriately reflect the real differences in efficiency between FFS and managed care.2 If the enrollee picks the FFS plan, then the employee pays the difference in premium, and he or she is subject 2   In 1992, Xerox per capita HMO costs were $1,700 lower than those of the FFS plan, even with the richer benefits of the HMO. Xerox conservatively estimated that approximately one third of that difference could be attributed to differences in the characteristics of the enrolled populations. The rest was attributed to the greater efficiencies of the HMOs.

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--> to heavy coinsurance and deductibles with high out-of-pocket maximums as well. (For example, the annual deductible for the FFS plan is 1 percent of the employee's salary for the previous year, and the maximum out-of-pocket payment is 4 percent of salary or $4,000, whichever is lower [Darling, 1991]). Performance Reporting and Consumer Information Consistent with Xerox's commitment to total quality management, the company works closely with the HealthLink network managers and participating HMOs to measure and improve health plan performance. Xerox has been an active supporter of NCQA and a leader in the development of the NCQA Health Plan Employer Data and Information Set (HEDIS) for measuring health plan performance. Xerox has indicated that it expects all HealthLink HMOs to obtain NCQA accreditation as one measure of health plan quality. To assist Xerox employees in evaluating and choosing among health plans, Xerox provides each employee with an HMO performance report. This report includes comparison tables representing the characteristics and performances of all health plans in the employee's geographic area across a number of dimensions, including structure, network characteristics, access to services, member satisfaction and wait times, and HEDIS quality-of-care measures. Unlike many other examples of consumer choice information, the Xerox report card explicitly states the goals for each measure. In this way, consumers can judge how well plans are performing compared with a set of absolute benchmarks, not just plan performance relative to other plans. Another characteristic that makes the Xerox performance report stand out is the inclusion of an explanation (in language that is understandable to typical consumers) of why each measure has been included in the report card. This builds upon the understanding that providing information to support consumer choice has an educational component. Although issues such as employee cost and whether the employee's doctor is available through the network will probably continue to be of primary salience to most consumers, performance measures and the supporting education to use those measures are expected to expand

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--> the foundation on which Xerox employees choose plans and focus competition more clearly on quality. Southern California Edison The Southern California Edison health program provides coverage for approximately 17,000 active workers (plus dependents) and 7,000 retirees (including some early retirees not yet eligible for Medicare)—a total of 55,000 covered lives. Prior to 1995, the company itself administered a self-insured preferred provider organization (PPO), but the company decided that it should not be in the insurance business and that it needed to find an approach that would produce cost savings and improve quality as well. The company chose to substitute a program that would give employees (located primarily in Southern California but also in Nevada and Arizona) a choice of up to eight plans offering standardized benefits. The changes had to be bargained with employee unions—which cover about 45 percent of the work force—and this constrained the degree to which the company could change the program. The health plans that are offered include several HMOs (including individual practice association [IPAs] and Kaiser) and POS plans but no indemnity plan. Most employees can choose from approximately six plans. Medicare-eligible retirees can also choose risk-based HMOs (although relatively few do because the standard company plan is so rich that the HMO benefits are not significantly more comprehensive, and those who choose the POS plans have the option of selecting any provider).3 The company's process for choosing plans started with a preliminary review of characteristics of plans—cost, quality, design, and so forth—and development of criteria. Selected 3   The typical plan has an HMO benefit structure as the core, an in-network PPO benefit structure layer, and then a POS option on top of that. The person who uses only the HMO providers pays nothing in cost sharing and nothing for gatekeeper-approved referrals to network physicians. If the patient self-refers to a network physician, the patient pays a portion of the fee. If the patient uses the POS option and self-refers to a non-network physician, the patient's share of the fee is greater still.

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--> plans were invited to respond to a request for proposals. The plans that were ultimately selected signed a three-year contract, which included a commitment to maximum yearly premium increases over that period. Selecting Health Plans To be eligible for continued participation, plans must have or be seeking NCQA accreditation. They must also provide HEDIS data. The company establishes performance standards against which to judge plans. The standards address the plan's organization and financial status, service integration, clinical care, use of protocols, and customer service, among other things. The company's evaluation process includes site visits. Plans that fail to meet a standard are not automatically ineligible for further participation; the company is looking for continuous improvement in meeting the performance goals. It monitors plans' strategies for addressing problems as well as their success in solving those problems. Enrollment Open enrollment is offered once a year, in the fall for coverage that begins in January. The company pays 90 percent of the premium for any plan chosen. Almost 60 percent of employees have chosen a POS option. It appears that employees give the highest priority to having a plan that offers choice of providers and includes "their" doctor. Price—in the form of employee contribution to premium—does not appear to be very important in influencing choice, in part because the contribution structure requires employees to pay only 10 percent of the additional cost of more expensive plans and in part because the plans' premiums do not differ much. However, copayments for out-of-network use (another measure of "price" to enrollees) does appear to influence choice of plans. Educating Employees The company made a major commitment to educating and equipping employees and retirees to make an informed choice

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--> final" offer. Most such health plans have offered second bids that are substantially lower than their original bids. Benefit Plans Standardized to Reduce Biased Selection ETF currently defines the standard benefit plan design for all participating HMOs. There may be differences in how plans implement that coverage to encourage efficiencies; however, copayments and covered services are uniform across plans. This was not always the case. Prior to 1993, HMOs had to only offer "substantially equivalent" benefits package. However, that still allowed plans some latitude to modify basic benefits and offer additional benefits. As a result, plans were adjusting their benefits to deter higher-risk enrollees, and consumers found it increasingly difficult to compare plans. In 1993, HMOs were required to offer identical benefit structures, so plans can no longer design for risk selection, employees can better understand coverage and compare value, and ETF can better evaluate plans' efficiencies. ETF has a fixed employer contribution policy for all participating enrollees. Currently, the employer share of the premium equals the lower of 90 percent of the premium for the standard FFS or 105 percent of premium for the low-cost HMO. However, the employer contribution never actually exceeds 100 percent of the premium of any chosen plan. Thus, although the premium for the low-cost HMO would be covered in full, there is less incentive for enrollees to choose the low-cost plan—particularly if the higher-cost plans fall within 5 percent of the low-cost plan-because the financial consequences of choosing a higher-cost plan are mitigated. State Agencies Facilitate Consumer Education ETF itself operates with a relatively small administrative budget. ETF collects an add-on administrative fee to the premium of approximately $1.16 per contract per month (roughly equivalent to one third of 1 percent of the premium) to cover the administrative services that are performed centrally. These include policy development, selecting and negotiating with health plans, tracking funds flow, consumer information devel-

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--> opment, consumer ombudsman activities, and data development and reporting. ETF relies heavily on the 26 state agencies and 150 local government participants, each with their own benefit staffs, to perform enrollment, premium collection through payroll deductions, and consumer education functions. The agencies use common consumer materials developed by the state (such as summary benefit plan descriptions) and host an annual health fair that employees can attend to obtain more information. Benefit staffs in the agencies coordinate most questions about how the system works; however, ETF acts as the final arbiter of any questions that health plans and benefit staffs in the agencies cannot answer. These typically include eligibility questions, coverage questions, and (rarely) exceptions to benefits. Health plans are allowed to market directly to enrollees within defined parameters. ETF provides mailing labels for all enrollees to each participating health plan. However, ETF must review and approve all promotional materials sent to enrollees by the health plans. Consolidated Consumer Choice Materials Enrollees covered through the ETF make their choice of health plans on the basis of a consolidated booklet of information about the program and all of its participating plans. This single document contains all of the different kinds of information that a consumer needs to understand the program, review the covered benefits, and choose among the health plans offered. A copy of this booklet, titled "It's Your Choice," is mailed to each employee during the annual open enrollment period. The booklet contains information about eligibility and administrative procedures for the ETF program in a question-and-answer format. Summary plan descriptions, comparative price tables by geographic area, comparative tables containing the results of a consumer satisfaction survey, and information about consumer assistance services available through the agencies and ETF are also included. Employees can complete a plan comparison worksheet from the booklet. This worksheet walks consumers through the process of comparing plans as they fill in the blanks with information concerning plan structure, network

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--> characteristics, referral requirements, differences between HMO coverage and FFS coverage, and appeals processes for dispute resolution. The booklet contains telephone numbers for consumers to call if more information is needed. The summary plan descriptions for each health plan offered are standardized and are two pages long. Each plan submits one page of text (subject to ETF approval) which answers the following questions: What type of plan is this? What geographic areas are covered by the plan? What does the plan think are its distinguishing characteristics? What are the plan's exclusions and limitations? The second page is a table detailing covered services, cost-sharing provisions, and service-specific limitations for both the required standard benefits and any additional features offered by the plans. (Plans may choose to provide dental and orthodontic coverage.) Again, each plan provides a phone number to contact for more information about the plan, such as participating providers and exclusions and limitations to coverage. Any changes from the previous year's coverages are highlighted in a dark background with white text to make them easy to identify. In 1995, ETF began administering and reporting the results from a consumer satisfaction survey. ETF uses a modified version of the Group Health Association of America (GHAA) survey questionnaire. The results of this survey are used to develop plan report cards, which were included in 1996 open enrollment materials. Survey results are reported by geographic area and cover topics such as health plan and provider endorsement, satisfaction with health plan services, access to care, effectiveness of care, the consideration with which providers treat their patients, provision of information to consumers about their care, and prevention and wellness services. Although the survey is more detailed, only key indicators in each subject area are published in the booklet. Most of the results are presented in the form of bar graphs, although some are tabular percentages. Conclusions Each of the purchasers reviewed in this paper has chosen a consumer choice model as a means of reducing the cost of health coverage, improving choice of providers and plans, improving

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--> access to health care services for the enrolled population, and improving the quality of health care services and delivery. In examining their experiences, a few key characteristics stand out as contributing to the success of these endeavors. All of these characteristics enhance the ability of consumers to make valid comparisons across multiple health plans that are competing within a common system of rules and accountability. These examples also suggest a few key issues that should be addressed if a consumer choice model is to be applied to Medicare. Characteristics of Systems That Facilitate Choice In general, all of the organizations studied do four things to facilitate consumer choice. First, they create a level field for comparison among health plans by requiring plans to provide comparable, comprehensive health benefits, providing objective and reliable information, and hosting a structured open enrollment period during which consumers make choices. Second, these organizations provide comprehensive information to support the choice process. This includes information about benefit plan features, health plan structures and network access characteristics, health plan quality information, information about participating providers, and the price to the consumer of the health plan choices. Third, they support the choice process with consumer education. Topics typically covered by consumer education include an introduction to the concepts of managed care, the value of the consumer information provided, support for making trade-offs among plan features and choosing among plans, and administrative information necessary to complete the enrollment process. Finally, these organizations hold the participating health plans accountable for meeting performance standards through the use of common reporting requirements, standard definitions of performance, and standard objective measurement tools and processes. Consumer Information Consumer information is the linchpin of consumer choice. It is beyond the scope of this paper to perform a comprehensive analysis of the issues involved in collecting, analyzing, and pre-

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--> sending information to assist consumers choosing among health plans. However, these examples highlight some key operational considerations about the content and mode of delivery of consumer information. Consumers require several different kinds of information about the available options, including program and administrative information (e.g., enrollment forms and procedures) as well as individual plan characteristics, price, providers, and performance measures. When consumer information about health plans is combined in a single document and in side-by-side comparison tables, it encourages enrollees to make an active choice. In some cases, purchasing groups have put information about each health plan into a separate document (e.g., separate sheets in a pocket folder). This may make it easier for carriers or their agents to limit which health plans are presented to enrollees, thus subverting the choice process. Consumers should have easy access to more detailed information about their health plan choices if they desire it. For example, consumers with specific health problems usually want more detailed information about specialists and how health plans treat others with that condition. Most of the organizations described here have toll-free numbers for enrollees. Even if they do not have the information that the consumer wants right at their fingertips, personnel are trained to help the consumer figure out how to get what they want. They make the information as simple and as understandable as possible. Consumer choice documents are written in language that typical consumers can understand, without legalistic benefits language or technical statistical terminology. Important information about program characteristics and requirements for enrollees is repeated more than once in multiple forums. The Southern California Edison program illustrates the fact that the more complicated the benefits structure, the more effort is required to ensure that consumers truly understand their benefits, rights, and responsibilities under the system.

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--> Numerous studies have shown that whether an individual's physician is in the health plan is an important determinant of choice. At least two of the sites included in these case studies (the California HIPC and CBIA) are in the process of developing a single provider directory—or superdirectory—for all health plans offered. The purpose of this is to identify all of the participating plans that a given provider participates with, so that enrollees can begin to make comparisons of those plans where they can access their current physician. Although this sounds like a relatively simple undertaking, it is in fact very difficult to ensure that the information in the superdirectory is current and accurate, especially in highly fluid markets like California. It is interesting to note that although Kaiser in California has exclusive relationships with physicians, it is enthusiastic about supporting the superdirectory. Kaiser believes that the greater percentage of women physicians in its panel provides a marketing edge. Many purchasers have chosen to require health plans to submit the information for consumer choice materials by using common definitions and methodologies, such as HEDIS. In the case of consumer satisfaction surveys, there is a great deal of skepticism by consumers of health plan-generated consumer satisfaction data. Therefore, most purchasers cited here have opted to use a common consumer satisfaction survey instrument and to either administer the survey themselves or have these surveys administered by a qualified survey organization other than the health plans. This is relatively simple to do when the purchaser has direct access to the enrollment files. The way that the comparative information is presented to seniors is also critical. Comparisons among plans, especially on issues related to quality and performance, can be technical, yet the differences must be easily grasped. Understanding such information is often difficult even for people who are faced with making such decisions regularly, such as federal employees. The experience of Southern California Edison strongly suggests that it is likely to be doubly difficult for seniors. Therefore, great attention should be given to the form of presentation. For example, use of graphics rather than dense text in type that is too small for some seniors to read may be necessary. (Considerable

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--> work in developing such easily understand comparative presentations has been done already.) Consumer Education Educating Medicare recipients will be a key factor in making recipient choice work for the benefit of the elderly. Education will be important at two stages in the decision making process: when they are faced with the choice of moving out of traditional fee-for-service Medicare plans to a managed care plan and when they choose among managed care plans. First, enrollees need education about what managed care is and how managed care plans work. Experience of the Southern California Edison program indicates that people already enrolled in Medicare will be reluctant to move to a managed care plan for a variety of reasons. Thus, it will be important to show Medicare recipients what they gain and what they give up by switching to managed care.7 The second point where education is crucial is when recipients are choosing among plans. Again, the information that people have available to use in making decisions should be both unbiased and perceived as unbiased. Furthermore, it must be sufficiently detailed and complete so that people really know what they are doing in choosing one plan over another, but yet not so complicated as to be beyond the understanding of typical Medicare recipients. The experience of all of the purchasing arrangements reviewed in this paper leads to the conclusion that the health plans should not be the only source of information about plan characteristics and performance. Some independent third party-either a government agency or some independent private organization--should have responsibility for providing unbiased information that compares plans in terms of characteristics and performance. Whether they use benefits managers, benefits counselors, 7   This problem is likely to be reduced in magnitude in the future because many people who become eligible for Medicare will already be in managed care plans. They will be familiar with that form of delivery, and in many cases their plan will also participate in Medicare, so they will not even need to change health plans.

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--> enrollment staff, agents, or peer counselors, most purchasers have individuals who are available to educate enrollees about their health plan options. Of the examples presented here, Southern California Edison probably has the most formalized consumer education process, with newsletters, trained peer counselors, and educational meetings. Whoever performs this education function, it is important that the information enrollees receive both be objective and be perceived as objective. This suggests that health plans cannot be the only source of information, that Medicare recipients have some additional source to turn to for help in making health plan choices. Number of Health Plans The number of health plans from which to choose should be manageable. Obviously, the more health plan offerings, the more information each consumer must process in order to select out the information most salient to their decision. With a large number of health plans, written consumer choice materials become thicker, denser, and more difficult to decipher. A number of interactive computer programs are under development; these can offer an alternative to written materials that will present individual consumers with only the information most pertinent to them. When thinking about consumer choice for an elderly population, confusion resulting from the number of health plan options can become a critical issue. A second reason to limit the number of participating health plans is to maintain a reasonable span of control for the purchaser. In most local markets, there are not so many health plans as to make this infeasible. In markets such as California, where there are numerous health plans, or for purchasers that cover large geographic areas, it begins to get complicated. The greater the number of health plans, the more time-consuming and complex the activities related to monitoring health plan performance become. Xerox has effectively reduced the span of control by using network managers as the liaison between corporate headquarters and the health plans. Each network manager can manage accountability for a limited number of plans and then report up to Xerox corporate headquarters.

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--> Standard Benefit Plan Designs Sites chosen for this review offer individual consumers a choice of multiple health plans offering standard benefit plan designs. Xerox represents, in essence, the most generous of standardized benefits; as long as care is medically necessary and appropriate, it is covered. At least three of the sites reviewed here incorporated standard benefit plan designs from their inception (CBIA, the California HIPC, and CHIP). They reasoned that consumers should be able to compare plans on the basis of value—the relationship of quality and cost. Few consumers are knowledgeable enough to know the true difference in the actuarial values of different benefits. Thus, when benefits vary between health plans, consumers are often not capable of evaluating relative value when choosing among plans. To accommodate consumer preferences, these purchasers offer different levels of benefits (e.g., a standard option and a high option) reflecting different levels of cost sharing and/or a POS option providing some coverage for out-of-network benefits. It is important to note that when individual health plans are able to define the benefits offered, they have an incentive to offer a set of benefits that will attract healthy enrollees and deter enrollees with ongoing or expensive medical needs. Wisconsin ETF moved to a standard benefit plan design for its HMOs because it wanted to eliminate this kind of risk segmentation by health plans, as well as facilitate choice. Open Enrollment All of the example plans include an open enrollment period, during which each enrollee can opt to change plans. The methods of managing these open enrollment periods vary. All of the plans cited use passive reenrollment rather than active reenrollment during open season. Under a passive enrollment system, enrollees choosing to stay in the same plan from year to year are not required to complete an enrollment form; they are automatically reenrolled. Only those employees choosing to change plans must complete an enrollment form. Under an active open enrollment system, each enrollee must fill out an enrollment form whether or not they change plans. From an

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--> administrative standpoint, a passive enrollment system is simpler and less costly because there are fewer forms to process. Also, a smaller percentage of enrollees change plans in any given year under passive enrollment than change plans under active reenrollment. On the other hand, active reenrollment can provide a ready-made vehicle for collecting information from all enrollees in a system by tagging a few consumer-related questions onto the enrollment form. Another administrative issue related to open enrollment is whether to have a single open enrollment period at the same time every year or to have an open enrollment period based on the enrollees' anniversary date. With a single open enrollment period, all enrollees are choosing plans at the same time for the same contract period. This makes it relatively simple for the administrator to coordinate data collection and reporting to ensure that current information is available for comparing and choosing among plans. However, it also results in a large spike in administrative activity to process enrollment forms once per year. Under continuous reenrollment, administrative resources are used more evenly throughout the year, but some enrollees are then choosing a plan on the basis of information about health plans and their providers that may be outdated. Key Issues In addition to the above characteristics of structures and processes for facilitating consumer choice, several key policy issues will need to be addressed when designing a consumer choice model for Medicare enrollees. How will the enrollee cost-sharing requirements (if any) be structured? If one objective is to reduce the cost of the Medicare program through consumer choice, then cost sharing should be structured to encourage enrollment in cost-effective plans rather than encourage risk selection. How will health plans be held accountable for performance? Although the ability of enrollees to ''vote with their feet" creates a marketplace system of accountability, all of the purchasers examined here also use negotiated performance guarantees, common measures of plan performance, and an ob-

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--> jective process for measuring performance (e.g., centralized, standardized consumer surveys). Such a system of accountability is not currently in place for Medicare enrollees. Should consumer information only compare plans with each other or should plans also be compared against benchmarks or standards? Relative plan comparisons provide useful information for selecting among alternatives; however, several purchasers (notably Xerox and Southern California Edison) are setting objective standards, based on regional and national norms, and reporting plan performance against these norms directly to consumers. How will plans be marketed and presented to enrollees? Those purchasers described here who serve the small group and individual markets use agents as brokers to some degree. Among the concerns related to using agents to market to Medicare enrollees are standard agent training or certification, equitable compensation regardless of the plan selected by the enrollee, and systems of monitoring and accountability for agents. References Darling, H. 1991. Employers and managed care: What are the early returns? Health Affairs 10(Winter):147-160. Darling, H. 1992. HealthLink-Xerox innovative healthcare strategy. Xerox Corporation Report. April 1992. Photocopy.