An employee health benefit program is an unavoidable benefit service expected of every employer today. It is virtually impossible to attract and retain superior employees without this group perquisite. However, these benefits impose a heavy cost upon the owner/manager of the smaller business and entrepreneur.
Since 1992, Foster Higgins (the consulting subsidiary of Johnson & Higgins Inc.) has undertaken an annual survey of smaller- and mid-sized employer-sponsored health plans. The published reports of these surveys offer employers an authoritative guide to health benefit trends nationwide, and an objective standard by which to measure their own program vis-à-vis the practices of comparable employers. The national report uses the data from 1,299 respondents with fewer than 1,000 employees. Recognizing the growing regionalization of the health care market in this era of managed care, the latest national report (1995) has also been exploded into seven regional reports.
Health benefit programs fall into one of four options:
- Traditional indemnity programs (Indemnity) are the familiar omnibus "medical insurance" plans administered by commercial insurance carriers and the "Blues" (Blue Cross/Blue Shield).
- Preferred provider organizations (PPO) offer a network of "preferred" health care providers with surcharges for the use of out-of-network care, often administered by commercial insurance carriers and the "Blues."
- Point-of-service (POS) plans are structured like HMOs offering a narrower range of in-network care providers with surcharges for the use of out-of-network care.
- Health maintenance organizations (HMO) offer comprehensive medical and hospitalization coverage through one provider; out-of-network care is covered only with prior approval or in emergencies.
Each employer needs to examine the relevant regional trends; these frequently differ significantly from the national averages. However, the national report discloses that the average health-benefit cost for the firms surveyed increased only 1.6 percent from $3,421 per employee in 1994 to $3,476 in 1995. This is attributed to intense competition in the health care market, particularly among HMOs, where the average cost of coverage dropped 11.4 percent to $2,947 per employee from $3,326 in 1994. Not surprisingly, employers continued the trend of shifting health benefit programs into managed care programs. PPO enrollment (33 percent) is now equal to en-rollment in traditional indemnity plans (33 percent), and HMO enrollment (21 percent) is close behind.
These trends display pronounced regional differences. For example, in the Northeast, 45 percent of all covered employees are still enrolled in traditional indemnity plans in contrast with only 6 percent in the West. PPO enrollment ranges from 48 percent of all covered employees in the South to a scant 10 percent in the Northeast. However, enrollment in HMOs ranges from 43 percent of all covered employees in the West to only 15 percent in the Midwest.
Total health benefit cost as a percentage of payroll averaged 9 percent among the firms surveyed. Employee contributions vary substantially among employers, but there is only moderate variation among the four plan types offered. These employee contributions range from $51 to $64 per month for individuals, and from $152 to $196 per month for families.
Managed care is becoming the rule rather than the exception. The owner/manager of the smaller business and entrepreneur now face some tough questions assessing the quality of care in a network-based plan, and the restrictions of employee choice in the selection of family health care services. The good news is that systemic competition appears to have slapped a lid on the costs of smaller- and mid-sized employer-sponsored health plans. "HMOs are increasingly targeting small- and mid-sized employers as a way to increase market share -- and the resulting price competition has clearly worked to the smaller employers’ advantage." However, the design and management of an employee health benefit program in this complex new world of managed care requires the employer to be much better informed about each of the alternative national and local health care delivery systems now available.
This column is based upon the referenced survey, "Mid-sized Employer Health Plans / 1995" prepared under the direction of Richard A. Elliott, Senior Vice President and National Practice Leader, Johnson & Higgins Inc. (Atlanta, Georgia).
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