Employer Health Care: Do I Have a Choice?
Besides skyrocketing costs, lack of choice is one of the biggest health care headaches faced by business owners. That's because insurance companies often insist on being sole providers to small and midsize businesses, which enables them to estimate the medical costs of a company's employees and tailor rates accordingly. If multiple carriers competed for employees at a small company, insurers argue, there would be no way to predict how many sick or healthy workers would choose which carrier's plans.
Enter managed competition. Here's how it works: With the help of a facilitator, carriers develop proposals, pricing the plans assuming they'll cover a company's entire population. Halfway into the year, the facilitator uses risk-adjustment software to analyze plan members, then redistributes premium dollars to compensate carriers for the health risks they actually received.
The original model--a key element of Hillary Clinton's health care reform initiative in the early 1990s--failed, in part, because it was difficult to manage risk for participating health care providers. Technology developed during the past few years, however, has made it easier to track costs and compensate providers that wind up with more than their share of ill workers. "This is the shape of things to come," says Stuart Butler, a specialist in health care policy at the Heritage Foundation, a Washington, D.C., think tank. "If you have real competition and real choices for employees, it's going to be a much sharper competitive market."
Two California companies, San Mateo-based Benu and Orange-based CaliforniaChoice, have been organizing managed competition programs for West Coast businesses. Now they're branching out. In April, Benu set up shop in Virginia, Maryland, and Washington, D.C.; it's slated to expand nationwide during the next five years. CaliforniaChoice also is eyeing other states.
Greg Roderick, CEO of Frontier Management, which is based in Durham, Oreg., and runs retirement homes and assisted living facilities in six western states, expects to save $210,000 on health insurance in 2005 thanks to managed competition. For about 1% of Frontier's annual premium payments, Benu coordinates three competitively priced plans from Cigna HealthCare and Kaiser Permanente. Benu handles Frontier's health care administration--including renewal, billing, customer service, and online enrollment for the company's 150 eligible employees--and sends Roderick one monthly bill. "The sheer number of options Benu gave us for the price was fantastic," says Roderick, who now offers a PPO plan as well as an HMO. Roderick pays for 100% of his employees' health coverage; companies can also set a fixed-dollar contribution and require employees to pay for additional coverage.
For employees who have been stuck with one plan for years, all those options can be overwhelming. Frontier held two-hour meetings with staffers at its 16 participating locations to explain why the company was switching to managed competition and how it would work, going over details such as rate structures and plan offerings. Roderick's happy with the results, but he's not done yet--he plans to use his broker to negotiate better deals with Benu each year.
Visit benu.com and calchoice.com to learn more about managed competition. For general health care information, check out the Kaiser Family Foundation's website (kff.org), which features surveys and news related to employer-sponsored health coverage.