Managed Care Has Not Solved Health Insurance Cost Problems

Companies have adopted a variety of managed care service models. Thirty-six percent rely on health maintenance organizations (HMOs); 32 percent contract with preferred provider organizations (PPOs), and 21 percent use point-of-service (POS) contracts. The remainder offer indemnity plans.

In some cases, unions appear to have been able to hold the line against the implementation of managed care models. Unionized firms had somewhat higher indemnity enrollment in 1994 than nonunionized firms. By 1999, those firms had twice the indemnity enrollment of nonunionized firms (18 percent versus 9 percent). Basic and transportation industries had the highest indemnity enrollment in 1994 and 1999.

Annual increases in health insurance premiums generally ranged from 2 percent to 5 percent over the five-year period, but they rose even more sharply during the last year. Employees were also affected by a decline in the share of premiums paid by the companies. In 1994 about one-quarter of firms paid the full cost of their employees’ premiums, but by 1999 less than 10 percent did so. Unionized firms retained significantly higher contribution levels.

About one-half of the firms reported that they have separately administered mental health care programs (51 percent among the Fortune 100 and 43 percent among the Fortune 500).

In an interview with Psychiatric News, Maxwell said, “Traditional HMOs often were not very effective in providing mental health services. Some companies turned to carveouts as a way of providing a specific focus on mental health. But now they face the problem of integrating primary care and mental health services. Managers expressed concern about the effectiveness of carveouts, but most companies are sticking with them.”

Marcia Goin, M.D., Ph.D., a member of the Committee on APA/Business Relationships and a vice president of APA, said, “Dr. Maxwell has assembled some interesting data. His statistics regarding CEOs’ use of mental health carveouts match the information that we have gleaned in our outreach to business. It is clear that companies now have the problem of integrating primary care medicine and mental health services. Hopefully, attempts to address this problem will lead to the end of carveouts. But we must remember that psychiatry has not fared well in past years when it has competed with med-surg for reimbursement. We in psychiatry must be vigilant in assuring our place at the table.”

The use of carveouts is even more common for prescription drugs. Eighty-one percent of the Fortune 100 companies offer a benefit carveout for prescription drugs, as do 69 percent of the Fortune 500.

Maxwell identified three challenges to employers as they attempt to contain costs and improve quality: continued escalation in overall health care costs, increases in prescription drug cost and use, and problems with service and access caused by health plan consolidation.

To further complicate their task, employers are confronting these challenges at the same time they are hearing more complaints from employees. Forty percent of the companies reported that they received more complaints about health care coverage in 1999 than in 1994; another 40 percent estimated a stable number of complaints (see chart below).

Some employers are considering shifting the increased expense of health care coverage to employees by increasing premiums or copayments for drugs and outpatient visits. A more radical change under consideration is the abandonment of the employer-based insurance system for a defined-contribution approach whereby companies would pay a fixed dollar amount and employees would cover the remaining premium costs.

Maxwell said, “Major employers might experiment with some aspects of defined contributions, but it’s unlikely that a full-blown version of the approach will appear in the short term.”

How can psychiatrists help shape their own futures in light of these far-reaching changes? Maxwell said, “Become more knowledgeable about what the large companies are doing. Open up a dialogue and try to improve communication.”