In Sickness and in Health
When it comes to negotiating the confusing world of employee health care plans, information is power.
BY KEVIN FEATHERLY
For Dave Dalsin, it was a slow-motion disaster. Dalsin is co-owner of Bloomington-based Dalsin Industries, a cabinetry manufacturer with 80 employees that has been in business — and in the Dalsin family — for about 60 years. One day several years ago, one of his employees called in sick. He phoned again the next day, saying he was seriously ill and wouldn’t be back for a few days. Then he called again, this time with a medical diagnosis: liver cancer.
Dalsin’s first reaction was, of course, sympathy. It wasn’t until the bill came that the business ramifications of his employee’s health condition came into focus. “That,” he recalls, “was when we saw it.”
“It,” in this case, was a 30 percent spike in Dalsin Industries’ employee insurance premium, which the company would both have to absorb and pass on to employees. Like most small businesses in Minnesota that can’t self-insure, Dalsin Industries purchases insurance through a broker in the open market. The small size of his group gave Dalsin and his human resources manager no bargaining clout with his existing insurer and no competing plan in the Minnesota marketplace. One cancer diagnosis meant an approximate one-third premium increase the first year, and a 24 percent increase the next year as the worker continued to draw from his insurance for care. In short, everyone suffered.
Dalsin says luck might yet smile on his company. If all of his workers stay healthy for three or four years and build up a favorable medical history, the insurance company might cut the rates back to the 6 percent to 8 percent annual spikes most businesses have experienced these past several years. But he is not optimistic. “It takes time to roll the rates back down,” he says. And that is assuming everyone in the company stays healthy.
Twenty years ago, Dalsin provided employees 100 percent coverage. But as the cost of premiums has risen dramatically over the years, he has been forced to ask his growing work force to shoulder more of the burden. This has led to deteriorating employee relations. “They always think you’re taking advantage of them, no matter how it works out,” he says. “We can tell them we’re paying so many more dollars than we did the year before, but it falls on deaf ears because they’re paying more. And they’re getting less.”
Dalsin is not considering dropping workers’ health insurance. But that is an answer an increasing number of businesses have chosen to get the health care monkey off their backs. A 2007 Kaiser Foundation study showed that 60 percent of U.S. companies offered some form of health benefits to employees; in 2000, the number was 69 percent. Workers forked over $3,281 of their salaries, on average, in 2007 to pay their share of insurance premiums, according to the Kaiser study. That led to a 2.4 percent gap last year between the rise in workers’ health care costs and wage increases, according to Kaiser. (Which is actually an improvement: In recent years that gap has been as high as 10.9 percent.) Dalsin says the health care dilemma is just something he simply has to live with. He has to offer benefits to compete for talent with other manufacturers in the state. Still, he does worry about foreign competition that either does not have to offer health care to workers or has it supplied by the government. But don’t even mention a government-run universal single-payer system to him. “You know that as soon as you let the government handle it all, costs will go even higher,” he says.
“There is no cure for it,” Dalsin says. “In a small group, it’s always going to be that way.”
Susan McDonald, staff director for Governor Tim Pawlenty’s Health Cabinet, has heard that line before. It came up during a meeting with business leaders where various options for tackling the insurance problem were being discussed. She remembers one executive raising his hand to speak. “He said, ‘You know what? I just don’t think this is going to matter—this is not going to change,’” McDonald recalls. “My answer to him was, ‘If we do nothing, nothing is going to change.’”
Information is Power?
People like Dalsin are not in the minority. An informal brand awareness survey conducted by Minnesota Technology, Inc. in December 2007 asked about 60 Minnesota manufacturing company executives, government leaders and economic development specialists to identify the issue causing them the gravest concern about their futures. The near-unanimous consensus? Uncontrolled fixed costs of health care coverage for workers.
That fear predominates despite Minnesota’s place at the forefront among states trying to resolve the health care riddle. The state’s MinnesotaCare program has helped keep the numbers of uninsured relatively low — 8.5 percent of Minnesotans go without health insurance, compared with about 15.5 percent nationally. Meanwhile, in the private sector, health care purchasers — large businesses, unions and management groups — have formed working coalitions with health plans, hospitals and clinicians to reform the state’s health care market. All focus their efforts on getting key information about care quality into the hands of consumers and purchasers — the Dave Dalsins of the state. They consider information the prime factor in driving down, or at least leveling off, health care’s spiraling costs.
Among the most influential of these efforts:
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The Buyer’s Health Care Action Group (BHCAG), a group that primarily represents large self-insured Minnesota employers like General Mills, Target and 3M. The group has pursued value-driven health plan purchasing strategies for the past 20 years.
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The Institute for Clinical Systems Improvement (ICSI) formed in 1993, is an independent nonprofit organization that develops evidence-based health care guidelines. ICSI also works with medical groups, health plans and purchasers to provide patient-centered and value-driven health care service to people in Minnesota.
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The Minnesota Community Measurement (MNCM) program (mnhealthcare.org) reports statewide results of providers’ health care quality measurements. Using ICSI guidelines and data supplied by health plans, MNCM compares and rates care quality among 700 Minnesota provider groups and clinics. It is reputedly the first program of its type in the nation.
Despite such efforts, however, many employers continue to feel like Carolyn Pare, CEO of BHCAG, who asserts that insurers and medical providers dominate Minnesota’s healthcare market, while consumers and employers are mere spectators. The problem, in her estimation, is that insurers and providers are not held accountable for the costs, quality or efficiency of their services. “At the end of the day,” she says, “there is no accountability.”
Meanwhile, reforms like President Bush’s push for consumer-directed health care plans, which rely on health savings accounts and health reimbursement arrangements to drive efficiencies into the market, seem to come up short, at least at first glance.
From the employers’ perspective, consumer-directed plans have the virtue of reducing premiums while placing more of the burden of health care costs onto the consumer. Generally, these are high-deductible plans that charge lower premiums in exchange for allowing consumers to set aside money in health savings accounts, from which they can pay for low-grade care — broken fingers, cuts needing sutures and the like. Deductibles can range from $1,000 to $5,000 depending on the plan—the higher the deductible, the lower the premium. Insurance coverage kicks in only when a relatively serious illness or injury occurs.
From the workers’ perspective, however, consumer directed care plans feel like a risk, according to Roger Feldman, a University of Minnesota health care economist. The consumer is, in effect, making a bet that an illness or injury won’t occur. Many don’t like the odds. As such, consumer-directed plans haven’t taken the market by storm, Feldman says.
Feldman is tracking one large East Coast employer that offered three consumer-directed plans to its employees in 2006. “This company also offered an arrangement of five traditional plans,” he says. “All of the consumer-directed plans got only 11 percent of their enrollment, so it wasn’t very much. I think what’s happening is that unless employers get rid of their other options and just say we’re going to total replacement, the [consumer-directed] plans aren’t that popular.”
“There is this fundamental tension in health insurance,” says Robert Town, a health care economist at the University of Minnesota’s School of Public Health. “You can either provide incentives to be efficient in choosing care, or you can reduce their exposure to risk — but you can’t have it both ways.” Consumers want health insurance because it reduces their exposure to financial risk from expensive medical events. “If you start making people financially exposed to various costs of their care,” he says, “then their risk exposure goes way up. That kind of defeats the purpose of health insurance.”
Still, consumer-directed health care remains the mantra of both the federal government and the Pawlenty administration. With that as a backdrop, a new group has stepped forward — the Smart-Buy Alliance — that offers a new approach to consumer-directed health care that boils down to a single word — information — and could make the process more palatable and cost-effective.
Buying Smart
Formed in November 2004, the Smart-Buy Alliance was the result of a confluence of events. First, a large, informal group of private purchasers, along with the state Department of Employee Relations (DOER), began meeting regularly in 2002 to discuss the challenges that health care poses to employers and to discuss alternatives. Second, the Minnesota Citizens Forum on Health Care Costs, appointed by Pawlenty and led by former U.S. Sen. David Durenberger, recommended in February 2004 the formation of a public/private purchaser alliance to collaborate on enhancing care quality and efficiency through innovative purchasing strategies.
Pawlenty fused those efforts when he announced the formation of the Smart-Buy Alliance, which brings together the informal purchaser group with several state agencies, including DOER and the largest health care purchaser in the state, the Department of Human Services, which oversees Medicaid.
Today, the Smart-Buy Alliance represents a “coalition of coalitions” that includes BHCAG, DOER, the Minnesota Business Partnership, the Minnesota Chamber of Commerce, the CEO Roundtable, Employers Association, Inc. and other groups, in addition to the state agencies. Its purpose is to push providers and insurers to report data on the quality of their services, and to educate the public about which ones provide the best and safest levels of care, and what prices they charge for it.
Why all this matters to the future of consumer directed health care is brought into focus by findings by the nonprofit Employee Benefit Research Institute (EBRI) based on a 2007 Kaiser Foundation study. Nearly 4 million American workers are enrolled in consumer-directed plans, the study indicates, but that represents a paltry 5 percent of insured workers. Consumer-directed plans, EBRI concludes, could be doomed if efforts to educate workers about seeking high-quality, low-cost care fizzle. According to the study, if consumer-directed plans instead rely on uninformed consumers to make health care decisions, they won’t work.
The report draws on the example of consumer managed 401(k) plans, which have proved a mixed bag as a replacement for professionally managed pensions. “The perceived ineffectiveness of education in 401(k) plans resulted in legislation to add defaults to these plans so that they no longer relied upon positive employee action,” the EBRI report states. “In the health arena, the default approach is exactly what the consumer-driven health model seeks to move away from.”
Cracking the Health Care Code
So knowledge is key, says Pare, who considers herself a health care populist. In fact, she says, if consumers and employers knew what was going on in health care, they would not only want changes that would make it work better and more efficiently, they would be breaking out pitchforks and demanding it. Pare asserts that health plans and providers regard patients as the raw material with which they do business, not as customers. They are one another’s customers. She started to understand this when BHCAG began holding meetings with groups of employers.
“The smaller companies would complain that big employers were self-insured, and the smaller employers that couldn’t afford to self-insure were stuck paying taxes and paying for the mandates by the state,” she says. “I also heard from the big employers that the reason we have all this extra burden is because the government continues to negotiate and ratchet down prices, so ultimately the hospitals and doctors are shifting those costs to us.
“Ultimately, the market plays the purchasers one against the other so that they can in fact shift from one place to the other. So it’s, ‘Yeah, yeah, you’re right, small employers, it’s because of the big players that you’re paying more than your fair share.’ And, ‘Yeah, yeah, you’re right, big business, it’s because of [the] government that you’re paying more than your fair share.’” What is required, she says, is a little “information therapy.”
As things stand now, she says, trying to get information about the costs and quality of medical procedures from providers and health plans is like trying to crack the da Vinci code. “It’s ludicrous,” she says. “You get more information on the side of a cereal box than you do when you go in and shop for health care.”
By shining a light on where money is being spent, where the waste is in the health care system, people will realize that they need to seek quality caregivers. “They need to go to providers that don’t have to do a procedure two or three times over because they didn’t get it right the first time,” she says. “They need to go to providers that don’t send you out for six additional tests because, actually, all they have done is all they need to do, based on the evidence.” Ultimately, she says, “it is in the power of the people.”
Cal Ludeman, Minnesota Human Services Department commissioner and chairman of the governor’s Health Cabinet, also sits as co-chair with Pare on the Smart-Buy Alliance. He firmly rejects the idea that nothing will ever change and, like Pare, he insists a light needs to be shone on wasteful health care costs. Employers themselves, Ludeman says, need to shine that light. They need to bone up on the market, researching it for themselves, and not just rely on what their insurance broker tells them is the best available deal.
“If [the employer] is going to be the purchaser for his employees, he has to be a better purchaser himself,” Ludeman says. “He has to go beyond just the health plan level to see what he can look for in making sure that employees are connected to the right providers.”
Most consumers of health care don’t know, for example, that they have about a 55 percent chance of receiving the correct treatment for any condition the first time they walk into a doctor’s office, Ludeman says. It goes without saying, he adds, that a patient getting proper care the first time around will save money. “If you could find the right providers — the primary clinics or the specialty groups that they associated with or the hospitals that do procedures — there is a remarkable difference in the quality and the cost,” he says.
Ludeman says employers could learn a lot about the Minnesota marketplace in two evenings of Web surfing. For instance, they could peruse the Minnesota Community Measurement Web site to compare care quality ratings of medical providers in their communities. Through BHCAG (bhcag.com) they can obtain the annual “eValue8” report, which assesses competing health insurance plans based on value and quality of care provided. They could also explore Carol.com, a new Minneapolis-based commercial service, which introduces a Priceline.com-style health care shopping option that, if successful, could drive providers to competitively price medical procedures on a consumer retail basis.
By arming themselves with a little prior knowledge, employers could ask better questions at the broker’s office, Ludeman says. For instance, they could ask whether a plan does anything to direct employees to cost-efficient care. They could ask whether retail health services like Minute Clinic are incorporated into the plan. “They could probably save thousands and thousands of dollars in one hour’s time,” Ludeman says. “I’m sure they could.”
Staying Out of the Pool
One thing that the Smart-Buy Alliance is not attempting to do — though legally it could — is to forma collective pool of its members to directly negotiate with insurers to purchase group insurance enmasse, the way DOER negotiates state-worker benefits. Some industry associations around the country have attempted to do that through Multiple Employer Welfare Arrangements (MEWA). MEWAs are covered by the Employee Retirement Income Security Act (ERISA) and are subject to state and federal regulations.
Several MEWAs have been attempted in Minnesota, and, in concept, are an attractive alternative for small businesses that find it difficult to afford coverage for their employees. Their effectiveness is hard for Minnesotans to judge, however, because there are no licensed MEWAs in the state. “The [MEWA] groups that existed in the past all had financial problems and went bankrupt,” the Commerce Department said in a 2004 press release titled “Be Wary of Discount Health Plans.”
That statement doesn’t, however, account for those MEWA groups that were never allowed to exist. Four years ago, Employers Association, Inc. (EA), lobbied the state Legislature to formone in conjunction with the Minnesota Chamber of Commerce, according to EA vice president Sue Eskedahl. “We got those legislative changes through,” she says. “Then we went and made an application to the state of Minnesota, putting into place a wonderfully designed health reimbursement account, solid preventative, high-deductible plan design that included coverage for high-cost procedures.” The majority of EA members interested in the plan were small manufacturers, she notes.
“All we needed was a minimum of 1,000 lives to meet the threshold, we had an interest representing an excess of 10,000 lives,” Eskedahl says. “We got as far as a tentative approval from the Minnesota Department of Commerce. ”However, at the last minute, she says, commerce officials had a change of heart.
“They had this unfortunate misconception of MEWAs, so they pulled the approval,” Eskedahl says. “It would lower the costs and they wouldn’t get as much out of it.”
It was an enormously frustrating experience, she says: “We had the right things in place to do this right. It was just an innovation that wasn’t part of the Department of Commerce’s vision in terms of letting these small employers pool their risk with one another.”
Ludeman says he favors the creation of what he calls “association plans,” including MEWAs. “I wish we had them here,” he says.
Still, no one is pushing to convert the Smart-Buy Alliance into a MEWA. Instead, says Susan Sheridan Tucker, president of the Edina-based CEO Roundtables of Minnesota, the group will wield its collective clout in a different, and perhaps equally potent way, by disseminating information to its members and allowing them to negotiate for coverage and care services from a much better-informed — and therefore amore powerful — position.
“Alliances like the Smart-Buy Alliance are trying to amass the purchasers of health care plans in the state of Minnesota so that we all kind of get on the same page,” Tucker says. “So instead of the providers coming back and saying that this is the way it’s going to be, as customers and purchasers, we’re saying, ‘Wait a second. You just keep inflating the cost, and it’s just getting astronomical. We can’t pay for this. So we’re telling you, this is what our expectations are.’”
For Pare, spreading knowledge is the only way to slow the growth of health care costs. Every other attempt that has ever been made, she asserts, has had no better effect than to move money around in the health care system. Costs are never reduced, she says. It’s just that a new set of pockets gets filled. She also states bluntly that, with the best of outcomes, efforts like the Smart-Buy Alliance are not likely to cut the costs of health care at all.
“This is not necessarily about saving money, but reducing and moderating the trend line of increase,” she says. “I know people hate that idea. But anyone who is looking for a quick fix is not well informed. We have had at least 35 years of quick fixes, and they don’t work.”