i0 15 6 13 12 839 7 54 2 Mr. Chairman, I appreciate the opportunity to submit this statement 11 14 for EBRI i0 health care delivery system in_. the United States a see the lacm of consumer selection and a rapid increase in the cost of the more generous plan; tne the relative effectiveness of the T vAB arious LE 2 cost-control strategies that have employees away from generous health TABLE 1insurance coverage. This concern Another the can record. be survey groupedTheof intoI_nployee 308three large Benefit categories: employers Research indicated (1) Institute changesthat thatmore isareathan intended nonprofit, half (53 to for cpromising. important opayment inpatient obstacle foMost r hospital expenses employers to their care. related who development. have tConsistent o the adopted surger Seyflexible v.with eral Same-day forms this benefits of goal, surger these plans yemployers arrangements pro have visionsdone are popular Often they thaninclude: increased cost-sharing as a method of controlling plan costs. The repricing of alternative health insurance plan options in a flexible awareness of health care costs as a critical source of nealtn care cost data do not indicate whether the multiple plans were offered in the context been adopted PROPO by employers, RTION OF RESPONDENTS Nevertheless, WHOEXPERIE the published NCED COS distri T INC butions REASES provide are increasingly have persists intended been DISTRIBUTION infound spite expanding to eliminate of in OFgeneral the t_IPLOYEES violation unnecessarily scope employer of BY o£ group FIRST-DOLLA antitrust agreement early health laws Rho COVE plans that spital as RA horizontal to GE the admissi OF include intent HOSPITA onsprice-fixing coverage of L/the and code theof nonpartisan percent) so redirect to induce had employee public increased employees incentives policy their to share research plan's to use more deductible; health organization of their care health in25general percent founded insurance , had and in costs hospital increased 1978.andEBRI care the to Hospital utilization review involves assessing the appropriateness of o containing the cost of group health insurance benefits benefits program--consistent with the cost experience of the plans--is T-25 BELOWTHE SURVEY MEDIAN INCREASE IN 1981 BY WHETHERTHEY inflation. Surve SURGICAL y evidence EXPENSES, suggests NEWCOMP that REHENSIVE health MAJO care R MEDICAL cost ix_lation PLANS, Itself by inducing employees to share more of the health care of a flexible benefits program, or whether other incentives were provided for no information about the IMPLD com 4ENTED binations A SPECIFIC of strategies PLAN FEATURE used by employers. The home arrangements in withparticular; respect health to care (Arizona nondiscriminatory (2) services, changes v. _ricopa hospice thatbenefits specifically County services isMedical worthy. restrict andSociety, outpatient the use 1982) hospital of or some as sponsors copayments take greater research required responsibility and by educational the1980- plan. for 1982 controlling In programs (in addition, percents) in those an nearly effort 1/costs. onetothird provide The emergence (31 apercent) sound of hospital subsequent costs admission, higher covered costby inpatient the of plan; hospital hospital roomservices and board. and This hospital provisidischarge. on may important to the program's potential success in containing health insurance has forced employers to consider dramatic changes in their Imalth insurance employees to elect less generous health insurance coverage. particularly The Effectiveness good cof ostPlan experience Redesignassociated with any particular strategy, arrangements services. information services; and basis Outpatient potentially (3)forchanges public hospital inpolicy that restraint services decisions. restructure ofcovered trade EBRI the does by (Group delivery employer notLife oftake Percentage health group and positions Health plans care unif flexible had ormly raisedbenefits exclude the employee coplans verage, ocontribution and f hothe spitallegal roofor and m and regulatory either board their charges impediments ownfoco r verage to weekend their or Individual employers or insurers may contract with professional service o offering employees new, specialized benefits tailored costs and health care costs aggregately. Employers who provide more than one Have Have Not benefits. These changes may be the single most promising avenue Change, for to the needs of a demographically changing workforce Summary Evidence of the effectiveness of alternative plan design changes is therefore, may reflect the usual adoption of that strategy in combination often on Insurance services public include toCompany policy persons preadmission v.issues. Royal covered Drug testing, Iunder amCompany, pleased the outpatient 1979). to plan.address surgery In Changes general, the or Committee insurgery a thePPO first concerning is performed open group,to admissi development, ons unlessare surger described y is briefly scheduled below. Implemented for theThefostatement llowing Implemmented moconcludes rning. Towith date,an dependents review without organizations coverage substantially under (PSROs) the plan.Z raising or with / total peer benefits review organizations costs; and (PROs) to Level of Coverage 1980 1981 1982 1980-1982 health insurance plan option anticipate "adverse selection" by employees. controlling Program the rising cost of health care for (Percent) all payers. (Percent) Difference Although changes initiated in employer group nealtn plan design over with scarce. other Most measures research to cthat ontrolhashealth been conducted care costs. has examined the effect of legal in examination thosefree-standing A re that corrollary view; reof dnevertheless, irectsurgical existin ofemployee increased g centers. evidence these incenti deductibles arrangements veson These the to success services useand have health copayment been ofare care alternative pursued often serpro vicesaggressi v,intended isions measures include vely for to no employer survey efforts informati to on control has the trackedrising the cost emergence of health of care same-da in y thesurgery United All evaluate ]_nployees hospital use. Hospital utilization i00.0 I00.0 reviewi00.0 may be conducted -- o encouraging employees to elect higher levels of saving, That is, employees who expect to have lower health care expenditures over the Added or Increased Amount of The changes initiated by employers are notable for two reasons. anticipating the need for greater reliance on the last few years have received considerable media attention, no nationally States. Co-Despite Insurance this problem, the results reported 70.0 in the 32.1 NAEHCA surv37.9 ey are discourage by imposing greater some higher cost-sharing employers the deductibles use and of on insurers health inpatient and copayments service inhospital an effort utilization for care toallor control to orand, discourage some thesubsequently, services cost protracted ofcovered their on pr adopted hospital First-Dollar ovisions by care in employers empl Coverage hasobeen yer togr the 2/control oupreduction health the cost plans. of "first-dollar" of36.4 their Second-24.4 ownorhealth co third- v6.6 erage opini insurance onfor-81.0 inpatient surgery plans prospectively personal (before savings hospital for retirement admission), income. concurrently (during the patient's year are most likely to elect a low-cost, less generous health insurance First, Covered theyHospice have occurred Benefitsin a relatively undramatic, 60.0 incremental 54.4 fashion 5.6-- representative data have been collected to document those changes. _e nave UNITED STATKS SENATE reasonable. These results are summarized in Table 2. Among respondents that hospital hospital group by Used hospital the Various Outpatient health plan expenses. stays ,costs. measures insurance as well Rby eview This Anequalizing asplans. taken annual expansion research bysuremployers insurance vey ofhasof the new uniformly scope to58.3 incentives comprehensive contain of covered the concluded between 46.2 cost major servicesinpatient of medical that toproviding 12.1 include higher plans and and, Deductible at the or same First-Dollar time, the national Copaymentcost of63.6 health75.6 care. 93.4 +46.9 pr hospital ovisions, stay), however,or haretrospectively ve become quite (after common.hospital The 1982discharge). HIAA survey Because of new The inclusion of a cash reimbursement account in these plans is often, in plan. As a result of this adverse selection behavior, employees remaining in SPFCIAL COMMITTEF ON AGING Covered Outpatient Surgery or and without legislation that would either encourage or require change, in no good evidence, moreover, that the changes that employers have initiated in had added or increased the copayments required by the plan, 70 percent had cost-sharing by insured consumers reduces the use of health care services, outpatient underwritten health substitutes Surgical insurance Centers care. for by more 33 benefits major costlyinsurers toinpatient employees in hospital the and52.5 their United care.dependents States Changes 27.3indicated have inbeen the 25.2 awidely second sharp Changing The Emergence Incentives of Flexible Benefit Plans comprehensive major medical plans underwritten by major insurers indicated prospective the employer's and concurrent mind, critical review to are the highly successlabor of the intensive program and,intherefore, reducing the most generous--and most costly--health insurance plan option are likely Covered Home Health Care 52.2 38.5 13.7 fact, SOURCE: employers Health haveInsurance implemented Institute, both preferred New Group provlder Health organizations Insurance Policies (PPOs) the design of their health insurance plans have been effective--alone or in Hearing on experienced including A flexible the couse stbenefit of increases inpatient or "cafeteria" thathospital were plan less care.is thanan Itemployer the appears median benefits that cost reduced plan increase use which of reduction UsedThe Inpatient HIAA in survey Review the proportion of newof comprehensive new plans that 50.8 major covmedical er initial 45.5 coverage expenses described 5.3 for publicized that groupPlan , 84 those percent design Issued over thatthe in changes of 1980 restrict plans last(Complete that few (weighted theyears. redirect useTables), b of y These plan consumer services Mimeo, measures, size) covered incentives Table included while by 45;to the Health adesigned use sec plan, ond- health Insurance opini to include oserve ncare costly to produce, review organizations often delegate prospective and health plan costs. Employers anticipate that employees would resist "trading to represent greater health care costs, on average, than employees who elect Implemented a Health Promotion and flexible benefits programs in spite of potential conflicts with existing Association of America, New Group Health Insurance Policies Issued combination with other efforts--in controlling either plan costs, or ttm Health Care Cost Containment above rep Program ortedindicates by all emerging respondents.coverage Similarly, of services 50.7 coverage that substitute of 47.3 hospice for benefits inpatient 3.4 was gives the hospital narrower employees caregoal , some and of controlling choice lower among hospital employer types costsof ,costs, benefits resultpromise fromor significantly to relative also amounts serve lower the of concurrent inpatient services requiring in include hospital compliance review 1981 raising (Complete toorthe with surgical admitting the formal Tables, level care.3__ review hospital Mimeo, of cost-sharing /ofTable Inon hospital 1982, a49; subcontract required Health only utilization 7 percent Insurance by ,basis. the as ofplan all Critics well new and as surgery provision. adown" lessto generous a less health generous plan. health As ainsurance result, plan the average option in cost the absence of the ofmost an law. Required a Second Surgical Opinion 50.4 47.2 3.2 Association of America, New Group Health Insurance Policies Issued total cost of health care among employees. In general, the changes that nave October 26, 1983 associated with good cost experience; the narrow margin between the cost Used rates Coordination of hospital of admission Benefits among persons 49.3 with insurance 40.0 that 9.3 requires broad plans benefits hospital second-opinion goal (weighted care. provided of Incontrolling surgery by by 1982, the plan 89employer. requirements percent size) aggregate pro of Plans vall ided and health established new same-day first-dollar major care medical under surgery costs. hospital Internal plans requirements. Neither /(weighted surgical Revenue the Restructuring changes of the utilization in the Service scope review Deliver ofprocess, ycoveredhowever, services. have charged Increased that cost-sharing the practice under of in 1982 (Complete Tables), Mimeo, Table 50. ability to, in effect, insure against unanticipated out-of-pocket expenses. generous plan option is likely to rise significantly faster than the average UsedSecond, Claims Review these changes reflect the real49.1 options available 47.9 to employers I.2 occurred are too new to evaluate their effectiveness. Nevertlleless, Statement of Ser experience vice Code of empl Section oyers wh 12o5semay health not contain insurance a pension plans coplan vered orhoother spice deferred care and by Covered coverage. Changes greater plan size) Pre-admission in cost=sharing the This covered last rate group for preadmission Testing ,represents hospital those that expenses.4_ an testing; restructure 81-percent /48.3 81 _'_ether percent service drop increased 42.1 covered since delivery 1980 cost-sharing home to 6.2 persons in health the prevalence employer The emergence group norplans the of cmay oeffectiveness ntractual be achieved arrangements by of alternative raising between deductibles indi strategies vidual and pradopted ovcopayments iders oby r delegating review to the hospitals significantly compromises its Acostreimbursement of the least generous account enables plan option. employees Repricing to self-insure plan options against according higher to Covered Fxtended Care Facilities 47.7 39.3 8.4 andI/private Includes insurers new comprehensive in controlling major health medicalcare plans costs. withOther hospital potentlai room and preliminary evidence has begun to emerge; this statement provides a summary Deborah Chollet, Ph.D.* those Increased is more whose Deductibles effective plan did in n containing ot probably health reflects40.1 plan the costs low frequenc 44.9 than yalternative of -4.8 terminal plan care for employers co income veredservices. all plan byor inother controlling the some Coverage plan than services , an include ofemployee the paramedical covered principally costprofit-sharing byofthe testing their plan, the health establishment and as plan. well hospice insurance To as care the raising of programs extent awas "preferrred somewhat employee that havea _oard (weighted) coverage number only,ofancillary new plans hospital thatservice providecoverage first-dollar only, coverage all hospital for effectiveness. provider groups As and asome result, employers employers or insurers who useisutilization an important review develomost pment often in health insurance costs; the employee can designate residual balances in the experience will, subsequently, result in the prices of the plans diverging Research Associate Increased Amount Employee Pays strategies service --coverage such asonly, the implementation surgical coverage of prospective only or all pricing hospitalfor plusservices surgical of available evidence regarding the effectiveness of alternative employer illness and hospice use even among plans that continue health insurance the been less of Premium effcommon documented. ort t(44 o copercent ntrNo ol nationally health and 13care percent, representative costs. respectively). These 26.1 data arrangements have Evidence 49.0been havcompiled e from come -22.0to other that be provider" inpatient contributions "typical" design strategies hospital flexible for ,services for their benefits or howesurgical v co erown v,eredplan has coverage by care. recei exists, the vedThe plan. orthese little annual for plans The dependents attention. change changes typically in the coverage in include plan proportion design under twothe of or in over coverage. time. Surgical coverage may include coverage of either schedule or use retrospective review. Although retrospective review itself does not reimbursement account to pre-tax saving (possibly in a 401(k) account), or Added an Optional Low delivered actual char to plan ges. participants -- are often _ifeasiDle in a competitltve strategies to control health care costs. coverage The data to retirees. collected in the 1982 NAEHCA survey of employers allow a would more Benefit health track Planinsurance recent changes plans. in the Theydesign may also of 12.5 include employera group dental 48.4 plans insurance -35.9 to control plan, surveys new each plans groupof are employers prov discussed iding(infirst-dollar particular, in detail below. hospital the 1980/surgical and 1982covsurveys erage since conducted 1980 by is kn plan. 2/ own Plans generically Because thatthese provide as "preferred changes first-dollar reduce provider employees' hospital-surgical organizati real ons" level coverage (PPOs). of compensation require A PPO is by no a limit benefits covered by the plan, it may enable the plan to enforce other cash the account out as taxable earnings. Employers are concerned that the tax code that now governs flexible environment. It is likely that prospective pricing by a single small plan d-eductiblefor coverage of hospital or surgical care and no copayment on The changes initiated by employers include Cl) changes intended to Raising deductibles or the level of employee contribution to the plan NAEHCA) indicate that these coverages have become much more common features group raising preliminary In life addition their and assessment out-of-pocket to disability these of changes insurance, the cost relative within of dependent-care health effecti the veness care, framework they benefits, of ofhave alternative existing been group generally employer changes legal cpresented plan initial ontractual costs. expenses in Table arrangement Nevertheless, forI.thesebetween we services. have pr some ovidersevidence and that purchasers plan design of health changes careas planEmployers restrictions anticipate on coverage reducingprior their health to payment. insuranceRetrospective benefits costs, review and benefits plans will ultimately limit the repricing of health insurance would merely lower the value of health insurance coverage to pi_ SOURCE: W. Pollock and R. H. Stack, 1982 Survey of National Corporations on encourage employees to use less health care and to use less expensive forms have apparently been less successful strategies for controlling health plan of ser health resisted strategies services, in vices. employer Changes plan insurance vacation by design Under group in toemployees, the control the plans intended plans scope and arrangement, ,sick-leave since plan ofparticularly some services to costs 1979. control employers pr time ovare iders covered by and increasingly health have those amacash by y initiated agree with the careaccount--sometimes plan frequent; collectively costs. to are adisc much ount often further, By more charges inference bargained sweeping called designed these , ina National Corporations on Health Care Cost Containment, National probably reducing total also exerts employee a "sentinel" health careeffect expenses, on plan by fixing participants, their contribution physicians and to options according to experience. That is, the non-discrimination rules that participants and restrict their access to health care. Neither employers nor Association o£ Employers on Health Care Alternatives (1983): pp.29- of health care; (2) changes that restrict the use of health care services costs. The 31. lack of success in achieving lower plan costs through higher health "reimbursement changes to strategies redirect insurance maypatient thatbeaccount"--from plans. at areuse least effecti ofmoderately health ve which services in employees successful reducingtoward employers' may inless reimburse stabilizing expensive costs themselves employer ofsubstitutes providing costs for Restricting return reorganization for guaranteed Service of their Use prohealth mpt payment. insurance In benefits. addition, prIn oviders some ma cases y c,ooperate this health hospitals, insurance particularly benefits. when the Employer employer contributions or insurer is canlarge be and fixwell ed either known govern flexible benefits under the IRS code --Section 125(g)(2)-- require * The views expressed in this statement are insurers are able to require providers to accept prospective payment as covered by the plan; and (3) changes that encourage employees to outaln those of the author and do not necessarily health insurance benefits are also effective in reducing aggregate health deductibles in utilizati Restrictions on or revempl iew on oyee benefits that co w ntributi ouldfor ons mthe onitorpurpose may and reflect of contain controlling increases the grothat wth health ha ofvehealth plans been and out-of-pocket raising employee health care awareness expenditures, of the cost or of contribute their health to a savings care. plan Consumer on a reorganization In spite ofinvolves employeesimply resistance the offering to greater of more cost-sharing, than one health many employers insurance to local health care providers. The 1982 NAEHCA survey of employers absolutely or as a percentage of the cost of the lowest-cost health insurance employers to contribute not less than 75 percent of the cost of the most reflect the views of the Employee Research payment in full, as does both Medicare and Medicaid. It is important that services from providers that have contracted to provide a discount from Institute, its trustees, members or other min awareness or relativeof ttheir o eitherown thehealth risingcarecostcosts of has the often health been planidentified or to general as a care utilization and cost. The magnitude of that saving, however, cannot be costs most often apply to the use of inpatient hospital care by plan plan pre-tax report service option ha use vbasis. ing andto raised plan employees IRScthe osts. Code deductible Section As withan the incenti or 125copayment vwas same e legislated foemployer r plan provisions participants contribution in 1978; of their implementing toto use health group the indicated that 35 percent of the surveyed employers used utilization review; plan. Employees have an incentive to use fewer health care services, even expensive health plan to the health plans of all employees. The purpose of staff. employer actions to control health care costs be evaluated in the context of normal charges, or more importantly, to cooperate with utilization review. rates measured of inflati with on. available Alternati survey vely, data. employers who have raised deductibles or participants. 2critical regulations, /Nationalfactor Association however, Restrictions in containing ofhave Employers onaggregate not benefits been forcovered health issued Healthcare by byCare cost the the Alternatives plan Department inflation. may include (NA of Control EHCA), the (i) ser health insurance vices plan of coverage co the verage PPO, under plan since co1980. veach erage One plan is o sur ften option. vey better of 1420 Other for employ PPO employers ersservices throughout have than more fthe or this rate was I0 percent greater than the 1979 rate reported in NAEHCA's with this arestriction cash reimbursement is to prevent account.employers Dollarsfrom takenoffering to reimburse "luxury" employees plans for to the competitive environment in which employee health benefits and health S--urveyof National.Corporations on Health Care Cost Containment (1982). This Although the prevalence of these changes has been documented only uy industry The information provided by the NAEHCA survey, moreover, must be empl Treasury. United fundamentally of health oyee States cocare ntributi Despite reorganized cost oindicated ns the inflation, ma resulting y their that havein health datmosphere approximately oturn, ne so insurance is in an oof rder important uncertainty, one-third toplans avoidfactor within implementing (34 thein the percent) popularity controlling framework other had of compliance survey, services deli like vwith eredthehospital Mercer by other survey, utilization providers.is a specialized review, Greater (2) covrequirement sur eragevey of forlarge of PPO afirms second servicesand or earlier survey. the initial costs of their health care--those not covered by the less highly compensated employees that are not accessable to lower-paid insurance contracts are bargained. was not designed to be nationally representative. The average size of firms survey data --none of which were intended to be nationally representat_ve-- considered with caution. These data provide the only published assessment of third plan flexible changes physician benefits thatopinion w programs ould reduce before among health undergoing both servemployers ice electi utilization and ve surgery, employees or redirect orhas (3)generated same-day patient of that the increased agrowing flexible responded thepublic benefits copayment to NAEHCA's burden program required ofsurvey _dicare orforwas "cafeteria coand vabout erage Medicaid. 30,000 of plan." inpatient employees; The hospital incentives the smallest care._for / Plan provisions that require a second or third medical opinion before generous might behealth achievedinsurance by waiplan ving they the deductibles, have elected--reduce copayments, their or ability limits to on employees. Employers who seek to reduce their health plan costs--and health I thank you for the opportunity to submit this statement, and stana respondent employed I00 workers. 1979 information from NAEHCA is obtained these surveys suggest that employers have been aggressive in their pursuit o£ care to less expensive forms or sources of care. The poor cost experience of surgery provisions. Although many employers have adopted these restrictions, employees from apparently Thetheir variety significant to1979of reduce Survey plangrowth design health of of National changes these insurance plans Corporations that during coverage have been the oninHealth last adopted favor five Care by of years. Costs employers greaterand elective coverage surgery for services are often delivered enforced by the either PPO. by refusing payment for failure by purchase care costsother aggregately--through benefit options,acontribute flexible tobenefits pre-tax savings, program, however, or receive are 4/See, for example, the results reported by J.P. Newhouse et. al, "Some ready Health to assist Maintenance the Committee Organizations. in further consideration The 1979 survey of measures included to control 251 large strategies to control the cost of their health plans by inducing employees to Tnterim Results from a Controlled Trial of Cost-Sharing in Healt-_ Ih-surance," empl restricting oyers whthe o ad use optedof benefits optional covered low-benefitby the plans plan mayappears reflect to be adverse less additional I cost-sharing / The Employer 1982cash goals sur within income. veyinofimplementing thehealth contextcare a flexible ofcost a flexible containment benefits program benefits effortsare program conducted complex. are by employers. The legal status of preferred provider organizations has been an concerned plan participants that thistosection comply,oforthe by tax imposing code restricts a separatetheir deductible ability or to induce higher The New England Journal of Medicine 305, no. 25: 1501-1507. the rising cost of health care. William M. Mercer, Inc. is an industry survey, and was not designed to be 3JHealth Insurance Association of America (HIAA), New Group Health Insurance be more aware of their own health care costs. Many who would reform the Policies Issued in 1982 (Complete Tables), Mimeo (1983). nationally representative. More than 55 percent of Mercer's respondents were employee groups EMPLOYEE of more than BENI000 EFITworkers. RESEARCH INSTITUTE 212t K Street, N',A Suite 8bO \\ashinRt,.m, I)C 20057 Felcphonc (202) bSq+-OOTO