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Health care reform reaches beyond the uninsured with expanded choices for workers

Employers rethink how to offer health care benefits as the ACA changes kick in

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Health care reform reaches beyond the uninsured with expanded choices for workers

Employers have a plethora of options for providing medical benefits to their employees, including different health plan types and products.

Preferred provider organizations still dominate the marketplace, accounting for well over half of all covered workers, according to the Kaiser Family Foundation/Health Research & Educational Trust's 2013 Employer Health Benefits survey.

Large employers, in particular, like PPOs because they can offer the same health plan nationally with one vendor.

But will PPOs reign supreme as employers look to shift more of the cost of care to employees?

Some experts say high-deductible, “consumer-directed” health plans linked to a health savings account or health reimbursement arrangement could begin to rival PPOs as employers look to share more of the cost of care with employees and empower them to spend wisely.

Seventy-two percent of the nation's largest employers already offer at least one consumer-directed health plan, and more than a third consider these plans the most effective cost-control tactic in their arsenal, a 2013 National Business Group on Health survey found.

The Patient Protection and Affordable Care Act provision requiring employers to fund a minimum level of coverage — at least 60% of health-plan costs — coupled with the law's 40% excise tax on high-cost health plans in 2018 could accelerate consumer-directed health plan adoption as companies strive to balance benefits and costs.

“The market is heading down two separate paths,” said Jim Winkler, chief innovation officer of health and benefits at Aon Hewitt in Norwalk, Conn.

Some employers are looking to expand health-plan options, giving employees access to a wide range of plan types and products as well as decision-support tools. A small but growing number of employers are moving their health benefits programs into private exchanges that provide an array of choices.

Ash Shehata, principal with KPMG's advisory management consulting practice in Cincinnati, and a former Cisco Systems Inc. executive focused on health care business transformation, sees value in experimenting with different options, from PPOs to high-deductible plans. He thinks employers can glean greater insight into employee preferences and differences in provider networks.

“There are a lot of variations between the plans and the products, and I think everyone's going to best served in opening that list a little bit,” Mr. Shehata said.

Other employers are paring back their offerings. They would rather have employees make good choices when they use the health system than fuss over which plan to select.

Forty-two percent of employers in a recent Aon Hewitt survey are considering a “full-replacement” high-deductible plan in the next three to five years, up from 15% today.

“I've got clients that have been on a total HSA solution for 5 years, and they wouldn't have it any other way,” said Skip Woody, partner at Hill, Chesson & Woody in Raleigh-Durham, N.C. “I have other customers who feel like the HSAs are sort of like the latest fad in cost control (who say) we're going to stick with what we know: PPO with copays,” he said.

East Coast Equipment, L.L.C., a John Deere dealership based in Scotland Neck, N.C., is at a crossroads. The company decided last month to begin offering a high-deductible plan with an HSA in addition to its grandfathered PPO plan. It launched an education process months ago to help employees understand how such plans work.

But Mandy Pendleton, the company's human resource manager, said the company has no intention of replacing the PPO entirely unless, over time, it proves to be the best value for its 240 eligible employees.

PPOs gained momentum in the mid- to late-1990s amid widespread employee discontent with health maintenance organizations and their “gatekeeper” restrictions.

“Employers really found administrating multiple HMOs cumbersome. There was also a feeling that the HMOs were not necessarily saving money but just selecting better risks,” said Harvey Sobel, a principal and consulting actuary with Buck Consultants in Secaucus, N.J.

In 2013, just 14% of covered workers were enrolled in an HMO, half as many as in 1999, the Kaiser/HRET survey shows.

HMOs tend to be more popular in markets with strong regional players, like Harvard Pilgrim Health Care Inc. in Boston, Geisinger Health Plan in Danville, Pa., and Oakland, Calif.-based Kaiser Foundation Health Plan Inc., with operations in seven regions of the country.

Point-of-service plans, combining an HMO-like network with PPO-like flexibility to go out-of-network, have largely fallen out of favor. Only 9% of covered workers are enrolled in a POS plan, but there are regional exceptions.

Small and mid-market companies in southwestern Virginia, for example, tend to prefer POS plans over PPOs because the smaller POS provider networks in that market have better pricing, said Carol Taylor, benefits advisor with D&S Agency in Roanoke, Va., a partner of Indianapolis-based United Benefits Advisors.

On the other hand, POS plans don't always work for employers in border areas, like Virginia-West Virginia or Virginia-North Carolina, where networks may not stretch across state lines, she said.

Like HMOs and POS plans, exclusive provider organizations, or EPOs, aren't as prevalent as they used to be. But these plans haven't vanished completely. EPOs allow employers to provide a consistent, HMO-style plan with copays and in-network coverage to workers nationwide, experts said.

Industry benchmarking plays a huge role in employers' health-plan choices. That's why large national retail banks, as a group, have been more willing than investment banking firms to embrace consumer-directed plans. Employers tend not to stray too far from what their competitors are doing, especially in markets where companies compete head-to-head for top talent.

Geography also influences employer decisions.

In rural areas where there are no HMO or PPO networks, employers fill the gap with a traditional indemnity plan.

In major metropolitan markets, employers may find they can cut a better deal with a hospital-led accountable care organization because the network is narrower than what most PPOs offer.

Most health-plan contracts are still based on negotiated prices, Mr. Shehata said. But as payers and provider networks develop scorecards to measure improvement in employee health and more employers begin to shop for value, not just price, new health-plan options could overtake the PPO.

“At the end of the day, you're going to make your mark on better outcomes, not better unit costs,” he said.

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