MANAGED CARE MAKES STRIDES

THE NEWS IS getting better for employers.

For a second year in a row, group health care costs have remained essentially flat. As we report on page 1 this week, a new survey by A. Foster Higgins & Co. Inc. shows that group health care costs for active and retired workers rose only 2.1% in 1995 to an average of $3,821 per employee from $3,741 per employee a year earlier.

The survey shows that the 1994 cost results were no fluke: group health care costs actually fell 1.1% that year.

All indications are that the good news will continue this year.

That relative stability-which is in striking contrast to the annual double-digit inflation of only a few years ago-illustrates the success of employer and health insurers' efforts to reign in group health care costs.

This has been accomplished without government intervention or mandates. And while the threat of health care reform is often cited as a factor, the real contributor is the fundamental overhaul in the health care market brought about by managed care.

According to the survey, 71% of active employees were enrolled last year in managed care plans, up from 63% in 1994. With a cost differential between managed care and traditional indemnity plans of several hundred dollars, the continuing shift of workers to managed plans has meant billions of dollars in annual savings.

In 1995 alone, the percentage of employers offering an indemnity plan dropped to 54% from 60%, while the percentage offering a preferred provider option leaped to 49% from 40% and the percentage offering a health maintenance organization climbed to 57% from 53%.

At the same time more employers are offering the plans, they also are gaining wider acceptance among employees. The survey noted that the percentage of eligible employees in HMOs is climbing steadily. Other surveys have noted high satisfaction among employees with managed care plans.

Despite these successes, there is more to be done.

Employer costs continue to climb for retiree health care, where managed care has yet to make significant inroads. The potential for savings is clearly there, but first employers have to do more to encourage retirees to enroll in managed care plans. In 1995, just 15% of retirees under 65, and 7% of retirees 65 and older, were enrolled in HMOs, compared with 31% of active employees.

The Medicare program also must make greater use of managed care. We are encouraged by the program's use of risk contracts, under which Medicare contracts with an HMO to provide care to beneficiaries. We also hope Congress and the administration eventually reach a consensus on a Republican plan to increase incentives for Medicare recipients to use managed care alternatives.

Finally, managed care companies and employers cannot rest on their laurels. Managed care must continue to demonstrate that quality care and lower costs are not mutually exclusive. Continued refinement of quality measurement tools is needed.

We expect more good news lies ahead for employers.