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RANCHO CORDOVA, Calif.-One Northern California employer hopes that giving its employees the option of changing health plans as frequently as every month will encourage a higher level of competition and quality among its managed care plans.

However, some benefit obser-vers think the arrangement will be an administrative nightmare and works against the objective consultants recommend of establishing long-term relationships with the plans.

In addition to boosting competition, Vision Service Plan launched the program Jan. 1 to make the elimination of its preferred provider/indemnity plan more palatable to its 1,200 headquarters employees, according to Walter Grubbs, vp-human resources of the vision benefits provider.

"At the time we decided to eliminate the PPO/indemnity plan, we still wanted to preserve flexibility and choice," he said. "So one of the ways we addressed that was by bringing in a point-of-service plan."

United HealthCare Corp. administers the POS plan, which replaced the PPO/indemnity plan Jan. 1.

But to encourage employees leaving the PPO/indemnity plan to join one of four health maintenance organizations it already offered instead of joining the POS plan, VSP launched the new program, called On-Demand Enrollment.

While so far only four employees have taken advantage of the opportunity to change plans on a monthly basis, Mr. Grubbs believes the freedom the new program allows is responsible for VSP's HMO enrollment to grow to 90% now from 75% at year-end 1996.

VSP offers four HMOs: Kaiser Permanente, United Healthcare Corp., Health Net, the HMO subsidiary of Foundation Health Systems Inc., and PacifiCare Health Systems.

Consultants at Buck Consultants Inc., which helped VSP develop the program, believe it will provide a powerful incentive for health plans to keep members satisfied.

"Giving employees increased control over their health plans will help transform managed care into more of a free and open market," said Steve Ferruggia, national director of health and welfare services in Buck's New York office. Mr. Ferruggia developed On-Demand Enrollment.

"We believe this will also create more competitive opportunities for high-quality, forward-thinking health plans," he said.

However, some health care experts view the program as little more than a sales ploy.

"It sounds like just another gimmick to get people into managed care," said Jim Hall, president and chief executive officer of HCM Benefits Inc. in Torrance, Calif., a group benefits broker.

"This sounds like an awful bait-and-switch come-on," said Dr. David Friend, global director of health care consulting for Watson Wyatt Worldwide in Wellesley Hills, Mass.

"It defeats the whole purpose of having a supplier relationship," he said. "It would be like Ford changing engine suppliers every day. It just isn't going to work."

"How are they going to administer this? And what about adverse selection," he queried.

Both of these issues were considered in the development of On-Demand Enrollment, according to Mark Agnew and Bob Burnett, two principals in Buck's San Francisco office.

All four of the HMOs have similar benefit levels, and copayments are all $5 per office visit, so "people do not select between benefits, they select between health plans," explained Mr. Agnew.

And to protect the POS plan from adverse selection, employees can only enroll in that plan on either Jan. 1 or July 1, according to Mr. Burnett.

The POS is the only different plan with in-network copayments of $10 and out-of-network coinsurance at 70% above a $300 deductible.

In addition, initially only two of the four HMOs have agreed to accept enrollments on a monthly basis: PacifiCare and United Healthcare.

Kaiser Permanente is allowing biennial elections while Health Net, which has about 200 members, is sticking with annual open enrollment for now.

Eventually VSP plans to offer monthly enrollment for all of the HMOs and perhaps even the POS plan.

The Buck consultants think this is possible because the HMOs involved also offer Medicare Risk HMOs, which already have monthly open enrollment.

But some benefit managers think monthly elections would be an administrative disaster for employers.

"That's like doing an open enrollment every month," observed Charmaine Smith, human resources manager at Laguna Hills, Calif.-based Del Taco Inc. "It would be my worst nightmare."

VSP's Mr. Grubbs said he believes, however, that his human resources department will save time and manpower by not having to do a single big open enrollment at year end for all employees at once.

Ms. Smith also questioned the administrative task of keeping track of employee contributions with the potential for switching enrollment with greater frequency.

For VSP, that's not a problem since the company picks up 100% of its employees' health care premiums.

But such a scenario has already been considered, according to Buck's consultants.

The program would be more complicated for employers that require employee contributions because of Section 125 rules that make pretax elections irrevocable during the calendar year, except when family status changes or certain other changes, said Mr. Agnew.

In such cases, contributions that exceed a certain minimum benefit level would simply be made on an aftertax basis, he suggested.

One feature of On-Demand Enrollment that will make administration easier is online enrollment using Internet technology, he said.

Some consultants admired aspects of the program.

"It's an indication of the state of the evolution of the health care market and the technology making this possible," said Charles King, an associate in William M. Mercer Inc.'s San Francisco office.

"This does support the concept of true competition," observed Mike Sass, a principal in A. Foster Higgins & Co. Inc.'s New York office.

But Mr. Sass predicted that few people will change their minds that frequently.

"Look at daily recordkeeping in 401(k) plans as a comparison: fewer than 10% change their elections that often," Mr. Sass said.