Labor and managed care: an uneasy alliance

Business & Health, June, 1997 by Helen Lippman

"For-profits tend to scare us," echoes CSEA's Mullens. "We represent public sector employees, and we see the growth of for-profits and privatization and we're obviously concerned with that."

Indeed, the National Health and Human Service Employees Union felt so strongly about profit-making and health care that it decided to open its own non-profit managed care plan to other New York unions. The decision, announced earlier this year, came in response to Empire Blue Cross-Blue Shield's conversion to a for-profit entity. Another union in the region, the New York State AFL-CIO, formed a purchasing coalition and began soliciting bids directly from hospital associations. Ed Cleary, its president, cited the "feeding frenzy" of profit-making from managed care plans and insurers in explaining the impetus for the direct contracting effort. It's "criminal" for CEOs of health plans to make salaries in excess of $1 million, he told Managed Care Week earlier this year.

Cleary's estimate of executive earnings is accurate, at least for those at the top of large, publicly traded HMOs. The 1996 salary of Aetna U.S. Healthcare's CEO was $2.58 million, according to a recent Dow Jones report. Oxford Health Plan's top exec took home $1.68 million in salary and bonuses. United Healthcare's CEO topped $1 million. The heads of non-profits make far less, typically in the $200,000 to $300,000 range, but analysts say their salaries will skyrocket as competition intensifies.

Not all unions are averse to doing business with for-profit plans, of course. Some simply look for the best deals. Others feel comfortable dealing with for-profit entities that are unionized. When the ILGWU members switched from multiple Rx providers to a single PBM, says trust fund administrator Theodore Bernstein, "the fact that Merck-Medco was a union shop from day one was an attraction. It was very important to us."

In discussing marketing strategies for-profit plans can use to overcome union resistance, PacifiCare spokeswoman Cheryl Brady highlights the apparent discrepancy in the medical loss ratio--the percentage of revenues that actually go toward the provision of care. Although PacifiCare calculates its MLR at 85 or 86 percent, `one of the highest in the for-profit industry, Brady says, it would actually be in the 90s like Kaiser's if both plans used the same measurement criteria. PacifiCare and a lot of other for-profits only count dollars spent directly on health care services, while Kaiser includes things like administrative and overhead costs, she says.

The competition that comes with HMOs and managed care, Brady asserts, is market-driven. The result is the best and most cost-effective care. As evidence some labor leaders would agree, she notes that some of PacifiCare's largest customers are unionized.

CALL IT OCCUPATIONAL HEALTH

Managed care is moving into the realm of workers' compensation in union shops, too, albeit more slowly because modifications in this state-mandated benefit often require a change in law. Michael Shor of Newton, Mass.-based Healthcare First, describes a reversal of the typical union-management relationship when it comes to workers' comp. Even in states that have "enabling" laws, Shot says, employers--not unions--have resisted the move to managed care.