Defined-Benefit coverage creates new PFS challenges - Patient Financial Services - defined-contribution health insurance - Statistical Data Included

Healthcare Financial Management, Oct, 2001 by Bobette M. Gustafson

Healthcare providers often must furnish services to patients who are confused about their coverage, believe that managed care has limited their access to quality care, and resent their lack of choice in selecting a plan that meets their individual needs. Many employers are attempting to address these patient concerns and reduce their health-benefit expenditures through a new approach to employer-sponsored coverage called defined-contribution health insurance.

A shift to a defined-contribution model would transform the healthcare delivery system and put significant new demands on PFS professionals to help beneficiaries understand their coverage and ensure that their organizations receive adequate payment for services. It therefore is incumbent upon PFS professionals to become knowledgeable about this new benefit model and consider developing effective revenue-cycle approaches tailored to the needs of patients who have or are considering such coverage.

Although there are many variations, in a defined-contribution health insurance model, the employer provides a fixed monetary contribution to each employee, and the employee selects his or her own health plan and level of benefit. The employee uses personal contributions to cover all costs not covered by the employer. The employee has the option, however, to select a plan that costs less than the employer contribution and retain the difference as additional taxable income.

Under the defined-benefit approach, true portability is possible because the employee owns the coverage. Thus, if the employee changes jobs, as long as the new employer offers a defined-contribution benefit plan, the employee can continue with the same plan using the new employer's contribution.

Not all benefits specialists believe this defined-contribution approach is likely to become the predominant model of employer-sponsored healthcare coverage. But results of recent research suggest that there is a strong potential for such an outcome. In 1999, KPMG surveyed 103 senior executives and more than 14,000 employees of Fortune 1000 companies to identify their interest in the defined-contribution concept. (a) Seventy-three percent of the surveyed employees expressed interest in this new approach.

In December 2000, the human-resources consulting firm William M. Mercer, Inc., reported that of 3,300 public and private employers it surveyed, 40 percent planned to increase employee contributions for health insurance benefits. (b) Mercer cited three issues that are influencing employers to pass additional insurance costs on to employees:

* An 8.1 percent increase in the average annual health insurance costs per employee, from $4,097 in 1999 to $4,430 in 2000;

* A 17.5 percent increase in prescription drug costs in 2000; and

* A projected 11 percent increase in health insurance premiums for 2001.

In addition, the international consulting firm Booz-Allen & Hamilton surveyed 31 employers from Fortune Magazine's "100 Best Companies to Work For" and found that two-thirds of these employers were expecting the market to shift to the defined-contribution model. (c) Booz-Allen concluded that "defined-contribution plans will emerge rapidly, but only after a major shock to the economic system." That shock may be occurring with the recent U.S. economic downturn.

How Will PFS Be Affected?

Employee-benefit shoppers are likely to become confused while selecting their plan and coverage level and seek guidance from their healthcare providers. PFS professionals therefore should be ready to provide information that helps employees to make wise purchasing decisions.

PFS professionals should encourage employee-benefit shoppers to evaluate different benefit packages using guidelines provided by the National Association of Insurance Commissioners. These guidelines recommend 14 screening questions:

* What services does the plan cover?

* What services does the plan exclude?

* What are the limits on preexisting medical conditions?

* Will the plan pay for preventive care, immunizations, well-baby care, substance abuse treatment, organ transplants, vision care, dental care, infertility treatment, durable medical equipment, or chiropractic care?

* Will the plan pay for prescriptions, and if so, how much will it pay?

* Will the plan pay mental health benefits?

* Will the plan pay for long-term physical therapy?

* Do rates increase as the covered members age?

* How often can rates be changed?

* What are the member deductibles and copayments?

* Are there limits on how much a member must pay for healthcare services (ie, out-of-pocket maximums)?

* What is the company's average number of member complaints?

* What happens when a member calls the company's consumer-complaint hot-line? What is the average time to wait to speak to a representative?

PFS staff should be prepared to provide examples of charges for various services, including the costs for which the employee will be liable, for the plans under consideration.

PFS staff also should be able to show an employee how to access plan report-card information. The National Committee on Quality Assurance, which accredits most managed care plans, requires plans to report their performance using an extensive series of measurements through its Health Plan Employer Data and Information Set (HEDIS). The employee is likely to ask PFS staff to explain these data and provide help in comparing health plans based on the reported quality measures.