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Subject: Executive Update
Date: Wed, 28 Oct 92 13:12:52 EST
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10/28/92

TITLE Executive Update

The Concept Is Widely Embraced, But Costs Vary By Area, Company
Size Karen Padley In Minneapolis

Large companies are offering employees fewer health-care options,
and managed care increasingly is replacing traditional indemnity
insurance as the standard plan.  But while many employers have
been able to rein in runaway health-care costs, often shaving the
growth rate by a third, not everyone can expect to get the same
results, consultants caution.  Benefits

The amount of savings can depend on a company's size as well as
its locations, the structure of the local health-care system and
the type of cost-containment efforts that the company implements.
"Managed care doesn't work everywhere for everyone," said John
Erb, a principal at A. Foster Higgins & Co. in Stamford, Conn.
"It's an alternative, but it is not a panacea for everyone."
Managed care includes a host of options ranging from health
maintenance and preferred provider organizations to stringent
case-by- case review. In all cases, providers aim to monitor the
quality and necessity of care to keep patients healthy and costs
low.  A recent survey by Foster Higgins found the average cost
per employee for some types of managed care were no lower than
for traditional indemnity plans.  On the West Coast, for example,
PPOs actually cost more than indemnity plans, although HMOs were
less expensive. In the Mountain region, the average cost for all
three types of plans were within $200 of each other.

Managed care produced the largest savings in New England and the
Mid- Atlantic region. In the latter area, traditional plans aver-
aged $3,942 a person; PPOs, $3,266; and HMOs, $3,013.  "Health
care is essentially very regional or even local in nature," Erb
said. "Savings vary according to the different numbers of provid-
ers and the amount of competition in each region." Joseph Duva, a
consultant with Ernst & Young in New York, notes that companies
may save less money in areas where HMOs and other forms of
managed care are already prevalent, such as Arizona and Minneso-
ta.  "In the New York metro area, for example, managed care is in
its infancy," he said. As a result, a move to managed care is
likely to produce more savings.  Most of the surveys on managed
care so far have focused on larger companies, which have more
financial muscle. Small and medium-sized companies probably won't
see the same savings, consultants say.  "Size determines a lot
about what kind of savings you'll get," Duva said. "If you're
big, you could drive the market. If you're medium or small,
you're going to have to join forces with others. There are just
not the same things available." In addition, most of the com-
panies switching to managed care have been in urban areas, where
there's more competition for the health-care dollar.  Erb points
out that it's much more difficult to implement managed care in
rural areas. In some instances, he adds, companies are instead
offering on- site medical facilities or contracting directly with
providers for services.

"In an urban area, an HMO or another organization has already
done all those things for you and you can 'buy into' the system,"
he said. "If you're the only employer in town, you have to do it
yourself." Erb and others say managed care must be done effec-
tively to save money. Three important factors to watch are quali-
ty, access and cost.  "You need to look at the quality of the
provider network, accessibility to employees, whether it provides
enough reasonable choices," Erb said. "How effective are the con-
tracts with providers? Everyone provides a discount. Are they
real?" Managed-care providers also should be putting their money
where their mouth is, Duva says. They should be trying to improve
providers that aren't up to standards, eventually dropping them
if no improvement is noted.  David Babbitt, a consultant with
Buck Consultants Inc. in Pittsburgh, says managed care will only
achieve its promise if quality is stressed.  "When you stress
quality, you get compliance from everyone in the system," he
said.  Too often, Babbitt says, employers have simply limited
benefits or shifted costs to either the medical community or em-
ployees.  Just cutting costs may not be enough, he adds. If an
HMO tries to save money to not treat a particular problem in its
initial stages, the case may get worse and the eventual cost may
be more than it otherwise might have been.  Babbitt says more
data needs to be kept so companies can determine which doctors
and providers do the most cost- effective job.  "The idea has to
be to reward the best," he added.

The concept of managed care also must be communicated to both em-
ployees and providers if it is going to work. Duva recommends
that educational programs start six to 12 months before a managed
care program is implemented.

He and others predict managed care will be the wave of the fu-
ture, although its exact shape may change.  "Regardless of size,
you should be looking at what's available to you instead of just
paying the bill," Duva said.

Babbitt predicts managed care will only work if it can be applied
equally across the board.  "We must do a better job of identify-
ing the problem more quickly and getting people better quicker
and in less invasive ways," he said.

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