Framing The Picture: Access To Health Insurance Often Defines The Employment Relationship
September 03, 2008 | LexisNexis
Copyright 2008 Gale Group, Inc.All Rights ReservedASAPCopyright 2008 Society for Human Resource Management
HRMagazine
August 1, 2008
SECTION: Pg. 62(5) Vol. 53 No. 8 ISSN: 1047-3149
ACC-NO: 184247258
LENGTH: 2264 words
HEADLINE: Framing the picture: access to health insurance often defines the employment relationship; Benefits
As the cost of health care climbs, health insurance remains a valuable employee benefit. Employers view it as an integral component of the overall compensation packages that allow them to attract and retain workers.
In addition to health protection for themselves and their family members, many employees view health insurance as a significant source of income protection. Depending on the nature of an illness and the benefits provided, an employee's financial well-being could be jeopardized by unanticipated medical expenses if he or she lacks health insurance.
Virtually all Americans with employment-based health benefits are enrolled in some kind of managed-care plan. Health maintenance organizations (HMOs) and preferred provider organizations (PPOs) represent a great majority of that enrollment, approximately 80 percent.
A managed-care system typically provides, arranges for and finances medical services using provider-payment methods that encourage costcontainment by contracting with select networks of providers.
Before the spread of managed care in the 1990s, insurance coveragewas mostly based on a fee-for-service system. Beneficiaries in theseplans picked their doctors and hospitals at will. Payment was made by the beneficiaries when services were rendered, or the health care providers accepted assignment of the claims from the beneficiaries, and afterward claim forms were submitted to the insurance companies (orself-insured plan sponsors) for reimbursements.
Under managed care, enrollees are often required to follow utilization reviews and disease management procedures to secure coverage forservices received.
Many employers cover all eligible employees under a single health plan, although different employee groups may have different plans; for example, union members and nonunion employees may have separate plans.
Employee and dependent costs for coverage are generally paid through payroll deductions and may be paid with pretax dollars.
The Plan Administrators
Employment-based health benefits may use a variety of administrators: commercial insurance programs, Blue Cross and Blue Shield plans, self-insured plans administered by third-party administrators (TPAs),or multiple-employer welfare arrangements (MEWAs).
Commercial insurance and Blue Cross and Blue Shield plans are primarily regulated by the states where they provide coverage. The federal government regulates self-insured plans exclusively.
Commercial insurance plans. Insurance companies are a major sourceof health insurance. The premium for such insurance protection is calculated to cover the benefits that will be paid, administrative costs, insurance sales commissions, state premium taxes and surplus (for example, profit).
Generally, for employee groups of 50 or more, the insurer maintains separate claims records for the group and annually adjusts the premium to reflect the group's claims experience; these are called experience-rated plans. In contrast, a community-rated plan is an insuranceplan where the risk is shared among all members of the community andthe premium is based on the community's health and the health of theindividual plan members.
Commercial insurance companies also offer and administer self-funded health plans.
Blue Cross and Blue Shield plans. Blue Cross and Blue Shield planswere originally started in the 1930s. Blue Cross plans were developed based on the concept of a community-based, voluntary, nonprofit group hospitalization or prepayment plan for hospital services.
Based on the same concept, Blue Shield plans cover physician services.
Although many plans operate under the Blue Cross and Blue Shield names, each plan is independent, generally operates in a specific geographic area and offers different benefit structures.
Blue Cross and Blue Shield plans must comply with certain standards established by the Blue Cross and Blue Shield Association. In addition, in some states Blue Cross and Blue Shield plans are required to enroll all applicants regardless of health status.
Self-insured plans. In a self-insured plan, the employer, or a trust that the employer contributes to, pays employee health care claimsdirectly. Thus, the employer essentially acts as its own insurance company and bears the financial risk of making payments to providers.
A limited number of employers self-insure and self-administer their medical plans with TPAs, commercial carriers, or Blue Cross and Blue Shield. Other employers self-insure their plans but purchase administrative services contracts to take care of their administrative needs.
Additionally, some insurers offer stop-loss insurance to employers. It covers catastrophic health expenses above a maximum and, therefore, limits a self-insured plan's liability.
Some employers self-insure to retain control of the plan reserves,while others self-insure in an attempt to manage health care costs more directly.
Some employers prefer to self-insure because these plans are not subject to state-mandated benefits laws and insurance premium taxes. In effect, by avoiding state-mandated benefits, employers are able to provide a uniform set of benefits to all employees, regardless of where they live.
For some employers, it makes sense to self-insure because their populations of workers are healthier and less costly than the communitypool.
The Employee Retirement Income Security Act of 1974 (ERISA) prohibits states from regulating self-insured plans.
Multiple-employer welfare arrangements. A MEWA is an employee welfare benefit plan or any other arrangement that provides any of the benefits of an employee welfare benefit plan to the employees of two ormore employers.
MEWAs that do not meet the ERISA definition of employee benefit plan or that are not certified by the U.S. Department of Labor may be regulated by states. Fully insured MEWAs must meet state insurance laws regulating reserves.
Payment Methods
Health plans calculate payments to providers in different ways: fee-for-service (FFS), discounted fee-for-service, resource-based relative value schedule (RBRVS), per diem, diagnosis-related group (DRG), capitation or a combination of those methods.
The traditional health care payment system, FFS, dominated the marketplace from the 1950s through the early 1990s and used a method of reimbursement under which physicians and other providers received a payment, based on prevailing charges, for services rendered.
Most FFS systems today include consideration of usual and customary rates of charges. This means that the provider's usual fee for the service does not exceed the customary fee in that geographic area andis reasonable based on the circumstances.
Discounted FFS is a reimbursement methodology in which the provider is paid a fixed percentage discount from full charges. Discounted FFS is commonly used by PPOs.
The RBRVS reimbursement methodology ranks physician services according to the resources required to perform the services. (Resources can include the time required for the service, the complexity and the costs of associated medical specialties.)
A per diem is a set daily payment amount for hospital services, agreed to in advance by a managed-care organization--for example, an HMO or a PPO--and the hospital. Per-diem payment can be a single amountencompassing all levels of hospital treatment, or there can be service-specific per diems, such as different amounts for medical or surgical, intensive care, maternity services, and so forth.
Another reimbursement system, diagnostic-related group (DRG), usesdiagnosis information to establish hospital payments. Medicare uses the DRG approach, as do some other managed-care organizations. This system groups patient needs into about 467 categories, based on the coding system of the International Classification of Disease.
Capitation reimbursement stipulates a dollar amount established tocover the cost of health care services delivered to a person, usually expressed in units of per member per month. This payment is the same regardless of the amount of services rendered by the provider. Mostcommonly, capitation reimbursement is limited to HMOs and is confined to primary care services; for example, it excludes specialty care, hospital care and so forth.
Employees' Out-of-Pocket Responsibilities
Virtually all covered services in health care plans are subject topayment limitations and require the employee to share in the costs of coverage. These cost-sharing features generally include some combination of premiums, deductibles, co-insurance, co-payments (small, fixed amounts for specific medical services, such as $15 per office visit or $20 per prescription) and maximum caps on benefits.
These plan features are intended to reduce plan costs, encourage employee cost consciousness and lower administrative expenses.
A deductible is a specified amount of initial medical costs that would otherwise be treated as covered expenses under the plan, which each beneficiary must pay before any expenses are reimbursed by the plan.
Deductibles typically range from $100 to $500 per person, though they can be higher. In fact, high-deductible health plans associated with a health savings account must have minimum annual deductibles of at least $1,100 for self-only coverage and $2,200 for family coveragein calendar year 2008. Under a plan with a $200 individual deductible, for example, a participant must pay the first $200 in recognized expenses for covered health care services according to the plan provisions.
Some plans have different deductibles for different types of health care services. For example, a plan can have one deductible for inpatient care and a different deductible for pharmaceutical benefits.
The deductible must be satisfied periodically, generally every calendar year, by each participant, sometimes with a maximum of two or three deductibles per family. However, some plans contain a three-month carry-over provision. In this case, any portion of the deductible that is satisfied during the last three months of the year can be applied toward the following year's deductible.
Co-insurance provisions require the plan participant to pay a portion of recognized medical expenses; the plan pays the remaining portion. Commonly, the employee pays 20 percent, with the plan paying the remaining 80 percent of recognized charges. Most major medical plans include both deductibles and co-insurance provisions. Thus, once the plan participant pays the deductible (for example, the first $200 in medical expenses), the plan pays 80 percent of all other covered charges. Some services may have special co-insurance provisions.
Because 20 percent of a large medical claim may pose a significantfinancial burden for many individuals and families, most plans limitbeneficiaries' out-of-pocket expenditures for covered services. In this case, once a beneficiary has reached the out-of-pocket maximum, covered expenses are reimbursed in full for the remainder of the year.
The out-of-pocket limit may be renewed at the start of the calendar year for each individual beneficiary. Most medical plans impose a maximum annual or lifetime dollar limit on the amount of health insurance coverage provided. Individual lifetime maximums are usually set at very high levels, such as $1 million or more. Although less common,plans that impose limits may do so on an episodic (or per episode) basis, such as per hospital admission or per disability.
RELATED ARTICLE: Distant Beginnings
Employment-based health benefits programs have existed in the United States for more than 130 years. In the 1870s, for example, companies in railroad, mining and other industries began to provide the services of company doctors to workers. In 1910, Montgomery Ward (then a Chicago-based catalog retailer) entered into one of the earliest group insurance contracts for its employees.
Prior to World War II, few Americans had health insurance, and most policies covered only hospital room, board and ancillary services. During World War II, the number of people with employment-based health insurance coverage started to increase.
When the National War Labor Board froze wages and a shortage of workers occurred, employers sought ways to get around the wage controlsin order to attract scarce workers, and health insurance was often used in this way.
Health insurance was an attractive means to recruit and retain workers during a labor shortage for two reasons: Unions supported employment-based health insurance, and workers' health benefits were not subject to income tax or Social Security payroll taxes as cash wages were.
Workers' Average Monthly Premium Contribution, 1999-2007
Employees' average monthly premium costs for employer-sponsored
health care have risen every year since 1999.
Single Family
Coverage Coverage
1999$27$129
2000 28 135
2001 30 149
2002 39 178
2003 42 201
2004 47 222
2005 51 226
2006 52 248
2007 58 273
Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits,
1999-2007.
Adapted with permission from Fundamentals of Employee Benefit Programs, published in 2005 by the Employee Benefit Research Institute, apublic policy organization in Washington, D.C. For a link to the full text of Part Three, Health Benefits, see the online version of thisarticle at
www.shrm.org/hrmagazine
.
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