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              Cutting Costs by Slashing Benefits

Washington (AP)--By shifting workers by the thousands into managed care,
businesses reduced their spending on employee health benefits by 1.1
percent in 1994, a survey of nearly 2,100 firms showed.

The average firm with 10 or more workers spent $3,741 per employee on
health benefits, down from $3,781 in 1993, the benefit consulting firm
Foster Higgins reported Monday.

Big companies, those with more than 500 employees, had the most success.
Their health bills fell by 1.9 percent, to $4,040 per employee.

Companies with fewer than 500 employees, which generally offer less
generous coverage, saw their costs climb by 6.5 percent, to $3,452.

But small or large, businesses are rapidly shifting their workers into
managed-care plans that seek to lower costs by emphasizing primary care
and imposing some restraints on which physicians and hospitals their
workers use.

Foster Higgins surveyed 2,097 firms and found 63 percent of covered
employees were in managed-care plans--health maintenance organizations,
preferred provider organizations and point-of-service plans. That was up
from 52 percent in 1993.

For years, health costs have been rising at twice and three times the
rate of inflation. But that spiral slowed dramatically in 1994 while
Congress debated, and eventually discarded, President Clinton's proposal
to make all employers and employees buy health insurance.

Another private firm, KPMG Peat Marwick, has estimated that overall
private health insurance premiums rose 4.8 percent in 1994.

The Clinton administration last week sharply lowered its estimate of the
future costs of Medicare and Medicaid, but said health costs were still
rising too rapidly.

While health cost inflation has abated, 41 million Americans, or 16.1
percent of the population, are uninsured, and the number is rising.

John Welch, a principal with Foster Higgins' Washington office, said,
"Employers that have embraced and moved to managed care have been
rewarded....They really saw the results come through for them for the
first time."

Employer health costs rose 8 percent in 1993.

Employers can lower costs by slashing benefits or forcing workers to pay
more out of their own pockets.

But Welch said, "We didn't see much evidence of cost-shifting to
employees."

Most of the growth in managed care was in point-of-service plans, which
encourage patients to choose from a network of doctors and hospitals,
with the option to go outside the network by paying more.

Fifteen percent of employers offered a point-of-service option in 1994,
up from 4 percent in 1993.

Employers for the first time induced a significant number of retirees to
join HMOs, particularly in the West.
 
"Retirees have traditionally been very reluctant to leave their own
doctors and join HMOs," said Dave Rahill, also a Foster Higgins
principal. "Getting this high-cost population into low-cost plans will
have a big impact on employers' health care liability over the long
term."

In the Northeast, 63 percent of covered workers were in managed care, up
from 34 percent in 1993. Employers' costs declined 9.7 percent, to
$3,851 per employee.

In the Midwest, managed-care enrollment grew from 51 percent to 60
percent while costs rose 0.7 percent, to $4,048.

The West, the bellwether for managed care, enrollment grew from 72
percent to 80 percent, and costs rose 2 percent, to $3,693.

In the South, managed-care enrollment inched up from 57 percent to 58
percent, and costs rose 3.9 percent, to $3,389.

A sample of all firms with 10 or more employees was surveyed by ICR
Survey Research Group for Foster Higgins. The company said the results
are valid for more than 550,000 employers with 68 million employees.

[As posted on Health Reform on 2/14/85 by Pooge, who concludes:]

Note the asymmetries in small/large savings and small/large
premium levels!

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