Taking the Pulse of Health-Care Insurance: Discovering Ways to Cut the Cost of Medical Coverage
The selection of health insurance plans has become a struggle between employees' desire to use physicians of their choice and employers' efforts to keep the cost of coverage under control. Caught between these two conflicting forces are the financial professionals--often CPAs--who must stay abreast of the field in an effort to minimize expenses. This article provides an overview of available health-care plan designs. At one end of the design spectrum is the traditional indemnity plan--fee-for-service coverage that allows employees to turn to any health-care provider and be reimbursed to the full extent of the plan. Such insurance, while giving employees full control over the choice of health-care provider, leaves the employer no control over costs. At the other end of the spectrum is the traditional health maintenance organization (HMO), in which a primary-care physician directs patient care within a network of pre-selected health-care providers. Such plans have built-in incentives to efficiently direct how employees use the plan and how medical care providers are reimbursed. Thus, employers maintain cost control at the expense of employees' freedom of choice. There are many other plans in between that vary in the trade-off between employee freedom and employer cost control. Following is a look at the types of plans available to employers today. TRADITIONAL FEE-FOR-SERVICE PLANs Most employees are familiar with fee-for-service plans, the prevailing benefit offering for years. Such plans pay the full benefit no matter where employees or their dependents receive treatment. See any doctor, go to any hospital, be admitted for any problem and the plan picks up the full tab. Since doctors and hospitals are reimbursed for the services they provide, the longer the treatment, the greater the reimbursement. Under this design, it is as if employers handed out free credit cards to all employees and said, "Buy whatever you want; don't worry about the cost. You're covered--it's on me." To address this free spending, other insurance planners introduced such provisions as employee premium contributions, deductibles and coinsurance provisions. Premium contributions require all plan participants to share in some percentage of total plan costs. Deductibles and coinsurance provisions require those who use the plan to share in the costs, usually up to a predetermined limit. To be sure, these options, the earliest attempts at controlling health plan costs, contain problems. For example, premium contributions allow employers to cut their costs immediately but do little to influence how employees use the benefit plan. Deductibles and coinsurance are effective in reducing plan usage but may discourage individuals from seeking care when needed. MANAGED FEE-FOR-SERVICE PLANS Cost-containment plans and utilization reviews attempt to balance conflicting needs of employer and employee by steering employees away from high-cost inpatient hospital stays and providing financial incentives to use lower-cost alternatives. To change employee behavior, deductibles and coinsurance are lowered or eliminated if hospital tests are run before admissions or when minor surgery is done on an outpatient basis. Also, other areas not traditionally covered by insurance are included, such as home care or extended-care facilities. Some other procedures that many insurance plans use to maintain a balance between employees' and employers' needs: * Preadmission review (PAR) is designed for employers wishing to replace voluntary incentives with more disciplined measures. PAR plans require employees or their doctors to receive preauthorization for any hospital admission. A PAR reviewer, usually a registered nurse, determines whether a hospital stay is medically necessary or whether an alternative setting would be more appropriate. …