1. Employer-Sponsored Insurance The Search for “Value”

2. Systems Framework for Understanding Managed Care EMPLOYERS MCO CONSUMERS Job preferences, Wage and Benefit Preferences Plan Choices, Employee Premiums, Information Select Products, Join Plan Marketing, Advertising, Information, Reputation Employee Plans, Medicare, Medicaid, Information GOVERNMENT Enrollees CARE HOSPITALS & OTHER SUPPLIERS Marketing, Product Development Taxes, Votes Contract for Product, Risk, Premiums, Benefits Regulate Allowed Products, Behavior Relationships Customer Volume Discounts, Specialized Services Treatment Facilities and Prescribed Services Type of Plan, Philosophy and Procedures for Selection/Retention PHYSICIANS Specialty, Style of Care, Discounts, Form of Organization Admissions, Prescriptions, Referrals Payment, Risk, Practice Guidelines, Profiling Contract for Product, Premiums/Benefits, Risk Adapted from Gold, Medical Care Research and Review 52(3): 307-341, Figure 1. ProviderNetwork Member services Utilization management

3. Plan for Today Why employer-sponsored insurance? The search for value –What large employers are doing –What small employers are doing Checkpoint #1

4. Employers cover 9 out of 10 people with private insurance In firms with more than 200 employees –About 60 million covered workers –53% have a choice of plans In firms with fewer than 200 employees –About 40 million covered workers –20% have a choice of plans

5. Why Employer-Sponsored Insurance? Historical accident –Wages, but not fringe benefits, capped during World War II Employment groups reduce adverse selection

6. The Insurance Trade-off Give up premium ($1000) To avoid risk of much bigger loss (10-percent chance of $10,000) How appealing to people with a –5% chance of hospitalization?? –20% chance of hospitalization??

7. Adverse Selection The people who buy insurance are the people who are most likely to use it.

8. Why Employer-Sponsored Insurance? Historical accident –Wages, but not fringe benefits, capped during World War II Employment groups reduce adverse selection K Economies of scale in purchasing

9. Administration adds to the cost of insurance Total premiums = Total claims + Administrative costs Average premium (per policy) = Ave. claims + Ave. administrative cost per policy per policy Average administrative costs decrease with group size.

10. Why Employer-Sponsored Insurance? Historical accident –Wages, but not fringe benefits, capped during World War II Employment groups reduce adverse selection Economies of scale in purchasing K Tax exemption for employer-paid premiums

11. If buy insurance on your own $25,000 earned income Pay 15% federal tax + 5% state/local tax + 15% Social Security tax = 35% or $8750 Take home $16,250 Pay $3000 for insurance Have $13,250 left to live on

12. Your employer buys insurance $25,000 total compensation package Employer pays $3000 for insurance You get $22,000 in wages Pay 35 % of wages in taxes = $7,700 $14,300 (versus $13,250) left to live on Save $1,050 –Which is 35% of $3000

13. Why Employer-Sponsored Insurance? Historical accident –Wages, but not fringe benefits, capped during World War II Employment groups reduce adverse selection Economies of scale in purchasing Tax exemption for employer-paid premiums K Bring business expertise to purchasing

14. Employer’s goal is “value” High quality At a low price

15. What are large employers doing to get more value? More business-like approach to health care –Like any other cost-center Restructuring employee choices and the enrollment process Adopting new strategies for dealing with health plans

16. Options offered to employees by large employers Source: Gabel et al.

17. Restructuring choices and enrollment Inspired by Alain Enthoven’s idea of “managed competition” Peg employer premium contribution to lowest-cost plan Provide comparative information about –Plan design –Costs –Quality

18. Fixed Employer Contribution

19. New ways to deal with plans Individually and in employer coalitions Competitive bidding Demand and monitor quantitative measures of performance –Set performance standards –Compare performance among plans Direct contracting with providers –Including “carve-outs” for specialty services

20. What Are Small Employers Doing to Get More Value? Forming coalitions to gain some of the size advantages of large employers Switching to managed care options

21. Options offered to employees by small employers Source: Gabel et al.

22. Checkpoint #1

23. Learning/teaching strategy Go over the basics Give it a try Coaching and feedback Try again, learning from mistakes

24. Market Analysis - Cleveland Stakeholders Pay close attention to evaluation criteria for checkpoint Common mistakes and weaknesses –Not explicit about measures of success/failure –Focused on wooing customers (lots of choice, leading providers, low premiums) and forgot about making a profit –Didn’t fully explain how/why stakeholder actions or characteristics will affect new plan’s likely success Try to connect back to measures of plan’s success/failure

25. Learning by “connecting”

26. How to Redo the Checkpoint Turn in old, graded exam and new version in two weeks (2/15) If you’re confused or don’t know how to make it better –Carefully re-read the CSHSC reports –Then come see me or Jen during office hours Need help with writing? –The Writing Center, 219 Boucke Building