Insurance Coverage & Costs
Medicaid and SCHIP
Access to Care
Quality & Care Delivery
Health Care Markets
Design and Methods
Panel Two: Employer and Union Responses
DR. GINSBURG: Were about to begin the second
panel. If you could take your seats, please?
As soon as the panelists are
seated, Ill ask them their first question.
Okay. The first question--thats
good. Weve got all the panelists except, Sally, you should come up. Oh, youre
going to be there? Okay.
The first question Id like
to ask is: Is there anything that youve heard from the first panel discussion
that would make employers or unions more likely to embrace defined contribution
approaches? Do you want to begin, Helen?
Well, actually, I was going to say its a tough one because Im--I think there
is a lot about defined contribution, but Im not sure that some of what we heard
would be the stimulant to thinking, other than the fact that you have a lot
of bright people who are turning their energy to developing solutions that are
facilitated or partially enabled by technology, which can be very powerful and
will make everything much more possible and attractive, and certainly a defined
contribution approach in its several versions may make it easier to--or make
it more likely that consumers or employees and employers are likely to look
to these solutions.
But there is a big gap, I think,
between what we heard--never mind that none of them are even operational yet,
but a gap between what we heard and what many of us would hope would be the
kind of ideal set of solutions.
Okay. Thats a good--Larry?
Well, Id like to add to that and just say that I do think that the two things
that employers would see valuable in what weve heard this morning that would
contribute to either an effort internally to develop more consumer choice and
individual decisionmaking within their existing health plan or might contribute
to maybe some progression toward more of a defined contribution model, I think
the capacity to have some degree of information on providers and provider performance.
Im not sure how much is really going to be there. I think thats probably one
of the most difficult things to get information on. And its one thing to say
that providers are going to put their information out there. Its another thing
to say that youre going to have some kind of information thats useful and
comparable among providers for making decisions.
But moving in that direction
is going to be a very important part of it, and I think the other piece thats
going to be very important is the risk pooling, external risk pooling and risk
adjustment. I think that the HealthSync model is an intriguing model because
it takes the employers pool, maintains it intact, essentially, pulls it outside
the employer, and then creates a risk adjustment mechanism as individuals then
move into plans.
I think employers are somewhat
skeptical about how sophisticated risk adjustment really is and how successful
this risk adjustment is going to really work. But itll be interesting to see
how that gets set up and runs, and it will be, I think, attractive to employers
if, in fact, theres a chance for risk adjustment to work effectively.
I would like to make a comment about the definition and the terminology that
were using, and Im not sure how controversial this will be, but this defined
benefit/ defined contribution dichotomy in the health care area Im not sure
is a true breakout of whats taking place.
I would argue that we already
have a defined contribution model, that if you look at federal law, health insurance
is treated differently than pension plans. There are not vesting rights within
ERISA in terms of health insurance, with a few exceptions as it relates to certain
retiree benefit--retiree health benefit arrangements that have been either codified
by litigation or have just sort of been written into contract.
So I would submit that we essentially
already have a defined contribution system with in some cases short-term entitlements.
For example, in the collective bargaining environment, we negotiate--in my union,
we negotiate a defined contribution or a fixed contribution that might have
an inflation escalator in it to cover increases in cost. And those contracts
and that entitlement to the benefit is a short-term entitlement. It might last
three to five years, and at the end of three to five years, everythings up
Actually, youve focused on one aspect of defined contributions, which is the
amount of--committing the amount of money; whereas, a lot of the discussion
is about choice of plan. And this might be a good way to get into the next question.
Id like to ask each of you if you can answer: What is it that--to the degree
that employers or unions find this idea broadly attractive, what is it thats
the main attraction that your place would want to investigate?
Well, Ill take a two-part because I didnt get to the respond to the first
question. Im encouraged that the panelists were grappling with the risk pool
issue because thats a significant concern for us. And, clearly, at Lucent we
very much embrace the use of technology as a solution for our future health
care delivery system.
MS. KROL: But, as well, I think one thing
I was encouraged by the panelists is that there was some recognition of--of--advocate--
Yeah, ombudsman function.
I cant say that word. --function, and I think that is an important role because
a primary aspect of my job is really helping people navigate through this system
and it is very complex, and I dont think that could be mitigated.
What we do like about a defined
contribution approach is trying to bring consumers to be more involved in the
medical decision process and giving people more choice. I think one of the panelists
did indicate that benefits are vanilla or theyre average. They are. Theyre
designed for the average employee based on what the company can afford, and
theyre really not designed to be customized to individual needs. And I think
that would be a true advantage under a defined contribution system.
I think, as Pam hit on it, the choice we know is extremely important, and we
know from the centers data how little choice most employees in the country
have, except really a handful of the jumbo employers. It also allows you to
have those things you value, and benefit managers know that. They really would
like to have happy employees, especially right now. I mean, I think the most
important thing on everybodys mind from the CEO down is recruitment and retention
of talent. That is the biggest problem, and thats what they pay attention to.
So anything that makes them happy is going to be appealing.
I think, second, theres certainly
the feeling among benefit managers its extremely important for employees to
have a financial stake in their decisions. I dont want to take issue with my
fellow panelists, but I think theres still a lot of defined benefit, at least
belief out there, and a fair number of employers still do it. Maybe they dont
do it happily, but they do it. And they would really like to be able to give
the employees some financial stake in their decisions.
I think also the belief that--and
I think a lot of especially the employers like Pam and others who really lead
the quality movement, that to be able to drive the system from every perspective
you can, whether its consumer getting quality information or having provider
information on line and making choices, is extremely important.
Then the one final thing--and
I think this mornings panelists really made the point--the more we open up
the system, the more we allow this kind of choice, we will see new models of
delivery, a recent article in Harvard Business Review talking about disruptive
technology, for those of you who are familiar with it, this is a disruptive
technology that could radically change our system. And I think most of us feel
that that would probably be a very good thing.
Again, I think theres some broader social policy issues here that are taking
place, and they are taking place in a period of economic--unprecedented economic
growth and prosperity. And its a paradigm shift that weve been seeing in this
country for over 20 years, and its a movement away from the social contract
between employers and their employees.
If you look at sort of a libertarian
approach to defined contribution, it promotes choice almost at all costs. It
promotes a shifting of obligations, and I guess the problem that exists out
there in terms of broader social policy is what does that mean in terms of doing
something about uninsured people, about the cost of insurance. Do the products
that we really saw or talked about this morning, are they going to bring down
the cost of insurance today? Are they going to expand coverage? And I think
those are very tough issues.
I think the other thing that
were seeing is that theres sort of a desperation out there. Theres a desperation
because we have not fixed the health care problem in this country, that the
employers who are represented in this room and the unions that are represented
in this room known that medical trend, medical costs are coming back with a
vengeance, and that the low-lying fruit has already been picked in terms of
savings, and now were looking for something thats going to protect us for
maybe another five or six years. And, therefore, were seeing this proliferation
of new ideas and products.
This doesnt mean theyre all
bad. In fact, just to make a quick comment on some of the products I saw this
morning, I think, again, from the technological standpoint, there are tremendous
potentials here in terms of price and quality transparency issues and being
able to avail group plans with more information to make them better and stronger
purchasers of health care. Thats where I see the potential.
Well, its hard to come up with some new ideas after all of that from this wonderful
panel, but I want to echo a few things.
I think one is that whats happened
here is that in the movement from traditional indemnity plans to kind of a plan
environment, a health plan environment where people selected managed care plans,
that has driven the need for some degree of choice. And its also driven the
need to move the employer back out of the equation a little bit. The employer,
when they were providing indemnity, they were essentially paying the claims
and people went out and had their relationships with their physicians. But as
people enroll in plans, it becomes more difficult, in an employer environment,
to continue to have kind of one plan or a few plans that people enroll in, and
then as people move around have to change plans. So that has driven, I think,
the movement to some extent, and also employers, as theyve moved to have plan
choices around the country, have increasingly gone to off-the-shelf products
that are available, which means that the role that the employer has played in
structuring and administering the plan is changing. The employers are increasingly
outsourcing functions. Theyre increasingly looking for ways to have these activities
that they perform become generalizable, have them done by organizations like
NCQA, as opposed to having to do them individually. And there is not as much
value to having a differentiated product anymore.
This is, I think, driving whether--you
know, no matter what else happens, I think theres a long-term trend thats
going on to more of a defined contribution concept where the employees will
have their plan relationship and that will be disconnected to some extent from
Then I think, obviously, the
upturn in cost recently is a very significant factor. I think a lot of employers
feel like weve explored what can be done with managed care to control costs.
Were kind of throwing up our hands on utilization review. Theres got to be
another model out here somewhere, but who knows what it is. But as we move into
this uncertain environment with costs, and I think the particular concern with
rising drug costs, its increasingly important that the employees play a much
stronger role and feel much more the cost pressure themselves. Thats the only
way theyll ever get support for being able to manage any of this.
I think the employers see themselves
now in the middle and are looking for ways to move themselves back out of the
middle, and I think thats a major portion as well.
There are two things that I didnt hear from the panel. One of the things is
the managed care backlash, whether employees attitudes towards the managed
care plans that are being offered by the employers is having a role in this.
And the other is future liability. Are those things just political words or
do employers really worry about that?
I think in terms of the loss of utilization review, I think both of those are
driving that. And I think whats happened is that if you--particularly liability,
but I think the concern that people are now going to deal with utilization review
issues in courts is a major concern. Whether the employers at risk or whether
the plans at risk is really insignificant. And a lot of plans have responded
basically by saying theyre going to be the kinder, friendlier plan, which is
a very nice thing to be, but that leaves the employer kind of holding the cost
for this kind of friendlier environment. So I think its a very significant
Ill address the backlash. We actually took a comprehensive look at our managed
care plans that we actually inherited, and we looked at not just customer
satisfaction and utilization and those indicators. We also looked at indicators
of productivity. And when we looked at some of those measures, we were finding
people were spending a significant amount of time--and it always seemed between
9:00 a.m. and 5:00 p.m.--working on issues around the health delivery system.
And when we compared that to a PPO product, a managed PPO product we introduced
versus some of our standard managed care plans, people were spending significant
amounts of time, like over 20--I think we had about 18 percent of people spending
over 20 hours a year on issues around managed care.
And I think some of it is just
a backlash around procedures and common sense--lack of common-sense approaches
where, for instance, you may be able to get a better price for lab and X-ray
at a centralized facility, but then the employees out of work for half a day
because they cant get the comprehensive services in the doctors office.
So I think theyre being very
driven by cost dimensions and not looking at cost and productivity and satisfaction
dimensions, that we find that there was--there is some loss in our productivity,
some other cost of doing business beyond just the annual premiums.
So I think thats how weve
addressed some of the backlash of moving to information-based point PPO product,
and then, clearly, as a self-insured employer, if we become engaged in litigation,
then that would certainly be a stumbling block for us and have us seriously
look at our role as providing health benefits.
Yes, I think generally my experience was a little more positive with managed
care, and I think it does vary by part of the country. What we saw in places
like Rochester, New York, that had had the programs for years and years and
they basically covered the whole community, we had the highest satisfaction--in
fact, in national studies the highest satisfaction in the country was in Rochester,
New York. But we also had places like Texas where everything was wrong and the
doctors spent all their time complaining bitterly to our patients about the
plan that their lousy company had put them in.
So we had everything in the
world--I do--I believe it was you alls research at the center that said basically
it doesnt matter what you think about your managed care, its whether you think
youre in managed care, what you think about your care. And basically even people
who were not in managed care didnt like it, and those who were in it didnt
like it, and the connections were really more, you know, sort of the newspapers
and, you know, the "managed care company killed my baby" sorts of stories in
the New York papers.
So I think definitely that--in
fact, I had employees at Xerox when the managed care horror stories first started
who called me up and said: I love what weve got. What am I missing? Is this
affecting everybody else?
So I think just sort of the
publicity around it is a problem, but the nice thing about all these options
is if people have the options and theyre willing to pay more--and I think it
actually will be pretty clear pretty quickly that a lot of people wont be willing
to pay more for these systems they think they want, as long as somebody else
In terms of liability, that
sort of cuts both ways. For the most part, its true that if employers were
able or if you had the sort of perfect defined contribution through technology,
employers had absolutely nothing to do with it, theoretically the Congress might
in its wisdom leave employers alone. Its not clear that it necessarily would
happen. And I guess the second thing I would say is that as an employer and
as a benefit manager, it seems to me that youve got to keep your employees
happy. Even if somebody else is doing it to them and they made the choice, I
can assure you there are lots of companies that do a lot in the 401(k) area,
especially when some of the plans they offer--and they may offer 50 or 60. If
two or three of those just plummet for some reason, depending on how profitable
the company is and how paternalistic they are, they go in there and they do
something about it.
So they do not necessarily get
out of playing a role just because of a defined contribution approach.
Let me go to the next question about the fixed contribution approach versus
the cash-out or voucher approach. We talked mostly, I think, about the fixed
contribution approach. Id like to hear your views about whats the potential
of the second one.
Do you want to start, Larry?
Okay. Well, I mean, I think cash-out is highly unlikely for quite some time
to come because there are huge technical questions about how do you do the cash-out
and equity questions that come up depending on whether youre going to cash
everybody out equally or youre going to try to do some adjustment for risk.
Do you try to make it possible for everybody to have enough money to go and
purchase insurance? Which is very different from just simply cashing everybody
out equally. And those are very complicated questions.
In addition, there are some
tax consequences to that which Im not sure were ready for yet. Its not just
a matter of the loss of the exclusion, but also the employer has a higher Social
Security tax contribution as a result, as does the employee. So trying to top
up out of that gets pretty expensive. So I think those are questions that are
very difficult to resolve. I think its--the voucher idea, I think, leaves the
employer in place to do the risk adjustment. That also gets a little hairy because
it makes the employer a risk adjuster. They have to incorporate the technology
that will make it all work. And I think it also gets into some privacy issues,
which is--you know, is the employer going to--should the employer know enough
about your health condition to be able to do adequate risk adjustment in a voucher,
or should it go somewhere else?
Thats why I think if you look
at HealthSync its kind of interesting because if somebody really creates an
outsourcing capability that can handle risk adjustment, it may solve a number
of problems for employers.
The cash-out voucher approach is part of this school of individual responsibility
that has grown in social policy in the country, and it can have some very negative
impact on the rest of the marketplace. And one issue that has not been discussed
up until now is the potential for cost shifting to other employers. And this
is sort of the silent cost that many employers are factoring into their premiums
today. Ive seen estimates of anywhere between 20 and 30 percent of the premium
is what youre paying for other employers who are either underinsuring or not
insuring their people at all.
So cost shifting, you mean what shows up in hospital rates that, in short, people
pay because of their uncompensated care obligations?
Okay. So youre talking about cost shifting from uninsured employers rather
than from an employer that has chosen a different plan.
Or it could also have an effect where you dont have adequate insurance.
Well, the cost of administration for anything thats individual has got to be--unfortunately,
that wont come off as a trade-off for something else, probably.
Premium collection, I mean,
anybody whos worked on COBRA and HIPAA and things like that can tell you that
once you dont have somebody in the workplace, you know, even getting a right
address for them sometimes, never mind all the other things. So just the cost
of running that program will be huge.
The tax issues, obviously, we
talked about for the cash. The technical equity issues, as somebody who tried
to move a benefit allowance to a common benefit allowance out of equity and
live to show the scars, it is nothing like telling the American people or the
American worker about internal equity to see not very good behavior come out.
For example, somebody mentioned
Boston. You know, we have people in Boston, you have people in California, are
you really going to in the same company let people know that youre giving a
$11,000, $15,000 benefit in Boston, and the poor folks down in Greenville, Mississippi,
get about a $3,000 benefit? And how are you going to compensate for that? So
you have the geographical difference.
You also have the individuals,
families, domestic partners. How is that going to be done?
And the minute you start putting
it in a single, whether its a voucher or cash, then you absolutely confront
those issues, and I would not want to have to be the one on the other end of
the e-mail or the phone when that happens.
Then, finally, I guess Id say
in terms of cash-out, this is where I become very--I dont know if its liberal
or conservative, but--maybe its both. But my experience, if you look at the
uninsured data and you look at the number of people, even with good incomes--I
believe, again, from you alls data--who dont buy their children medical care,
who dont even buy themselves medical care when its not even a money issue,
and the idea of turning it over to people many of whom will not make a wise
choice if given the choice. And you might want to give them a plan choice. You
might want to give them all sorts of incentives. Im not saying we should be
micromanaging the world. But to assume that people will take the money and do
the wise thing is a risk I personally--just personal opinion--would not want
Helen has hit on all of the--being responsible for operations, all those issues
that we cant grapple with as a large company in terms of equity and the geographic
regions, the age-sex variations, all of those issues, I dont see a short-term
I think the solution wed like
to have is the ability as a large employer to have medical savings accounts.
I think portability is important, and the ability to have people have money
earmarked like a 401(k) plan for medical expenses and then to have options within
that kind of account, and then to be able to take it with them.
In 1999, Lucent introduced a
cash balance account for our management employees, and with that people have
access only to retiree medical.
And theres no mechanism for
people to say they cannot save enough money for retiree medical under the 401(k)
plan, even though we did put some seed money. Its not at all practical with
the cost of care. So we definitely need some mechanisms, tax-free vehicles,
for people to be able to save for insurance.
To what extent would a medical savings account plan raise some of the issues
that Helen was just describing, as far as equity among different regions and
groups within the firm?
Well, I dont know if its going to solve those. But wed like to take more
of a total compensation look. And just like we dont seem to have to get into
the equity issues with retirement. I mean, you can purchase or have an annuity
or a spousal annuity, there seems to be different mechanisms that we dont really--that
seem to be adequately addressed in retirement savings that we dont seem--it
seems a more visceral response with health care. But at least I think it gives
the--it starts to give that sense of consumerism ownership that you have money
invested in these kinds of accounts and that then that will be a way for products,
a funding mechanism for products to be developed to meet different consumer
The next question is about the stumbling blocks for the various approaches to
define contribution. Now, probably the last question was really about the stumbling
blocks for the cash-out voucher. So why dont we focus on more the fixed contribution
And perhaps we should start
with Pam, since we seem to be alternating orders.
I guess we have the same stumbling blocks, in terms of an employer defining
the amount of dollars. But we are moving, again, as a high-tech company, into
a total rewards concept. And people are getting compensated more through stock
options and other variable benefits that they need to be able to have those
opportunities. Just like at Lucent, when you do get an award based on performance
or you have stock options, you have the ability to earmark some of that money
into your 401(k) account. So, again, trying, as an employer, think of a total
rewards package and be able to allow you to earmark bonuses and stock options
to reinvest that money into a medical savings account would be an advantage.
I was talking about stumbling blocks.
Actually, let me come back--
We talked about the stumbling blocks.
Sure. Helen, stumbling blocks for the fixed contribution approach?
I think a big one is the importance of keeping employees happy right now, although,
in theory, they might like it better if they understood it. Change makes people
very nervous. And when youre in the recruitment retention situation you are
right now, you dont want anything that gets people excited about anything.
And if youre not going to spend more money, theyre not going to see it necessarily
as a positive.
Group purchasing is less expensive.
So individual purchasing will cost a lot more. And I think thats a problem.
Again, my experience, and my
experience now as a consultant working with a lot of other large companies,
is our collective experiences, most employees dont want a lot--they want choice,
but they dont want to do a lot of work. Theres a difference between having
six plans with a range of co-payments and things that are pretty simple. Most
of them stay right where they are almost always anyway. A lot of people dont
even open their packets or if its online, they dont even go online. They just
hit something that says I want what I had last year. Leave me alone and dont
ask me any questions.
I think a stumbling block, another
one is the tax issues, but I think this business of not being able to carry
it over. People could psychologically feel, whether its an MSA or any other
approach, that if you dont spend, you still get it. We know from the Medicare
world how much people kind of overinsure and overprotect themselves. So if they
could hold onto that money and have it, I think that psychologically they would
feel a lot better.
The other thing is we always
talk about the percentage of people who have most of the costs. Well, its not
the same ones every year. There is a core number. Its true that 15 percent
is 80 percent or whatever the formula is that everybody uses. But the fact of
the matter is a significant number of those people, thats one year. They might
go three years without something, and they know that. I mean, I think most employees
know that, and that gets to be important.
The technical and pricing issues,
weve already talked about that. That is still a major stumbling block.
And in the final one, and Im
just really gratified to hear all about the data and the performance measures
and those kinds of things, but as a practical matter, we dont yet have those
systems in place to the level of sophistication that everyone would need and
like to have it really work. And maybe thats only two to three years away if
everybody works very hard. But if its not in place, and we put in the choices
without the information, people will get discouraged.
To what extent will putting in more choices stimulate the industry of getting
the data? Well, I guess theyll both influence each other.
Yes. Actually, my life experience would suggest that two things will happen.
It is true we would get a lot more data, and thank God for the Internet and
whats happening. But its also true that what happens is, as people get exposed,
they get into a panic, and they shut down systems. And I think some of the patient
protection stuff--I mean, health services research and biomedical research could
get shut down if some of the rules that are now coming out stay in the form
So as things begin to happen,
there will be vested interests, not all good ones to be sure, who will try to
put a stop to it. So its really a two-edged sword.
Any others? David?
I would just add one point. Many of the models that were discussed this morning,
obviously the presenters had very little time to talk about business plans that
probably took 12 or 18 months to put together. And thats always part of the
unfairness of making that type of presentation. However, I think we heard a
common theme in all of those presentations, which is my program is based on
the very sophisticated actuarial model. And as we know, sophisticated actuarial
models have often crashed, and weve seen many of these models fall apart in
the managed care side, in terms of pricing and capitation, especially over the
last five years.
And I could tell you, as a plan
sponsor and my union sponsors 85 multi-employer plans around the country with
the employers that we have contracts with, that it is an incredible, incredibly
difficult task to put networks back together for workers where youve had managed
care products under contract and all of a sudden the next day they no longer
exist. The chaos that that creates with the provider community is phenomenal.
And it points to some of the tremendous financial weaknesses and solvency issues
that currently exist in the health care system today at the private-sector level.
Well, let me be clear on what I think Im addressing here, which is were talking
about essentially a fixed contribution that stays within the context of an employer
plan. So nobody is walking out of the plan. But its a fixed contribution, much
like the managed competition model. And presumably theres a much greater degree
of choice here not only of health plans, but as we talked in some of the models
this morning, of actually being able to empower consumers to take dollars or
a fixed amount of dollars and go into the system as individual consumers picking
So that the major stumbling
blocks I think there are going to be the lack of the underlying technology that
is going to be necessary to make all of that work. And really what were talking
about is both what Helen talked about, in terms of information, enough information
for consumers to be able to make informed choices, and the fact that we really
dont have, in this country today, provider information that gives you very
much of a differentiation between providers at all. And we have a long way to
go in getting providers to report information that could be used to do that.
But I think more significantly
is this question of risk. Because even though you have the employer pool intact,
as you go into a consumer choice model, you are putting into motion individuals
in a way weve never seen before in the system--individuals going to providers
with amounts of money and providers taking very small portions of risk. So weve
been through a period of ten or whatever years of watching the effort to shift
risk out through capitation and other methods to not only health plans, but
providers. And weve watched that fail pretty substantially, pretty remarkably,
in some places. And we do not have at this point sophisticated risk adjustment
technology. We dont have the information wed need to do sophisticated risk
So there needs to be a series
of intermediaries who can grow up and become experienced in being able to manage
this. I think its wishful thinking to think that you can have consumers go
online, pick a health provider, give them an amount of money and that thats
all going to work well and that there is not going to be a substantial amount
of risk selection in there that people just have no way of anticipating, but
theyll find out when they wake up one morning and realize that they dont have
the revenues to cover their expenses.
So I think those are probably
the most significant hurdles at this point.
Youve probably covered some of this. But if you could focus on employees, both
as to whether there are certain types of employees that would particularly value
this or particularly feel harmed by it. And perhaps you could also touch on
the issue of adjudication of employee issues. Is it going to be more difficult
for the large employers to do what they have done historically of adjudicating
employee issues in this context of a defined contribution?
As we switch order, do you want
Ill try that one. Let me start with adjudicating. Because I think the issue
is what is the employer left to be responsible for in this? I mean, right now
the employers select health plans. They have a fairly substantial obligation,
I think, to help in the adjudication of issues that come up with regard to claim
for benefits. Because they design the benefit plans, they often have a lot to
say about what gets paid for and what doesnt get paid for. And so they are
in the middle of it.
I think as you move to defined
contribution, I think that the whole concept, and particularly with more of
a consumer choice model, increasingly, the concept is to get the employer back
out of being in the middle of it and let the employees make the decisions and
therefore have to be more responsible themselves for adjudicating what happens.
And I think in that case probably what were talking about is more of an ombudsman
model, more of an independent way for people to have some of these issues taken
I dont think--I agree with
Helen--I dont think the employer is going to back out of it entirely. But certainly
the nature of what theyre adjudicating will change fairly substantially.
And what was the first part
The first one was about who gains, who loses among employees, as far as who
is this going to be very attractive to and whos at risk for coming out behind?
Well, there really certainly are a lot of employees who are kind of chafing
at the bit to get out there and be much more involved. And you can just see,
in terms of what people are doing in terms of more health information on the
Internet and how people are moving into physicians offices much better equipped
to understand their diseases and stuff.
I think giving people information
that well have a lot of employees who want to take advantage of that. There
will always be about 50 percent of the employees who dont and need to be protected
in some kind of a residual model. But I think it will be attractive to a large
number of employees.
In terms of the effect on employees, it would be interesting to ask employees
exactly what they are interested in having provided for them. And if you look
at some of the EBRI surveys, there is still a very strong attachment, according
to those surveys, that I think are performed annually, to the employer-based
system. I dont think a majority of people are looking to take over the administration
of their own health insurance, at least if thats what you read into the survey
I would agree with Larry. I
think one of the tremendous potentials here for plan sponsors is to move more
and more into the area of education and providing health information to employees
so they can make good decisions and they can make educated decisions about when
to see a provider, which provider to see. And, again, I think its worth repeating,
the potential of some of these Internet products, in my opinion, is really in
that area of sharing huge amounts of micro-type information, outcomes analysis,
quality analysis on individual providers.
In terms of adjudication, I
think the whole purpose of the extreme of defined contribution that some people
are advocating is really to get out of that business, is to outsource any type
of dispute because businesses dont like to deal with disputes.
Where I come from, where my
union sponsors multi-employer funds, we have jointly trusteed funds where labor
and management are responsible for administering the funds. And we have dispute
resolution processes in place that seem to work very well and avoid litigation
to a great degree. I think they would be undermined by an individual responsibility
I think, in terms of employees level of satisfaction, there is no question
most employees really dont have much choice, if any choice. So the further
we go down the road to choice for them, however its done, theres going to
be higher satisfaction. And if theres information for them to make those choices,
all the better.
Within a cafeteria plan, if
employees are allowed to use money that they dont use for health care for other
benefits, then that could be a plus for those who dont use all of those benefits.
And thats actually fairly important to employees.
Now, in addition, if theres
proper risk adjustment and theres real protection, the group I worry the most
about are the people with serious medical conditions or children with major
disabilities. So whatever the system, if its designed to make certain that
those cases are always taken care of, then some of these more subtle things
at the front end, whether you go back to the doctor six times in one year instead
of four times in one year, those kinds of things thatll be fine. But, unfortunately,
some of the systems we have in place dont do that kind of protection. And I
think that thats important and needs to be considered.
Clearly, if the system is opened
up for more people, then employees in the aggregate are going to be better off.
And if new models are coming forward, even if they are not desirable to every
person, and as several of the panelists talked about, this isnt necessarily
going to be for everybody. But we have a huge country. I guess we are, what,
276 million people. Ten million people in the United States is not a lot of
people, but thats a big service.
So if you can provide, again,
with the proper risk adjustment so people who are seriously ill are not harmed
in any way and those who have more flexibility are given more choices and have
the ability to control the payment in a different way, and go wherever they
want, and pay the difference if they dont, then thats going to be something
thats very appealing to employees I think everyplace.
We are kind of unique for a high-tech company--we have 120,000 retirees--which may soon make us one of the largest retiree employers of the high-tech world.
We have 50,000 union employees
and 40,000 active, and all of our major growth is in companies who are buying
in Silicon Valley. So I feel incredibly challenged in addressing any kind of
one product that is going to meet the demands of those groups of people.
I think the one thing they all
value is they do understand the power of a group purchasing model. So they do
understand as a company, we can leverage price and quality on their behalf.
I think they do value that.
The other attribute that they
value is really the information we can provide them, and I think we have a long
way to go on that.
Where I did not answer as a
stumbling block, it is clear that we do not have a clearinghouse of uniform
information that somehow is validated to be accurate, and that that kind of
information would be of help to consumers and moving into a co-insurance PPO
plan design, the biggest issue I have is that people want to know discount off
of fee-for-service. Well, discount off of what, and what is the price? I cannot
share that with them. So I am interested in looking at the health market site
to see about costs being provided because we have not been able to do that.
So consumers are ready to look at cost and quality information, and it does
need to become a standard part of the program.
Another role, again, is this
advocacy, that if things are broken that they expect Lucent will take their
issues and represent them and leverage our size, even though I have to admit
we are becoming pretty marginalized as employers in this marketplace where hospitals
now go directly to the newspapers to terminate contracts with vendors. Probably
a good part of my day now is dealing with hospital network disruption and doctor
disruption. So those roles are things that our employees value, and I think
that those can be really set up in a defined contribution or through an information
We are getting a little short on time. So let me just give a final question
to the panel before going to the audience.
If we fielded an employer survey
in, say, 2003 or 2004, had a bunch of questions about changes since 2000 in
employer-sponsored plans, I was wondering what type of responses do you think
we might get. I guess that was an indirect way of asking for your predictions
for the future of what is going to happen over the next 2 or 3 years.
It looks like Helen is ready.
Well, you mean what are the employers going to do? Is that the question, or
what is the prediction on the increase?
What is going to change as far as employer-sponsored coverage?
Well, in the short term, not much, and my reason, again, the single most important
fact is the war for talent in this country right now. It is affecting every
market, every employer, except a few that are about to go under. They are the
only ones who are not worried about recruitment. Most are not going under because
of the economy.
I would say as long as we have
this dearth of new workforce entrants in the 20-year-olds, until the millenials--if
you all are not familiar with that term yet, the millenials are the kids who
are right now between 12 and 22. I guess you are no longer a kid at 22. But
that generation is the largest since the baby-boomers. When that crowd begins
to really hit the workforce, some of this problem is going to go away. Demography
is ruling on this one.
So I think in the short term,
employers are going to do anything they can to make employees happy. Fast-food
restaurants, companies that have never provided health benefits are beginning
to provide them now. I do not have a single client that is willing to even uptick
a tiny bit, a copayment, except on prescription drugs, but on office visits,
no, they are eating more of the contribution. It is roughly 80/20 nationwide,
and this last 3 years with the increases, none of the successful companies that
I know or work with have passed on even the 20 percent of the increase. So it
is actually that the proportion has gone down slightly because of the economy
and because of the war for talents.
So I think in the short term,
we will not see much change. They will continue to eat the increases. There
will be small changes in copays, and I think we will begin to see some pressure
more on things like formularies out of desperation, even though they are not
going to like that, but they feel that they can kind of get that in without
a great uproar, but all of the sort of main plans will stay untouched, I would
say, until the millenials join the workforce.
I would just add to that. I think there is a lot, though, right now of strategic
planning going on where people are investigating alternative models and thinking
about how to get more skin in the game for employees and very worried about
long-term cost. I think there is a feeling that this is not just a little uptick
right now in health care costs, but the beginning of a long-term trend, and
the feeling is that we have lost some of the tools that we had that probably
worked for a while and we do not have new tools in hand to manage this cost.
I think there are people who
are anticipating that this is going to become an issue in senior management
in about 3 or 4 years when they are going to have to be prepared with some kind
of a strategy to get out of this, but I see it starting and then maybe taking
place over a very long period of time in the transitional piece.
So it sounds like we could have a phenomenon of we do not see much as long as
labor markets are tight, but there is a lot of thinking going on, and that once
labor markets are not so tight, we see change that is maybe more rapid than
we are used to.
I guess the question is, at
that point, when the labor markets have loosened, I would ask for your prediction
on what types of changes would we likely see from employers.
I will echo. We certainly are looking at strategies, and in 3 to 5 years, actually,
we have increased our copays, but we are not a normal employer. We inherited
the AT&T model of free health care and nominal copay. So we are not still close
to what most people pay for health care, but we have made a commitment to push
communications through the Internet.
Obviously, as a technology company,
we have a website with the Mayo Health Clinic. So we have more and more pushed
communications on your condition, going to the workforce, on-site fitness centers,
a lot of that kind of more tangible show of health promotion. Probably, we will
kind of cut back on some of the defined benefits on health care only because
a lot of our younger employers, they do not value a lot of these benefits as
much as they want stock options. We are really in this dichotomy. I mean, there
we have in telecommunications about a 20-percent turnover. So we have a turnover
issue, and we have a workforce that is highly motivated by stock price, and
why offer very expensive health benefits which Lucent has because of our cohort
when our population that we are trying to attract to Lucent do not value those
So, again, we will probably
have different strategies for the different groups. Retirees are actually on
a cap. So they are on a defined contribution already, and we are starting to
pass the cost onto retirees. The unions, we negotiate benefits. So there are
tradeoffs there. For our management people, really in probably 3 to 5 years,
we will probably see more of a cutback in some of the dollars, but more flexibility
for people, again, this total rewards to use their money from the company to
purchase benefits of value to them.
I have a couple of comments just to support. Helen has made several interesting
statements about the tight labor markets and the impact on health insurance.
I do not know if any of you
saw this, but this ran in the New York Times on October 1. A company by the
name of Gardsmark took out a two-paged advertisement touting the fact--and this
is a company that has 15,000 employees, so it is not a mom-and-pop operation--touting
the fact that they provide 100-percent-paid health care for their employees.
I dont recall what an ad like this costs. I used to know these things 10 years
ago, but this has to be--
Yes, easily. It was also in the Wall Street.
It is sort of fascinating to
see that type of statement, social statement, if you want to call it.
So I guess insurance is important
to employers and employees. My prediction is a pretty ugly one for the period
beyond 2003. I could tell you that the 1.4 million members of my union based
on polling that we do across the country feel that their health insurance benefits
next to their wages have most important economic value. I think they understand
that without it, they are basically running bare and naked in terms of the life
of their family and themselves.
When we went through a period
in the 80s where this became contentious, there was a lot of social conflict.
There were quite a few strikes in this country over the issue of health care,
and not only do I foresee that beyond 2003, I think at some point when the uninsured
numbers start popping up at the normal rate that they have been, you are going
to see Congress back into the fray. They will surely approach it differently
than they did in 93 and 94, but they will be involved, to the better or to
Helen, did you have one more thing?
Yes, just to add a point about the possible changes.
I do work with some dot-coms,
and interestingly, there are only two things that are required, the dot-coms
require, and that is 401(k), especially since everybody doesnt qualify for
stock options, and "medical." Medical usually means as a practical matter a
PPO, and it is essentially defined contribution, but it is at close to a 100-percent
level. So they are setting the stage now for the future, and more employers
are either moving to or offering a PPO which, of course, built in has a little
bit less coverage and doesnt usually have as rich benefits to start with and
they are less expensive.
Most important from an employer
point of view, what an employer pays per month for a PPO access fee is somewhere
about half of what they would pay for point-of-service. So I see short term
and long term a much bigger shift to PPOs because basically the large health
plans are pricing themselves out of the market with their point-of-service products.
If that does not change, combined with defined contribution, the tendency to
let people have a PPO because they prefer it, all of that is going to move.
We will begin to look a little bit like the old indemnity world. Then, of course,
we could all reinvent the new models together.
Before I go to the audience, I could not see this panel. So I cannot tell from
their expressions whether they are chomping at the bit to say something, but
I wanted to give any of them, if they would like, an opportunity to react to
what they have heard from this panel.
The only thing that I would say, the entire discussion centered around employers
and their employees. There has been no discussion whatsoever about changing
the incentive of the key vendor; that is, the providers of care.
All of the models or all of
the objections you talked about up there about maintaining the status quo, tweaking
it here and there, still leave the provider essentially unaccountable for what
they do. I think as long as we continue that, we better be willing to pay the
bill because nothing is going to change.
You have to think about systems
changes that get down to the individual provider level to create incentives
for them to do the right thing.
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