Center for Studying Health System Change

Panel Two: Employer and Union Responses

             DR. GINSBURG: We’re about to begin the second panel. If you could take your seats, please?
             As soon as the panelists are seated, I’ll ask them their first question.
             Okay. The first question--that’s good. We’ve got all the panelists except, Sally, you should come up. Oh, you’re going to be there? Okay.
             The first question I’d like to ask is: Is there anything that you’ve 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?
             MS. DARLING: Well, actually, I was going to say it’s a tough one because I’m--I think there is a lot about defined contribution, but I’m 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.
             DR. GINSBURG: Okay. That’s a good--Larry?
             DR. ATKINS: Well, I’d like to add to that and just say that I do think that the two things that employers would see valuable in what we’ve 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. I’m not sure how much is really going to be there. I think that’s probably one of the most difficult things to get information on. And it’s one thing to say that providers are going to put their information out there. It’s another thing to say that you’re going to have some kind of information that’s 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 that’s 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 employer’s 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 it’ll be interesting to see how that gets set up and runs, and it will be, I think, attractive to employers if, in fact, there’s a chance for risk adjustment to work effectively.
             DR. GINSBURG: Yes?
             MR. BLITZSTEIN: I would like to make a comment about the definition and the terminology that we’re using, and I’m not sure how controversial this will be, but this defined benefit/ defined contribution dichotomy in the health care area I’m not sure is a true breakout of what’s 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, everything’s up for grabs.
             DR. GINSBURG: Actually, you’ve 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. I’d 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 that’s the main attraction that your place would want to investigate?
             MS. KROL: Well, I’ll take a two-part because I didn’t get to the respond to the first question. I’m encouraged that the panelists were grappling with the risk pool issue because that’s 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.
             [Laughter.]
             MS. KROL: But, as well, I think one thing I was encouraged by the panelists is that there was some recognition of--of--advocate--
             DR. GINSBURG: Yeah, ombudsman function.
             MS. KROL: I can’t 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 don’t 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 they’re average. They are. They’re designed for the average employee based on what the company can afford, and they’re really not designed to be customized to individual needs. And I think that would be a true advantage under a defined contribution system.
             DR. GINSBURG: Okay. Helen?
             MS. DARLING: I think, as Pam hit on it, the choice we know is extremely important, and we know from the center’s 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 everybody’s mind from the CEO down is recruitment and retention of talent. That is the biggest problem, and that’s what they pay attention to. So anything that makes them happy is going to be appealing.
             I think, second, there’s certainly the feeling among benefit managers it’s extremely important for employees to have a financial stake in their decisions. I don’t want to take issue with my fellow panelists, but I think there’s still a lot of defined benefit, at least belief out there, and a fair number of employers still do it. Maybe they don’t 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 it’s 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 morning’s 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.
             DR. GINSBURG: David?
             MR. BLITZSTEIN: Again, I think there’s 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 it’s a paradigm shift that we’ve been seeing in this country for over 20 years, and it’s 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 we’re seeing is that there’s sort of a desperation out there. There’s 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 we’re looking for something that’s going to protect us for maybe another five or six years. And, therefore, we’re seeing this proliferation of new ideas and products.
             This doesn’t mean they’re 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. That’s where I see the potential.
             DR. GINSBURG: Larry?
             DR. ATKINS: Well, it’s 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 what’s 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 it’s 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 they’ve 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. They’re 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 there’s a long-term trend that’s 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 the employer.
             Then I think, obviously, the upturn in cost recently is a very significant factor. I think a lot of employers feel like we’ve explored what can be done with managed care to control costs. We’re kind of throwing up our hands on utilization review. There’s 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, it’s increasingly important that the employees play a much stronger role and feel much more the cost pressure themselves. That’s the only way they’ll 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 that’s a major portion as well.
             DR. GINSBURG: There are two things that I didn’t 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?
             DR. ATKINS: I think in terms of the loss of utilization review, I think both of those are driving that. And I think what’s 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 employer’s at risk or whether the plan’s at risk is really insignificant. And a lot of plans have responded basically by saying they’re 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 it’s a very significant concern.
             MS. KROL: I’ll 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 employee’s out of work for half a day because they can’t get the comprehensive services in the doctor’s office.
             So I think they’re 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 that’s how we’ve 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.
             DR. GINSBURG: Yes, Helen?
             MS. DARLING: 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 all’s research at the center that said basically it doesn’t matter what you think about your managed care, it’s whether you think you’re in managed care, what you think about your care. And basically even people who were not in managed care didn’t like it, and those who were in it didn’t 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 we’ve 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 they’re willing to pay more--and I think it actually will be pretty clear pretty quickly that a lot of people won’t be willing to pay more for these systems they think they want, as long as somebody else is paying.
             In terms of liability, that sort of cuts both ways. For the most part, it’s 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. It’s 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 you’ve 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.
             DR. GINSBURG: 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. I’d like to hear your views about what’s the potential of the second one.
             Do you want to start, Larry?
             DR. ATKINS: 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 you’re going to cash everybody out equally or you’re 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 I’m not sure we’re ready for yet. It’s 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 it’s--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?
             That’s why I think if you look at HealthSync it’s 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.
             MR. BLITZSTEIN: 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. I’ve seen estimates of anywhere between 20 and 30 percent of the premium is what you’re paying for other employers who are either underinsuring or not insuring their people at all.
             DR. GINSBURG: So cost shifting, you mean what shows up in hospital rates that, in short, people pay because of their uncompensated care obligations?
             MR. BLITZSTEIN: Yes.
             DR. GINSBURG: Okay. So you’re talking about cost shifting from uninsured employers rather than from an employer that has chosen a different plan.
             MR. BLITZSTEIN: Or it could also have an effect where you don’t have adequate insurance.
             DR. GINSBURG: Okay.
             Yes, Helen?
             MS. DARLING: Well, the cost of administration for anything that’s individual has got to be--unfortunately, that won’t come off as a trade-off for something else, probably.
             Premium collection, I mean, anybody who’s worked on COBRA and HIPAA and things like that can tell you that once you don’t 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 you’re 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 it’s 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 I’d say in terms of cash-out, this is where I become very--I don’t know if it’s liberal or conservative, but--maybe it’s 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 all’s data--who don’t buy their children medical care, who don’t even buy themselves medical care when it’s 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. I’m 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 to take.
             DR. GINSBURG: Pam?
             MS. KROL: Helen has hit on all of the--being responsible for operations, all those issues that we can’t grapple with as a large company in terms of equity and the geographic regions, the age-sex variations, all of those issues, I don’t see a short-term solution.
             I think the solution we’d 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 there’s 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. It’s 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.
             DR. GINSBURG: 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?
             MS. KROL: Well, I don’t know if it’s going to solve those. But we’d like to take more of a total compensation look. And just like we don’t 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 don’t really--that seem to be adequately addressed in retirement savings that we don’t 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 demands.
             DR. GINSBURG: 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 don’t we focus on more the fixed contribution approaches.
             And perhaps we should start with Pam, since we seem to be alternating orders.
             MS. KROL: 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.
             DR. GINSBURG: I was talking about stumbling blocks.
             MS. KROL: Stumbling blocks.
             DR. GINSBURG: Actually, let me come back--
             MS. KROL: We talked about the stumbling blocks.
             DR. GINSBURG: Sure. Helen, stumbling blocks for the fixed contribution approach?
             MS. DARLING: 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 you’re in the recruitment retention situation you are right now, you don’t want anything that gets people excited about anything. And if you’re not going to spend more money, they’re 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 that’s 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 don’t want a lot--they want choice, but they don’t want to do a lot of work. There’s 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 don’t even open their packets or if it’s online, they don’t even go online. They just hit something that says I want what I had last year. Leave me alone and don’t 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 it’s an MSA or any other approach, that if you don’t 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, it’s not the same ones every year. There is a core number. It’s 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, that’s 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, we’ve already talked about that. That is still a major stumbling block.
             And in the final one, and I’m just really gratified to hear all about the data and the performance measures and those kinds of things, but as a practical matter, we don’t yet have those systems in place to the level of sophistication that everyone would need and like to have it really work. And maybe that’s only two to three years away if everybody works very hard. But if it’s not in place, and we put in the choices without the information, people will get discouraged.
             DR. GINSBURG: To what extent will putting in more choices stimulate the industry of getting the data? Well, I guess they’ll both influence each other.
             MS. DARLING: 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 what’s happening. But it’s 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 they’re in.
             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 it’s really a two-edged sword.
             DR. GINSBURG: Sure.
             Any others? David?
             MR. BLITZSTEIN: 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 that’s 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 we’ve 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 you’ve 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.
             DR. GINSBURG: Larry?
             DR. ATKINS: Well, let me be clear on what I think I’m addressing here, which is we’re talking about essentially a fixed contribution that stays within the context of an employer plan. So nobody is walking out of the plan. But it’s a fixed contribution, much like the managed competition model. And presumably there’s 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 providers.
             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 we’re 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 don’t 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 we’ve never seen before in the system--individuals going to providers with amounts of money and providers taking very small portions of risk. So we’ve 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 we’ve watched that fail pretty substantially, pretty remarkably, in some places. And we do not have at this point sophisticated risk adjustment technology. We don’t have the information we’d need to do sophisticated risk adjustment.
             So there needs to be a series of intermediaries who can grow up and become experienced in being able to manage this. I think it’s wishful thinking to think that you can have consumers go online, pick a health provider, give them an amount of money and that that’s 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 they’ll find out when they wake up one morning and realize that they don’t have the revenues to cover their expenses.
             So I think those are probably the most significant hurdles at this point.
             DR. GINSBURG: You’ve 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 to start?
             DR. ATKINS: I’ll 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 doesn’t 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 we’re talking about is more of an ombudsman model, more of an independent way for people to have some of these issues taken care of.
             I don’t think--I agree with Helen--I don’t think the employer is going to back out of it entirely. But certainly the nature of what they’re adjudicating will change fairly substantially.
             And what was the first part of it?
             DR. GINSBURG: The first one was about who gains, who loses among employees, as far as who is this going to be very attractive to and who’s at risk for coming out behind?
             DR. ATKINS: 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 physician’s offices much better equipped to understand their diseases and stuff.
             I think giving people information that we’ll have a lot of employees who want to take advantage of that. There will always be about 50 percent of the employees who don’t 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.
             DR. GINSBURG: David?
             MR. BLITZSTEIN: 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 don’t think a majority of people are looking to take over the administration of their own health insurance, at least if that’s what you read into the survey information.
             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 it’s 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 don’t 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 type system.
             DR. GINSBURG: Helen?
             MS. DARLING: I think, in terms of employees’ level of satisfaction, there is no question most employees really don’t have much choice, if any choice. So the further we go down the road to choice for them, however it’s done, there’s going to be higher satisfaction. And if there’s information for them to make those choices, all the better.
             Within a cafeteria plan, if employees are allowed to use money that they don’t use for health care for other benefits, then that could be a plus for those who don’t use all of those benefits. And that’s actually fairly important to employees.
             Now, in addition, if there’s proper risk adjustment and there’s 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 it’s 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 that’ll be fine. But, unfortunately, some of the systems we have in place don’t do that kind of protection. And I think that that’s 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 isn’t 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 that’s 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 don’t, then that’s going to be something that’s very appealing to employees I think everyplace.
             MS. KROL: 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 model.
             DR. GINSBURG: 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.
             MS. DARLING: Well, you mean what are the employers going to do? Is that the question, or what is the prediction on the increase?
             DR. GINSBURG: What is going to change as far as employer-sponsored coverage?
             MS. DARLING: 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.
             DR. GINSBURG: Larry?
             DR. ATKINS: 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.
             DR. GINSBURG: 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.
             Pam?
             MS. KROL: 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 as much.
             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.
             DR. GINSBURG: David?
             MR. BLITZSTEIN: 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 don’t recall what an ad like this costs. I used to know these things 10 years ago, but this has to be--
             DR. GINSBURG: $110,000.
             MR. BLITZSTEIN: 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 the worse.
             DR. GINSBURG: Helen, did you have one more thing?
             MS. DARLING: 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 doesn’t 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 doesn’t 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.
             DR. GINSBURG: 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.
             MR. NEWCOMER: 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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