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AIS's Health Business Daily
Featured Story July 31, 2008 State and Local Governments Are Employing Tough Tactics to Counter Health Insurance Cost Hikes Reprinted from HEALTH PLAN WEEK, the industry's leading source of business, financial and regulatory news of health plans, PPOs and POS plans. By Steve Davis, Managing Editor (sdavis@aispub.com) Like most employers, city, state and county governments tell HPW that they are working on strategies to keep rising health coverage costs under control. That means health plans can expect to see new negotiating tactics in months ahead. While some counties and towns are joining with others to improve their economies of scale, other entities are partnering with health plans to build more efficient provider networks and improve the overall health of members. Johnston, R.I., which has about 1,140 school and town employees, recently joined with four other local communities to secure a better rate from Blue Cross and Blue Shield of Rhode Island. The strategy will help the communities hold their annual rate increase to 9% instead of an anticipated 12%, Johnston Mayor Joseph Palicina (D) tells HPW. The mayor says the move will save his town $542,900 this year. "The days of just writing out checks are over," he asserts. "We need to scrutinize every dollar we spend. This should have been done 20 years ago." The nonprofit Rhode Island Municipal Insurance Corp. (RIMIC), which was formed late last month, is made up of five communities. The town of Johnston had been paying about $65 per employee per month in administrative fees to the Rhode Island Blues plan. Pooling employees from several towns has brought those fees down to about $40. And that rate will likely drop even further if more communities join RIMIC. Palicina says four additional communities want to join. Amy Wilde, county commissioner for Meeker County in rural Minnesota, says it's been four years since the county has had a health coverage rate increase in the single digits. This year, premiums jumped 16.8% after a 17% rate hike in 2007. A similar rate increase is expected for the 2009 plan year. "You can't imagine the effect these back-to-back [rate] increases are having on our budget," she says. "And employees are seeing a larger share coming out of their paychecks." While the county switched to a health savings account (HSA)-based, high-deductible plan three years ago, the strategy has been ineffective to date at holding down rate hikes. The plan, administered by Blue Cross and Blue Shield of Minnesota, includes a $1,200 annual deductible for single coverage ($2,400 for family coverage). Between 170 and 200 people are employed by the county. Perceived inefficiencies in the state's Medicaid program prompted Meeker and 10 other rural counties to create their own nonprofit managed care company — PrimeWest Health — to cover Medicaid recipients more cost effectively. Wilde says she hopes a similar strategy can be used to cover county employees by 2010. To do that, PrimeWest would need to launch a subsidiary, which would be licensed and run like a commercial health plan, she notes. PrimeWest Health covers about 10,200 low-income residents in 10 counties. The three additional counties that joined the program this year could double PrimeWest's enrollment. Wilde says the program has been successful "in making Medicaid dollars go further" through programs such as those that help enrollees better manage chronic illnesses. Money saved through improved efficiencies has allowed the health plan to boost physician reimbursement rates 14% to 25% above what the physicians would typically receive under Medicaid. As a result, Wilde says, more providers are now willing to see Medicaid patients. About $7 million in savings achieved through the health plan has been put back into the community to fund programs that help hospitals and nursing homes better serve low-income residents, Wilde says. Member counties that loaned money to get the health plan up and running have since been repaid - including 5% interest - "from the savings realized in managing care ourselves," Wilde Asserts. "We are a microcosm of how single payer might work," she says. "If we decide to form a subsidiary cooperative for county employee health coverage, that would provide another source of revenue for PrimeWest, with potential for also reducing or holding down employee premiums." CalPERS Reports $200 Million Savings The California Public Employees' Retirement System (CalPERS) said June 19 that its overall premiums for 2009 will increase a mere 4.3% for 2009 - the lowest rate hike in more than a decade. CalPERS is the nation's third largest purchaser of employee health benefits with nearly 1.3 million state and public agency employees, retirees and dependents. Spokesperson Karen Perkins attributes the low rate increase to "aggressive" negotiating on the part of the board and Blue Shield of California's willingness to partner with the organization to reduce coverage costs. Since 2005, CalPERS says it has saved more than $200 million by eliminating the highest-cost hospitals in its HMO network. More than $70 million of that savings was realized in 2007, it says. The hospitals were identified by Blue Shield of California through an analysis of claims data. "Those hospitals were charging more, but there was no visible evidence that quality was any better," Perkins says. Last year, the insurer made a "high-performance" physician network available to CalPERS enrollees. The Blue Shield NetValue network includes about half of the providers available through the insurer's HMO network. Family coverage for employees enrolled in the NetValue program will increase 3.7% to $1,161 a month. Premiums for Blue Shield of California's Access+ product will increase by 5.3% to $1,313 a month. Monthly premiums for families covered by Kaiser Permanente's HMO will increase by 8.2% to $1,227. The addition of the high-performance network will save CalPERS about $10.4 million a year, Perkins says. Perkins adds that California Blue Shield gave CalPERS a one-time credit because it overestimated utilization rates when it determined premiums for 2007 and 2008. That credit can be applied to next year's premiums. The insurer also reduced its rate increase after CalPERS agreed to extend its contract by one year. Employees Cash in Sick Days Minnesota's Hennepin County, which includes metropolitan Minneapolis, spends about $90 million a year on health coverage premiums for its 8,700 employees. Premiums now account for 2% of payroll, which has caught the attention of the county's labor unions, says Labor Relations Director Bill Peters. The county, he says, has met with union leaders and HealthPartners, the county's health plan, to determine why rates are increasing and how disease management programs and preventive care can be used to hold down future rate hikes. Over the past five years, county employees and their family members have been able to reduce doctor office copayments by $5 by completing an annual health risk assessment. Now the county is asking enrollees to take that to the next level. "It's no longer enough to just take the risk assessment; you have to do something. If you're overweight, sign up for a weight-loss program. If you're a smoker, take a smoking-cessation course." To encourage more active lifestyles, the state also allows county employees to cash in unused sick leave to purchase exercise equipment or to pay for gym memberships. Employees can use up to $1,500 a year. Peters says he and his wife recently purchased new bikes through the program. Only one-third of county employees have family coverage because it has become too costly. To address that issue, Peters says the county added two lower-priced tiers of coverage for the 2008 plan year: employee plus spouse and employee plus child(ren). Despite declining revenues and a likely 8% trend rate, the state of Tennessee hasn't substantially increased the rate for family health benefits for eligible state employees. The state covers about 80% of the cost of health coverage for both single and family coverage. The state also hasn't increased copayments in five years, says Brian Haile, deputy director of benefits administration at the State Dept. of Finance and Administration. About 270,000 lives are covered under the state plan. Haile says the state is "taking a hard look" at the drivers of rate increases, such as a large population of diabetic enrollees. Most health plans that offer coverage to state employees include a disease management module. "We are trying to single out promising initiatives that we can elevate to a statewide level," he says. "State employees have a good deal of longevity, so we really can see the return on investment for an effective program." |
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