Groups call for shift in employee benefit financing

Proposed changes could increase provider leverage

While public and congressional attention has been focused on the controversial battle over patients’ rights and managed care reforms, power brokers from both medical and business groups have been quietly laying the foundation for a fundamental shift in the way health care is financed in this country.

Specifically, plans are being developed to make a major move next year to shift the basic financing of the average family’s health insurance away from the current employer-based system to one in which coverage is purchased and owned by individual employees. The long-term goal: to effectively get companies out of the business of providing and paying for their workers’ personal medical plans and turning them into central information clearinghouses to help employees with their health care coverage.

The American Medical Association (AMA) is a major backer of this concept. "The AMA’s goal is to convert the current tax treatment of insurance coverage away from an employer-based tax deduction to an individually owned and individually purchased system of health insurance," says William H. Mahood, MD, a member of the AMA’s board of trustees.

"We see this as simply as a natural outgrowth of the trend where employees take more responsibility for the cost and quality of their health care coverage," notes Pat Cleary, director of human resource issues for the National Association of Manufacturers in Washington, DC.

Medical providers also see this as a way to break managed care’s growing grip on the health care marketplace. According to Mahood, studies show cost-conscious employers are increasingly shifting their employees’ medical programs from indemnity coverage to managed care, and then from one managed care plan to another, based almost exclusively on which plan is the cheapest.

Two companies control 85% of live

"As competing plans have consolidated in competitive managed care markets, this process has given them tremendous leverage in negotiating payment rates with local providers," argues Mahood. "In Philadelphia, for instance, just two companies control something like 85% of all the lives covered by managed care."

As a result, groups like the AMA contend that providers don’t have the ability to bargain when it comes to determining the terms of a managed care contract. "They are afraid they will be dropped by the plan, and that could be economic suicide," says Mahood.

"We feel many of these problems would go away if the individual patient had an opportunity to choose a health plan from a wide variety of health plans based on quality and costs, rather than have an employer shift 5,000 people here or there based on premium cost alone," argues Mahood. "The idea of having choice at the patient level could eliminate an awful lot of the distortion in today’s marketplace."

Under the proposal floated by the AMA, employers still could contribute toward employees’ coverage in the form of a voucher or defined contribution, which could be set at a fixed amount with no need for annual increases. However, individual employees would be responsible for buying their own medical coverage, which would be partly underwritten by the federal government via a refundable tax credit capped and indexed by income. To lower costs and increase access, individual employees also could join joint purchasing cooperatives to purchase coverage.

A system quite similar to the one suggested by the AMA already is being used in Minneapolis. The Buyers Health Care Action Group, an employer coalition, sponsors a health benefits program for its members in which employees of participating companies choose their health plan by provider rather than by insurance carrier. One carrier provides administrative services for all employees covered under the program. The program currently is in its second year.

The AMA’s Maher says his organization’s proposed system would allow employers to effectively tell employees, "We will continue to give you the same amount of money for your health insurance coverage as we did when we purchased your managed care policy last year in the form of a voucher or in the form of a defined contribution."

Meanwhile, companies continue to keep their tax deduction for whatever funding they provide. Over time, proponents of this idea expect the employer’s contribution to gradually drop as the employee’s tax credit increases. "We see the employer and employee tax credits as a kind of safeguard to discourage firms from just suddenly cutting out whatever contributions they have been making to their workers’ health coverage," says Mahood.

The ultimate benefit of putting health benefit choices in the hands of consumers rather than employers is a much more competitive marketplace, Maher contends. If consumers governed choice, this would lead to both lower costs and higher quality in health care.

The AMA, which has just recently begun promoting the idea, hopes to build a foundation of support for a more intensive lobbying campaign starting next year.