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Mass Overhaul

March 2, 2012
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Related Topics: Top Stories - Frontpage, Medical Benefits Law, Health Savings Account (HSA), Health Care Costs, Health and Wellness, Health Care Benefits, Benefits, Legal
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Beth Israel Deaconess Medical Center's Lisa Zankman

As health costs in Massachusetts continued to mount in the wake of the state's massive 2006 health care overhaul, hospital leaders at Boston's Beth Israel Deaconess Medical Center decided last year to revamp a large benefits program: their own.

The Harvard University-affiliated teaching hospital organized its two most popular health plans into multilevel pricing tiers for doctors and hospitals, with employee costs linked to the tier selected for a particular health service. Employees frequently had been choosing high-cost hospitals for routine procedures, which could have been capably treated at other affordable, quality facilities, says Lisa Zankman, senior vice president of human resources at Beth Israel, which covers nearly 12,000 employees and their family members.

"We decided that we needed to steer people in order to save us some costs," Zankman says. By restructuring its plan design, Beth Israel employees were told, the hospital could limit their average 2012 premium increase to 5.7 percent rather than nearly 12 percent otherwise.

As employers prepare for national health care reform, which is slated to debut in 2014—with one eye on this year's upcoming Supreme Court ruling on the constitutionality of the law—the Massachusetts experience provides perhaps the best window into how federal reform might influence the cost and design of health benefits. Since its 2006 reform law, the Bay State has expanded coverage to 98 percent of its residents, using a model that in many ways mirrors the federal approach with mandated coverage for all but the smallest businesses and a required minimum benefits package, among other similarities.

Yet, the impressive coverage figure comes at a cost. Many doctors are no longer accepting new patients, and organizations such as Beth Israel have determined that health care reform did little to ease employers' expenses and they are on their own to seek alternatives.

Massachusetts has embarked on "reform 2.0," says Ashish Kaura, a Chicago-based principal at the global consulting firm Booz & Co., which conducted surveys and focus groups with Massachusetts employers in late 2010 and early 2011. "Over time, as health costs have not come down, I think what providers and insurers have realized is that you cannot keep adding more to a broken chassis and hope it still works," he says. "Now it's time for the system to start placing some big bets."

Despite a substantial overlap in approach, there are some key differences between Massachusetts reform and the national health care reform law that's projected to expand coverage to 34 million people by 2021. In Massachusetts, employers with 11 or more full-time employees must offer health insurance or risk a penalty of $295 per employee. Under the federal Patient Protection and Affordable Care Act, the penalty is $2,000. But it only applies to employers with 50 or more full-time employees.

By all accounts, Massachusetts reform has achieved its goal of reducing the rate of uninsured residents. In 2010, 1.9 percent of residents still lacked coverage compared with 7.4 percent six years earlier, according to a 2011 report by the Massachusetts Division of Health Care Finance & Policy. Massachusetts employers also are more likely to provide coverage than those in other states, with 77 percent providing benefits in 2010 compared with 69 percent nationally, according to an employer survey released in July 2011 by state officials.

Rising costs, though, weren't tackled at the same time, says Sharon Long, a senior fellow at the Washington, D.C.-based Urban Institute, who authored a Massachusetts reform analysis published early this year in the policy journal Health Affairs. "So costs there are continuing to rise much as they are in the rest of the country," she says. The state's average family monthly premium has increased by 33 percent to $1,262 in 2010 from $950 in 2005, according to the most recent data from the Massachusetts Division of Health Care Finance & Policy.

To help curb costs, Massachusetts employers and insurance providers have been talking more pointedly with employees about price differences between providers, a discussion that has been helped by the state's extensive release of related data. And they've been testing new plan designs, such as the tiered approach that Beth Israel uses.

Under tiered plans, employee payments vary not only for prescription drug "tiers," such as generic vs. brand name, but also the cost tier of the doctor or hospital they select. Another benefits trend is the resurrection of limited network plans, with a tight lid on the number of providers, much like the HMO plans of early managed care. The Group Insurance Commission, which insures 78,000 Massachusetts state employees, recently highlighted that alternative by instituting a mandatory re-enrollment to encourage employees to give the limited plans a second look.

But expanded access also has strained the system. Nearly six years after reform, the state's primary-care doctors are overwhelmed. Just 47 percent of family-practice doctors reported accepting new patients in 2011 compared with 70 percent in 2007, according to the Massachusetts Medical Society.

Meanwhile, the state's health costs, at $9,278 per capita in 2009, lead all 50 states, according to the latest data from the Centers for Medicare & Medicaid Services. The cost headaches aren't a surprise, says Rick Lord, CEO of Associated Industries of Massachusetts, a not-for-profit organization representing employers. "The cost increases aren't due to the reform—they are due to health care inflation in general."

Still, businesses—particularly smaller companies—have been crying uncle. Double-digit premium increases have forced many to a self-insured model, even among those who wouldn't have considered it previously, says Jon Hurst, president of the 3,400-member Retailers Association of Massachusetts. "You don't find very many fully insured operations in Massachusetts over 50 people anymore," he says. From 2006 to 2010, the number of self-insured plans increased from 45 percent to 53 percent, according to state data.

Another common gripe is the package of mandated benefits, which is called "minimum creditable coverage" in Massachusetts. The coverage requirements are "well-intended," says Mark Gaunya, president of the Massachusetts Association of Health Underwriters.

"But essentially it handcuffs employers in choosing a plan design that's cost-effective for them."

For example, the state sets limits on deductibles, Gaunya says. To meet minimal coverage requirements, an employer can't set a deductible higher than $2,000 for an individual and $4,000 for a family.

In 2010, the state's legislators made some changes to the 2006 reform law, providing some plan design options to address persistent cost concerns. Insurers are now required to offer some type of limited or tiered network option. And the plan's premium must be set at least 12 percent lower than the broader-network version.

For employers, tiered plans offer a way to offset rising health costs, without cutting benefits to the degree that they risk violating the state's minimum coverage requirements, says Larry Croes, vice president of commercial markets for Blue Cross and Blue Shield of Massachusetts. The insurer was one of the state's first to offer a plan that ranked doctors and hospitals, along with prescription drugs, starting in 2007.

Croes stresses that providers are classified into tiers using quality-based indicators along with cost data. For hospitals, the quality data monitored include the rate of hospital-acquired infections and whether heart attack patients are being prescribed beta blockers before they're sent home, among other markers. By the end of 2011, the tiered plans had enrolled more than 200,000 members. "It's the hottest product I've had in a long time," he says.

But that doesn't mean the tiered approach will necessarily work in other regions of the country, where the number of health providers might be limited or more geographically dispersed, Croes says. He describes the Boston area as a best-case scenario, where high-cost hospitals frequently are located just blocks from lower-cost/high-quality alternatives.

A provision in the 2010 law also helped encourage the formation of tiers in Massachusetts, as it barred some contract-negotiating practices, such as making a hospital's inclusion in a particular network dependent upon its being ranked in a preferred tier, says Alwyn Cassil, a spokeswoman for the Center for Studying Health System Change. The nonpartisan Washington, D.C.-based research organization released an analysis in October 2011 looking at employer insurance trends in a dozen cities, including Boston.

But, she adds, "Being able to tier their hospitals in a meaningful way has been very difficult for [other metropolitan] markets. Hospitals don't want to be in those costly tiers, and they will do whatever they can to avoid that."

Even so, employers elsewhere in the country, and particularly sizable employers, can exert leverage in other ways, Cassil says. "I think a big piece is: When do employers hit the wall and say, 'Enough is enough? Either I'm not going to have that high-priced hospital in my network, or if I do, it's going to be very expensive to go there.' That sends the provider a message that they're going to lose volume."

Massachusetts' traditionally high health costs have been driven by a number of factors, including a well-paid workforce with generous benefits and world-class hospitals, says Long, who was a professor at the University of Minnesota when she helped author the Health Affairs analysis. Since last year, Massachusetts Gov. Deval Patrick has been pushing for legislation to change how doctors and hospitals are paid, moving to more of a lump-sum model called "global payments," rather than paying for each medical service provided. But at deadline, any significant legislative progress appeared to be stalled, Long says. "There is consensus in the state on the need to address the rising costs, but less consensus on how to do that."

Meanwhile, there are increasing signs of movement on the private side. Last year Blue Cross and Blue Shield of Massachusetts introduced another type of plan called Hospital Choice Cost Sharing, in which patients pay an additional surcharge on top of their typical copayment if they opt for one of 15 designated high-cost hospitals for nonemergency care. The services listed include not only hospital admissions, but also outpatient surgery and other related care, such as imaging tests or physical therapy. Thus, getting an MRI at a designated higher-cost hospital, such as Brigham and Women's or Massachusetts General, costs an employee $500 compared with $50 at other hospitals.

Also, employers are becoming more aggressive about showing employees the bottom-line bill when they select so-called "C¬adillac care" as the default, says Sandy Reynolds, executive vice president at the Associated Industries of Massachusetts. She describes how one Massachusetts-based grocery chain met with managers, showing them that an emergency room visit cost $800 to $1,000, roughly four times an urgent-care clinic visit. That steep difference hit the employees' wallets, as they were required to pay 20 percent of the bill. For the grocery chain's employees, the most common emergency room diagnoses are headaches, sore throats, earaches and the common cold.

The managers were asked to pass along the information to front-line employees, Reynolds says. Within the first eight months following the educational sessions, emergency visits declined by 14 percent and urgent-care clinic visits increased by 12 percent when analyzed against a comparative eight-month period. "I think that's amazing," Reynolds says. Without education, she says, "employees do not really know what services cost."

During enrollment sessions at Beth Israel, hospital employees were shown to what degree the prices for seemingly routine procedures could vary at local hospitals. One slide reported that the price tag for a gallbladder surgery could range from $8,000 at a low-cost hospital to $12,700 at a high-end facility. "We found that people walked in very upset, but walked out really understanding, a) why we did it and b) what their choices were," Zankman says.

Under the new plan design, employees who signed up for the lowest-cost plan would be restricted to two tiers of providers for nonemergency care, primarily Beth Israel-affiliated hospitals and physician groups, along with some community hospitals. Nearly 1 in 5 made that choice for 2012.

For the higher-cost tiered plan, employees paid roughly twice the premiums to keep their options open to use a hospital or doctor on all three of the tiers. Employees also paid more for an office visit or procedure if they selected a higher-cost tier. Nearly three-fifths of employees, 58 percent, went that route. An additional 5 percent selected a traditional PPO plan, and 19 percent waived coverage.

Zankman says it's too early to know if those covered by Beth Israel's lowest-cost plan will become frustrated when they hit a medical issue and realize that their provider choices are limited. On the provider side, she's also quick to acknowledge that the state's foray into tiered plans might benefit the hospital's own negotiating leverage. (As one example, Beth Israel is listed as a lower-cost hospital on the Blue Cross and Blue Shield Hospital Choice plan.)

It's also unclear to what degree the Massachusetts experience will be replicated elsewhere if national reform becomes a reality, says Gaunya of the state's health underwriters association. Employers in other states, such as those with a high rate of uninsured residents, may "decide just to pay the penalty and get out of the insurance marketplace," he says.

If nothing else, Massachusetts illustrates just how difficult it is to address the thorny challenges of rising health costs, says the Urban Institute's Long.

"I don't know where the point will be when the [health] costs are high enough that it forces everybody to the table to actually address the issue," she says.

"But I think nationally we've got that same issue," Long says. "It's going to be very hard to address costs. The reality is if you cut costs, then that's somebody's income." wƒm

Charlotte Huff is a freelance writer based in Fort Worth, Texas. To comment, email editors@workforce.com.

Workforce Management, March 2012, pgs. 32-34, 36, 38 -- Subscribe Now!

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