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New York Times

Fewer Choices for Workers on Benefits

Nov 09, 2001

Tens of thousands of employees are being forced to drop their health plans and choose a different one this month as companies across the country sharply reduce their rosters of H.M.O.'s and other managed care insurers.

Some employees will have to change doctors as well, if their physicians are not on the roster of the new health plan. Everyone who makes the switch will have to deal with a new set of customer service representatives and often different rules and out-of-pocket payments.

Health care economists say large employers are trying to force the managed care companies to hold down their charges as they compete for a smaller number of large contracts. Employers say that by reducing the number of plans, they can save money and tighten control over the quality of care.

But critics like Alain Enthoven, a professor of management at Stanford, say employers are "going in exactly the wrong direction." With fewer choices, he said, doctors and hospitals will be under less pressure to compete by lowering prices.

Consumer advocates charge that the cutbacks are part of a strategy to shift more of the costs gradually to employees as health care inflation spirals upward.

"Businesses have found that they don't have a magic bullet to reduce their own costs," said Ron Pollack, executive director of Families USA, a consumer group based in Washington. "Their strategy is going to be to shift those costs and the burdens, and push people into more restrictive health plans."

The narrowing trend comes after years in which companies made more medical options available, said Jim Maxwell, health policy director at the JSI Research and Training Institute in Boston.

"Because of the managed care backlash," he said, "employers backed away from the tougher forms of managed care," which had helped to restrain cost increases, he said. And as the insurers changed their products to try to attract plan members, they dropped many of the restrictions that kept costs in check. For example, many health maintenance organizations stopped requiring members to get second opinions before treatments could be approved, and many no longer required permission from an internist or other primary doctor before a patient could consult a specialist.

Now, though, employers are facing rising health costs along with a weak economy, and their only way to keep expenses in check "is to negotiate more aggressively with the carriers," Mr. Maxwell said.

The changes are extremely widespread. In five years, 93 percent of Fortune 500 companies reduced the number of health insurers they offered, and none increased the number of insurance carriers, Mr. Maxwell reported in a study completed last year for the National Health Care Purchasing Institute.

In just the last two years, Sears, Roebuck (news/quote) dropped 120 health maintenance organizations and kept 65; American Express (news/quote) jettisoned 164 health plans and kept only 48. This year alone, Xerox (news/quote) removed 92 H.M.O.'s from its roster of 222 for employees wishing to choose a new plan, but current members of these H.M.O.'s could remain.

Sears, which covers 100,000 employees across the country, felt "forced into" dropping H.M.O.'s that demanded steep premium increases, said Liz Rossman, vice president for benefits at Sears. Some health plans were asking for 70 percent and 80 percent increases. She said most employees whose plans were dropped would still have access to the same doctors through a large national network offered by Empire Blue Cross.

Employers said that when they used many insurance plans, each one covering a relatively small number of employees, it was hard to negotiate rates effectively.

Arleane Baltrusitis, vice president for benefits at American Express, which covers 60,000 employees, 6,000 retirees and their dependents, said that with 164 insurers, it was "difficult to know what you were getting, if you were really getting value."

"In the 70's and 80's, the concept was to contract with everyone in sight" in cities across the country, she said.

"Twenty years later," she added, "we realized we had lost any leverage" with the H.M.O.'s. With relatively few employees in each local plan, she said, American Expresscould not negotiate with the H.M.O.'s on services or what the contract was going to look like.

Now most American Express employees have a choice of an H.M.O. or a doctor in a preferred provider network through UnitedHealthcare, an operating unit of the UnitedHealth Group.

Xerox has tried another approach. Larry Becker, benefits director, said that to try to have better control of the dozens of health plans it still has outside its manufacturing center in Rochester, Xerox was dividing them into four groups that would be managed by Empire Blue Cross and Blue Shield, UnitedHealth, Aetna (news/quote) and Kaiser Permanente.

Smaller companies are also narrowing their sights. Kestrel Technologies, a rapidly growing software company based in Manhattan with 60 employees in seven states, hired Empire to take over from six health plans.

"I wanted to try to reduce premiums and provide equal benefits to all our employees," said Jake Karam, chief financial officer of Kestrel. The company's premium rates have plummeted 30 percent for the new year, he said, in part because insurers were more interested in covering a larger group of employees.

The drive to reduce the number of plans is spurred by the fact that as companies have laid off employees, their benefits departments have shrunk, leaving fewer workers to deal with health care insurers. "There is a greater push to do it this year because the rates are up and the benefit department has been downsized along with the rest of the firm," said Larry Boress, executive director of the Chicago Business Group on Health, an employers' group.

Consultants say H.M.O.'s are demanding premium increases of up to 17 percent from large companies for 2002.

Companies "are looking for one- stop shopping," said Laurel Pickering, executive director of the New York Business Group on Health.

Mr. Boress says the health plans are eager to become employers' sole health care managers. They offer discounts of at least 5 percent for the privilege, he said. "Insurers are terrified of selling a more comprehensive plan and competing with a less comprehensive plan" that siphons away healthier members, said Paul Ginsburg, president of Health Care Change, a research group based in Washington.