Charles Ornstein Article – Fourth in Series on How Firms Choose Health Plans
The Henry J. Kaiser Family Foundation
Fourth in an occasional series
By Charles Ornstein
Reprinted with permission of The Dallas Morning News
“Health insurance is obviously an important decision,” said Mr. Gilmore, 56, a vendor training coordinator for Verizon Communications Inc. “But it’s taken on a little bit less importance because we’ve been satisfied with Cigna, and my kids are older now and they’re both married and I don’t cover them with insurance anymore.”
Mr. Gilmore and many of his fellow employees took little more than a day to make decisions about health coverage, but three regional health-care managers spent eight months vetting health plans and negotiating contracts that will take effect Jan. 1.
The trio’s choices would have to satisfy the demands of 284,000 employees, retirees and their dependents of the former GTE Corp. while fitting within a whopping half-billion-dollar budget eventually approved by chairman and chief executive Charles R. Lee. This particular line item consumed nearly 8 percent of GTE’s operating income in 1999.
Along the way, the three managers encountered steep increases in medical and prescription drug costs, financially unstable HMOs and renewed efforts to reduce medical errors in hospitals.
Typically, employees don’t get to peek behind the veil of secrecy associated with benefits selection, receiving little information besides an enrollment kit each fall. But for this article, GTE provided exclusive and unprecedented access and candidly discussed the factors that affected decision-making. That included access to internal meetings, visits with health insurers, company documents and employee interviews.
In the midst of an already complicated process, GTE underwent dramatic corporate changes. In one year, it divested itself of two units, spun off its wireless operations into a joint venture with Vodafone Group PLC, and merged with Bell Atlantic Corp. to form Verizon.
Privately, GTE’s benefits staff questioned whether they would even have jobs after the merger. Like many corporations, its partner Bell Atlantic relied heavily on consultants to select insurance programs.
A bad year
From the get-go, regional health-care manager George Crowling and his two colleagues at GTE knew this year would bring cost increases unseen during the mid- and late 1990s.
On a visit to mideastern Illinois, where GTE provides local phone service and employs about 400 people, Mr. Crowling was faced with a 60 percent premium increase for retirees by a local HMO called Health Alliance Medical Plans. That was on top of a 13 percent increase for active employees.
In St. Louis, industry colossus UnitedHealthcare demanded an increase of 29 percent to cover GTE employees across Missouri.
Mr. Crowling and his two co-workers logged nearly 100 visits with health plans this year, developing a strategy that responded to trends they saw across the country.
“They’re atypical in the way they do things,” said Larry Atkins, president of Health Policy Analysts Inc., a Washington-based benefits policy and consulting firm. “There probably are not a lot of companies out there really scouring these HMOs, turning them upside down, shaking them and then making decisions about which one they want to contract with.
“Most companies say: ‘We really don’t want to go to those lengths. If there’s an off-the-shelf product that somebody else is vetting that will meet our requirements, let’s do that.'”
In the 1999 benefit year, the company spent $548.7 million, or $3,653 for every employee and retiree the same per capita amount paid in 1994. For this calendar year, the company expects costs to increase by about 5 percent.
As for 2001, the benefits year observed for this article, the company expects a net increase of 8 percent, on top of premium increases absorbed by salaried employees.
In the overall scheme of things, GTE’s medical spending will still look pretty good, compared with other large companies, said Mr. Crowling, regional health-care manager for Texas and 13 other states. But that doesn’t mean he and other executives aren’t worried by the trend.
Bruce Taylor, director of employee benefit policy and plans at the newly minted Verizon, brought home the magnitude of the cost increases during a September speech in Toronto.
Verizon, he said, will spend nearly $500 million per year on prescription drugs, including the amount spent by its HMOs. Conservatively, drug spending is increasing at 15 percent annually or $75 million a year.
“That means … every time you go by a phone booth, a Verizon phone booth, I need to have 300 million more phone calls at 25 cents each just to pay for the increased costs for prescription drugs,” Mr. Taylor said. “If you let me take the price of the phone call up to 35 cents, then it goes down” to 214 million extra phone calls.
On a rainy, unseasonably warm day in February, a team of 26 people crammed into a small, windowless conference room in Coppell to begin the selection process and set key dates in “wet cement.”
The group was divided between representatives of GTE and Hewitt Associates, the firm hired to administer GTE’s behind-the-scenes benefits process. Hewitt, based in Lincolnshire, Ill., processes paperwork, runs GTE’s customer service center, calculates its premium payments to HMOs and helps new employees enroll in the system.
The marching orders from the executive suite largely paralleled those of years past: Hold cost increases to less than 75 percent of the national average; improve employee satisfaction through external measurable means; and prevent labor disruptions over health care.
But the merger with Bell Atlantic prompted two new directives: Don’t make any major changes; and begin aligning plans with Bell Atlantic.
“We make sure that our employees are focused on beating our competitors as opposed to being distracted by hassles of health-care needs or delivery systems,” said Ezra Singer, Verizon’s executive vice president for human resources. “If they’re able to keep their eye on the competitive issue, that’s what we want.”
The job of keeping the benefits selection team on track fell to John Large, project manager for annual enrollment. “The process starts rolling,” he exhorted. “Everybody knows what they have to do.”
For the most part, Mr. Large was correct, and his team met most of the 115 key deadlines, 46 of them considered critical milestones. Among them: Complete a communications plan by the end of April. Identify health plans to drop by the end of June. Determine the company’s share of insurance premiums by the end of July.
All of this, of course, was designed to launch open enrollment for active employees on Oct. 6 and give the team time to notify employees whether they were required to change plans. The selection process ended Nov. 10.
Everybody at the meeting was conscious of the impending merger with Bell Atlantic, the big telephone provider on the East Coast. The deal would create the largest local phone company and move GTE headquarters from Irving to New York.
“We have a lot going on this year that we didn’t have going on last year,” one participant said.
Once the dust settled, members of the health-plan team received preliminary indications that their jobs were safe. Yet Verizon’s health-care strategy remains under development.
“What I want to do going forward is really take the best aspects of Bell Atlantic and GTE, and at the same time, look at what other companies are doing,” Mr. Singer said. “Whatever we do, I want to make sure that it’s sustainable and that it can last for a long while.”
‘An endless pit’
After the introductory meeting in February, the situation was largely quiet for the next couple of months, with teams working behind the scenes. Beginning in May, though, the health benefits managers began holding meetings with health plans, securing bids for 2001 premiums and making changes.
They also spent a good deal of time discussing prescription drug prices, which Verizon’s Mr. Taylor called an endless pit.
“There’s no such thing as too much resources dedicated to managing prescription drugs,” he said.
At their visits to the health plans, the regional health-care managers employed shortcuts to trim costs without sacrificing benefits. Mr. Crowling slightly lowered the premium increase for Health Alliance in Illinois by increasing the patients’ $10 co-payment for physician-office visits to $15. He also raised the price of some brand-name drugs to $15 from $10.
Mr. Crowling reduced the premium increase for United’s Missouri health plan by proposing to self-insure it. That means GTE, not United, would assume the risk for all of its employees’ medical claims. As a result, United reduced its increase to 19 percent, and it remained an insured product.
Using these methods and others, GTE officials said, they lowered its overall 2001 cost increase from an anticipated 11 percent to 8 percent.
After Mr. Crowling and the other regional managers collect the data on the cost of the health plans, Mr. Taylor and GTE’s executives determine how much money the corporation will allocate for medical costs. Employees pay the remainder, under a complicated formula known as “the zipper.”
GTE assigns each health plan to one of 14 slots, based on quality and cost, and consumers pay a different amount or nothing at all based on where their health plan is assigned.
Employee contributions at GTE have increased slightly with time. The average employee and retiree paid $298 toward medical premiums in 1999, compared with $257 in 1994. The average includes union members, who represent about half of GTE’s workforce, even though they do not contribute to premiums.
Even excluding union members, however, GTE officials said their employees pay lower premiums than employees at most national corporations.
In late August, the curtain rose on the selection process when GTE distributed its first reminders about open enrollment and a wallet-size card with a personal access number for the Internet and automated telephone systems. The benefits staff followed up with an e-mail reminder to all employees.
But several steps remained. Hewitt arranged for the printing, collating and mailing of millions of pages of information. The material went out in three cycles, with about 50,000 people in each wave.
Union workers came first and received a full enrollment kit, complete with descriptions of available health plans. Retirees received a similar package.
Salaried workers got a two-page letter directing them to one of three routes: the Internet, the automated phone system or a request for a full enrollment kit. Of the 42,000 people who received the letter, only 2,000 requested a hard-copy kit.
Any employee or retiree who changed plans had to be sent a subsequent letter confirming any changes. GTE officials say 85 percent of active employees made no changes at all. Of the rest, 58 percent made changes online.
Gail Morgan was one of the employees who decided against making any changes, sticking with Cigna.
“I guess if I had problems with them if it took me a week to get in to see my doctor every time I called then I’d probably be looking at the other plans,” said Ms. Morgan, 51, who works on the company’s regulatory filings. “As long as I’m happy with them and don’t have any problems, I don’t even compare the other plans.”
Even though they don’t know the intricacies of the process, employees said they can imagine that the benefits selection process takes a while.
“It wouldn’t surprise me if they’re already working on next year’s,” Ms. Morgan said.