Episcopal Press and News
Some Dioceses Turn to HMOs as Saviors from High Insurance Costs
Episcopal News Service. July 30, 1992 [92169]
David Skidmore
As health-care costs surge out of sight, Los Angeles and other dioceses have turned to managed care as a way to stem the tide. Their tool of choice is the health maintenance organization, or HMO, an option not offered by the Episcopal Church Clergy and Employees' Benefit Trust.
An HMO keeps costs low by negotiating patient volume discounts with hospitals, and contracting with physicians on fee-for-service or salary basis. Unlike an indemnity plan such as Benefit Trust, which lets the insured choose the provider and facility, an HMO restricts its members to physicians and hospitals in its network.
Instead of prenegotiating fees, indemnity plans pay the bill after the fact, so long as charges are "usual and customary" for the locale -- a vague phrase that may explain why indemnity programs last year cost Americans on average 17 percent more than the HMOs.
Despite some drawbacks -- tighter standards for referrals, penalties for treatment outside the plan -- HMOs remain popular, having doubled their enrollment since 1985.
According to Michael Shenk, senior administrator of the Benefit Trust, an HMO might be an option for the trust's insured in a few years. Church Alliance -- a consortium of 26 denominations that lobbies Congress on health and pension issues -- is exploring the feasibility of creating an HMO and will make a recommendation later this year. But HMOs are not a magic cure, he noted.
"HMOs are a cost-containment method, but they are also a hard sell. It's a very tough balancing act," Shenk said.
That has been the experience in the Diocese of California. Since 1988, the San Francisco Bay Area diocese has offered its 500 insured employees the option of enrolling in two HMOs as an alternative to the Benefit Trust plan. This three-tiered approach has lowered the diocese's claims, and consequently held this year's premiums to a 10-percent increase, but has also resulted in an age disparity among the programs, said Caroline Talbot, the diocese's employee benefits coordinator.
Despite the higher premiums, said Talbot, "we have found that older employees used to having a free choice of doctors [have been] sticking with that plan tenaciously. We've found that younger families, though, are willing to go with the HMOs."
While there has been talk of going exclusively with HMOs, most realize it's not practical, Talbot said. But that means the Benefit Trust plan premiums are going to continue their steep climb, given that the trust is the conduit for the costliest treatment, she added. "It's not going to be able to take these older employees and supply the same coverage," said Talbot.
The Diocese of the Central Gulf Coast's 115 lay and ordained insured would probably welcome the chance to enroll in an HMO, said diocesan administrator Vince Currie, as "they're absolutely wore out over these high premiums." But in a diocese that stretches from northwest Florida to the Mississippi-Alabama border, it would prove impractical. Given that many towns lack hospitals or even doctors, Currie said, "I think it would be almost an administrative impossibility to put together an HMO that would cater to 60 different locations."
The Diocese of Connecticut offers an HMO in its plan but because of older insured and costlier treatment, it is in the unenviable position of having the most expensive premiums in the church --$9,408 for family coverage. The average age of their insured is 53, about 10 years over the norm, said Jack Spaeth, diocesan director of administration and finance. And added to that is the increased use of expensive technology like CAT scans and magnetic resonance imaging.
"Not only has the cost increased, but utilization has increased," Spaeth said. "And that throws the cost out of whack."
The good news is that for the first time in a long while claims haven't outstripped premiums. Against claims of $1.6 million, the Diocese of Connecticut last year paid $1.9 million in premiums. It was the opposite story in 1989 and 1990, during which the diocese generated an average of $250,000 more in claims than it paid in premiums.
"You don't have to be a rocket scientist to figure if you have a dollar coming in premiums and two dollars going out in claims, you're going to be out of money real quick," said Spaeth. As a result, the diocese took the risky step in 1990 of self-insuring its health plan. They chose that route even though the Church Insurance plan would have cost less, said Spaeth.
"The Church Insurance Company could give us a lower premium, but they are pushing that cost onto other dioceses," said Spaeth. "Our concern in the long haul was who picks up that tab?"
The practice of Spreading a member's claim cost that goes above a certain threshold over the entire insured pool is fairly standard, according to Church Insurance officials. For dioceses enrolled in the Benefit Trust, the amount in excess of $2$,000 for any individual claim is not counted against that diocese in calculating premiums, but prorated so that no one diocese is laden with exorbitant premiums.
That keeps the playing field level, admitted Spaeth, but ignores the issue of cost containment -- a key factor in his diocese's decision to pull out of the Benefit Trust in 1985. Controlling costs is a big part of Connecticut's program. Two years ago the diocese decided to move toward a $500 deductible. They've been doing it in increments and are now at $350.
Other measures include requiring a second opinion in surgical situations, encouraging outpatient lab tests for elective hospital treatment, limiting coverage to 50 percent for patients admitted to hospitals on weekends for elective treatment, and using an Aetna employee assistance program to screen applicants for outpatient mental health care.
The controls have put a brake on claims but have had little effect on premiums, admitted Spaeth. In fact, despite these efforts, the diocese has had to raise its rates by 5 percent.
Although Connecticut parted ways with Church Insurance over lax cost controls, the diocese hasn't written off a chance to rejoin the plan. New leadership at the Church Insurance Company, notably the appointment of Alan Blanshard as president, has prompted the diocese to initiate a dialogue with the company, said Spaeth. "We hope someday to be back in relationship with them."
While there are weaknesses in the Benefit Trust plan, said Shenk, there are also some significant advantages. The waiting period for preexisting conditions is fairly liberal: six months before benefits begin for the insured, and 12 months for their dependents. And for newly ordained clergy, the waiting period is waived. Another plus is the cap on premium rate adjustments -- usually in the neighborhood of 30 percent.
In addition, the administrative burden is light: The trust's work force has only four full-time staff members, including Shenk. Consequently, only 9 percent of premiums goes to cover administrative costs versus the industry standard of 15 to 25 percent.
For Shenk the real test has been the support of the dioceses: only 14 of the church's 100 domestic dioceses are not enrolled in the trust. For some the premium hikes have been painful, he admitted, but the dioceses also understand that the trust is sincere in its efforts to keep a lid on costs while not undercutting benefits.
"We're all concerned about the rising cost of medical insurance," Shenk said. "But I think we have a very good story to tell."