Health Care Trends

The GIC Attacks Skyrocketing Health Care Costs
Saving An Estimated $109 Million
(winter 2003)

The GIC continues to attack the factors that are driving up health care costs, producing results for both the Commonwealth and its employees and retirees. The results have paid off with the GIC consistently keeping health care premium increases below both the state and the national averages. Over the last five years, the GIC's premiums have increased 28.8%. Mercer Human Resource Consulting estimates that Massachusetts' average premium costs have increased 47.8% and the nation's have increased a whopping 55.0%. Applying these percentages, the GIC has saved more than $109 million over the state trend and more than $150 million over the national trend.

We continue to aggressively pursue multiple avenues to control costs:

Medical Mistakes: The GIC has been at the forefront of improving patient safety, requiring our plans to gather data and improve admissions to hospitals that meet the Leapfrog standard for patient safety. Similarly, we implemented the Early Risk Intervention Program for PPO members.

Prescription Drug Costs: The GIC successfully leveraged its pharmacy benefit manager (PBM) procurement to negotiate bigger prescription drug discounts, saving the Commonwealth an average $4.4 million per year. We also instituted a three-tier copayment system to provide incentives for members to use generic or preferred brand name drugs. We also put in place drug intervention programs to catch potential adverse interactions for seniors taking too many drugs or drugs that are not appropriate for the elderly, as well as multiple prescriptions for controlled medications.

Provider Payments: The GIC discovered that for the same procedure, providers were charging the Indemnity Plan substantially higher amounts than they were charging other plans. It became apparent that hospitals and outpatient providers were using the Indemnity Plan to subsidize the discounts they had given to HMOs. In FY 99 the GIC instituted Market Based Reimbursement schedules to bring the Indemnity Plan's charges in line with other plans. We instituted a similar program for out-of-state providers for FY03.

Holding Plans Accountable for Quality and Cost: The GIC uses all of our procurements to get the most for the taxpayers' and enrollees' money. Extensive data gives us the tools we need to be tough negotiators. Our contracts hold plans accountable for many standards, including patient safety and disease management benchmarks. We regularly audit our plans to discover inefficiencies in an effort to improve service delivery. We hold regular operations meetings with our self-insured plans and conduct annual site visits with our HMOs to ensure ongoing collaboration and cooperation. The GIC also implemented risk adjustment for changes that occur during annual enrollment. We pay plans that have older, sicker enrollees more than those with younger, healthier enrollees.

Aging Population: The GIC has put in place many disease management programs to help coordinate and streamline care. Some of these include the Coronary Artery Disease Program, Do It Diabetes Program and Premier Health Plan, for enrollees with chronic medical conditions.

Collaboration

The GIC is an active member of leading players in the health care industry: The Massachusetts Healthcare Purchasers Group, Associated Industries of Massachusetts (AIM) Health Care Committee, Massachusetts Health Data Consortium and Massachusetts Coalition for the Prevention of Medical Errors. This enables us to be at the forefront of shaping health care policy to improve quality and contain costs.

Patients are the GIC's Partners: Our FYB newsletters are just one of the ways we assist you, our enrollees, to take charge of your health. This web site offers another venue for giving you the tools you need to be an informed health care consumer. Our health fairs also provide screenings and information to help you become an informed health care consumer.

What's the Problem with Health Care Costs and What Are Others
Doing About It?
(fall 2002)

Rising health care costs are in the news daily. If you have skipped by these articles, or glossed over them, here's the problem in a nutshell - health care cost escalation is back, and it is causing employers grave concern about how to deal with this serious problem. A Mercer Human Resource Consulting survey revealed that average employer health care costs nationwide rising 13 percent this year; they are expected to increase 15 percent next year.

So why are costs skyrocketing? According to an April 2002 PricewaterhouseCoopers analysis, the following factors comprise rising health care costs:

22% - Drugs, medical devices and medical advances
18% - Rising provider expenses
15% - Government mandates and regulation
15% - Increased consumer demand
7% - Litigation and risk management
5% - Fraud, abuse, miscellaneous
18% - General inflation

Medical advances and prescription drugs have been a boon to improved quality of life, but their costs are the biggest factor driving health care costs. Consolidations of hospitals and other providers have given them greater leverage in negotiating costs with insurers. There are over 1,500 legislative health mandates at the state and federal level, each with its own cost. An aging population is increasing demand for new medications and costly procedures. The median malpractice award increased to $1 million in 2000; corresponding malpractice insurance premiums have skyrocketed.

The Employer Response
The Massachusetts Business Roundtable-sponsored white paper published in May 2002 recommended that companies encourage sharing responsibility and costs for health care with their employees. A Boston Globe editorial countered that employers and employees need to work on improving medical incentives, while keeping the concept behind insurance-shared responsibility and risk-intact.

Employers are searching for cost control alternatives and health plans are offering more options to assist. Harvard Pilgrim Health Care and Blue Cross Blue Shield recently introduced new high-deductible health plans. Under this plan type employees pay annual deductibles of $1000 to $5000 before their health coverage kicks in. Tufts Health Plan expected to offer a similar plan. Tufts Health Plan and Harvard Pilgrim Health Care offer a plan where employees pay higher copayments for surgery at academic teaching hospitals versus less expensive community hospitals.

Minnesota-based Patient Choice is testing the Massachusetts market with a plan to offer employers direct contracting with providers. Patient Choice would offer different priced networks. Participating employers would have lower cost networks; employees who want their medical care with more expensive doctors and hospitals would pay more.

Defined Benefit Plans, the industry standard, are also being modified. Under defined benefit plans, enrollees pay a fixed percentage of the premium with a set array of benefits. One major area university now tiers premiums based on employee salary; higher paid employees contribute more towards health insurance than lower paid employees.

An increasing number of employers are considering Defined Contribution Plans. Textron, Xerox, and Staples are among the early adopters of this option. In most Defined Contribution Plans the employee is responsible for premium and out-of-pocket medical expenses above the employer's fixed dollar contribution. If the enrollee selects a more expensive plan, he or she is responsible for the cost difference. Defined Contribution Plans come in different variations, such as medical savings accounts, where unused funds can be rolled into the next year, and medical spending accounts, with a "use or lose" provision.

These are all options being considered and evaluated by employers around the country. The GIC is keeping an eye on how these plans actually work out in practice.