EMBARGOED for release
Wednesday, May 28, 2003
12:01 a.m. EDT

For more information: contact:
Jon Gardner at Health Affairs at (301) 656-7401 ext. 230 jgardner@projecthope.org

To Bring Health Care Costs Back Under Control, Employers Should
Create Multiple-Plan Exchanges, Health Affairs Article Says

Advocate of 'Managed Competition' Says Employers' Past Purchasing
Policies Contributed To Rising Costs, Inefficient Care

BETHESDA, MD - Employers should create health insurance "exchanges" through which they would offer multiple health plan products to their employees, but pay a fixed rate at or below the lowest-price plan to give employees an incentive to choose an economical plan and keep the savings, according to a new Health Affairs Web-exclusive article. The proposal by Alain C. Enthoven, the emeritus professor at the Stanford University business school who is widely viewed as the "father of managed competition," is similar to a pilot program just announced by Kaiser Permanente and Health Net in California.

Enthoven writes that employers now are facing double-digit increases in their health insurance premiums because of their own purchasing strategies during the 1990s. Instead of encouraging their employees to choose based on quality or cost by offering them multiple health plan options, employers contracted with single health care plans. Single-source managed care is ineffective managed care, Enthoven says, because it allows employees to choose the most or least costly providers for the same personal cost, meaning that "the employer's total cost is thus tied to that of the most costly providers." Enthoven says: "This model denies choice to those people who would prefer less costly care if they could keep the savings."

In addition, Enthoven says, the single-source model of health insurance fostered the managed care backlash of the late 1990s. "Employers set up HMOs to fail," Enthoven says. "One-fifth of insured workers had an HMO as their single source. Research supports the finding that this was one of the two main causes of the anti-managed care backlash. ... People without choice were far more likely to be dissatisfied than were people with choice."

Employers reacted to their employees' dissatisfaction by seeking wider provider networks and effectively returning to the free-choice fee-for-service plans that predated the rush to managed care in the early 1990s. This has sparked a new acceleration in health care costs.

To ease the administration of multiple health-plan options, Enthoven encourages employers to create exchanges that would manage the financial and competitive aspects of employer provided health care. To prevent plans from marketing only to the healthiest employees, Enthoven says premiums should be risk-adjusted, but the tax-exempt share of employers' contribution should be limited to encourage more cost-conscious choices.

Meanwhile, the exchanges not only could serve employees, they also could achieve economies of scale that would allow them to serve as administrators of COBRA coverage for laid-off employees and as a source of low-cost, guaranteed-issue insurance for uninsured or self-employed people.

Enthoven says that the model he proposes "maximizes consumer satisfaction by offering a range of choices to suit different preferences. It removes a major cause of the backlash against managed care: Nobody is in an HMO involuntarily.

"The customer is the employee, not the employer, so the carriers will be more motivated to improve customer service than the are under any single-source model," he says. "The model gives consumers a reason to choose and accept cost containment."

Health Affairs, published by Project HOPE, is a bimonthly multidisciplinary journal devoted to publishing the leading edge in health policy thought and research.

©2003 Project HOPE–The People-to-People Health Foundation, Inc.