The Pennsylvania Legislature could significantly reduce its health care costs if employee health plans contained some ordinary controls that the private sector has used for years, local benefits consultants and insurance experts say.
The benefit design doesn't discourage employees from inappropriate use of benefits or encourage leading a healthy lifestyle, said one former Pennsylvania auditor general employee who reviewed the House and Senate health benefit contracts.
Other benefits experts say cutting costs is simple: Give employees a choice between cheaper plans with more cost sharing and restrictions or keep the current plans but require employees to cover the difference for the more expensive plans.
But the first thing the House and Senate leadership committees who make decisions about employee health benefits should do is decide how much they can afford to spend.
"I can design any plan to fit any budget, but you have to determine what your budget is first," said Matthew Nicholas, owner of Benefit Ideas Group in Jamison.
What makes the Pennsylvania Legislative employee health benefits different from private sector plans is twofold, benefit consultants said.
First, the plans offer low, and few, copays, few coverage restrictions and no in-network deductibles with Preferred Provider Organization, or PPO plans, all of which significantly raises premium rates.
The annual per employee cost of the medical and drug benefits alone range from more than $7,000 to more than $31,000 in the Senate and roughly $4,300 to more than $20,000 in the House, according to a review of the insurance contracts. Vision and dental plans, also taxpayer subsidized, add more costs.
Also uncommon is how much of the health premium the state pays: 100 percent for 1,885 active House employees until July 1, when it starts phasing in employee contributions and 99 percent in the Senate for its 936 active employees.
The state contributes between 97 percent and 98.5 percent of the premiums for 70,556 executive branch employees, including the governor. On average, it works out to $10,000 per employee, said Dan Egan, press secretary for the Pennsylvania Office of Administration.
But the most expensive plan the executive branch offers - a family PPO with drug coverage - costs more than $2,700 less a year than the least expensive counterpart in the Legislature. Plus executive branch workers hired after 2003 pay extra to enroll in the PPO.
The legislative medical benefits are far more generous than what is found in the private sector.
The average American paid 29 percent - about $4,000 - last year for family health coverage through an employer, according to the Kaiser Family Foundation, a nonpartisan health care policy and research group. The average family plan in the private sector cost $13,770.
Employees with individual policies in the private sector paid about 18 percent (about $900) toward the average employer plan, which cost $5,049, according to Kaiser.
To control rising health costs, more employers are requiring workers to shoulder more health care costs.
In 2010, about 10 percent of people covered under employer plans had at least a $2,000 deductible, according to the Kaiser Family Foundation compared with just 5 percent of workers in 2008.
Also last year only 16 percent of employers who offered a PPO had no employee deductible for in-network care - down from nearly half of the plans a decade earlier, according to Mercer's National Survey of Employer-Sponsored Health Plans. The average PPO deductible was $1,200.
PPO options offered to Pennsylvania legislature and executive branch workers do not have in-network deductibles.
limit benefits, limit cost
The lack of plan restrictions is one reason the Legislative premiums are higher, suggested Tom Getzen, a professor of risk, insurance and health management for Temple University's Fox School of Business.
"They're paying extra to not have to hassle or worry about anything," Getzen said. "It's like walking into a resort, handing them a credit card and saying I don't care what it costs. Tell me when it's over."
Getzen also suspects that the insurance carriers the Legislature uses are told to interpret medical necessity "very loosely." Medical necessity is a list of factors that insurance companies use to determine if a treatment or service is appropriate for a patient.
Many factors influence the cost of insurance premiums including the amount of cost-sharing, benefit levels, employer size and location.
Employers with more than 100 workers are more limited in how they can save money since carriers typically rate them based on the group's claim history, said Paul Fronstin, a health researcher for the Employee Benefit Research Institute.
More private employers are dropping contributions for dependent coverage and pegging contributions to the least expensive plan, then requiring employees pay the difference if they want a more expensive plan.
More are also switching to no-referral HMOs, Point-of-Service (POS) and high deductible plans paired with health savings accounts, among the options with the lowest premium rates, benefit consultants said.
If the Legislature switched from the current PPO plans to a no-referral HMO or POS plan - which operate similar to a PPO and often have nearly identical provider networks - it could save at least 25 percent in premiums without raising employee premium contributions, Nicholas estimated.
Benefits experts agreed that the first thing the Legislature should do to reduce costs is drop indemnity plans for all active employees. The plans carry the highest premiums because they lack managed care features.
With a few changes to the other existing plans, the House and Senate could also see significant savings - without increasing the employee contributions and providing a $1,000 annual reimbursement, said Ross Schriftman owner of Ross Schriftman Insurance in Horsham. He worked in the state Auditor General's Office from 1974 to 1984.
Schriftman estimated that the House could reduce health costs 20 percent to 25 percent by adding new copays to its current PPO and HMO options, and save 35 percent under a high deductible plan with a health savings account. The Senate's savings would be about 5 percent higher, he said.
The changes Schriftman recommended:
- Increase emergency room visit copays to $100.
- Increase specialist copays to $30.
- Enact a $150-a-day copay for the first five days on inpatient hospital care.
- Increase prescription drug copays to $6 generics, $15 preferred brand and $35 non-preferred brand.
He added that the current benefits are financially unsound and unsustainable.
"If they were private businesses they'd be in trouble with either their stockholders or the owners would be having conniptions," Schriftman said. "They can't keep having this kind of increase, it makes them non-competitive. They really need to get with the times."
Jo Ciavaglia can be reached at 215-949-4181 or jciavaglia@phillyBurbs.com For the latest health information follow Jo on Twitter at twitter.com/jociavaglia
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