Monday, May 16, 2011
When benefits consultants talk about traditional indemnity plans, they often refer to them as expensive dinosaurs.
While for decades most U.S. workers were covered under the fee-for-service plans, their popularity dramatically declined in the 1990s as more employers converted to managed-care plans with their cost-saving features.
Today, indemnity plans are so rare that employer surveys don't ask about them. The policies are rarely offered on the individual market. Many people have never heard of them.
Virtually the only people who still have them are corporate executives, benefit consultants say.
And state employees.
Pennsylvania is among six states where public workers - specifically lawmakers and their staffs - have access to indemnity plans, which offer the most choice of health care providers, but for a price - a high one, too - for taxpayers.
Indemnity plans not only carry high premiums, but they also drive up the cost of health care for everyone, according to one Temple University business professor.
In the Senate, the annual cost of indemnity plans (including drug coverage) ranges from $11,064 for an individual to $31,256 for a family, according to the contracts with Highmark Blue Shield and Benecard Rx Services. Employees and retirees contribute 1 percent of salary toward the premiums.
The House also offers an indemnity plan with annual premiums (including drug costs) that range from $7,041 for an individual to $20,420 for family coverage, according to its contract with Capital Blue Cross. Representatives will start contributing 1 percent of their salary July 1 toward health benefits; other employees and retirees will start matching contributions before the end of the year.
Among the lawmakers who represent Bucks County, only one of the 10 representatives, Katharine Watson, R-144, is enrolled in the indemnity plan; two of the four area senators, Sen. Tommy Tomlinson, R-6, and Sen. Stewart Greenleaf, R-12, also are enrolled in the plans.
What makes indemnity plans so expensive is what makes them so attractive - they typically do not have provider networks like managed care plans, meaning the insured can be treated by any health care provider that accepts the insurance.
Recently more indemnity plans, including the ones in the Legislature, are incorporating managed care features, such as pre-certification for non-emergency hospital admissions.
Generally, with an indemnity plan, the insured person pays 100 percent of medical bills until an annual deductible is met; after that the plan pays 80 percent and the insured 20 percent. Once an out-of-pocket maximum is reached, the plan pays 100 percent of medical bills.
The Senate plan deductibles are $100 for individual and $300 for family coverage and a $380 per employee out-of-pocket limit. The House plan has the same deductibles and out-of-pocket maximum for individuals, but families pay no more than $1,140 a year out-of-pocket.
Last year, only 1 percent of U.S. employees in the private sector were covered under traditional indemnity plans, according to Mercer's National Survey of Employer Sponsored Health Plans. Mercer is a major national health care consultant firm.
Even among state governments, indemnity plans are increasingly rare.
As of 2009, only 5 percent of active state employees were enrolled in traditional indemnity plans, according to the National Conference of State Legislatures.
But in Pennsylvania, 38 percent of active Senate employees are enrolled in indemnity plans, which cost roughly twice as much as the Preferred Provider Organization, or PPO, option. In the House, 320 employees - 17 percent overall - are enrolled in the indemnity plan.
Recently, Chief Clerk Russell Faber said the Senate should drop its indemnity option.
"Quite frankly, it's something I'm moving to try and eliminate to see if we can convert everything to a PPO plan," Faber said.
Local benefit consultants and experts say dumping the indemnity plans could significantly reduce health care costs without any further benefit changes.
Ross Schriftman of Ross Schriftman Insurance in Horsham estimated that replacing the indemnity plans with a PPO would save at least 10 percent through negotiated fee rates and other managed care features.
Schriftman described the Senate's annual out-of-pocket maximum as "absurd," and its deductibles "artificially low" when compared with commercial plans.
"The rates are amazingly high," Schriftman added.
He pointed out the Senate indemnity premiums jumped 24 percent last year compared to a 5 percent rate increase for its PPO option. The House's rates did not increase under its current four-year contract.
The Legislature is indirectly encouraging employees to sign up for the most expensive plan by offering low cost-sharing, something that would be considered fiscally irresponsible in the private sector, consultants said.
Indemnity plans also drive up health care costs because medical professionals can bill at full charges, said Tom Getzen, a professor of risk, insurance and health management at Temple University's Fox School of Business.
Full charges are typically much higher than the negotiated fees found with a managed care network. As a result, health care providers are indirectly encouraged to keep fees artificially high, Getzen said.
"That is one reason health care prices are often two, three, four times more than the cost of delivering the health care, because somewhere out there is an insurance plan that will pay the ridiculous amount," Getzen said.
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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