The $14 million question: Who pays off Lower Bucks Hospital's loan

Posted: Sunday, September 2, 2012 

A $14 million question is looming over the pending sale of Lower Bucks Hospital to a for-profit health care system: Will Bucks County remain on the hook for the money it borrowed to help the hospital emerge from bankruptcy?

As of last week, county officials — including the head of the agency that owns the hospital — didn’t have firm answers.

“It is a very complicated situation that will have to be resolved before the (Bucks County Redevelopment) Authority board votes to approve the sale,” said Robert White, the authority’s director.

The $14 million bond is the result of an agreement between the county’s redevelopment authority and Lower Bucks Hospital to allow the hospital to exit Chapter 11 bankruptcy earlier this year. Under the agreement, the redevelopment authority would have to approve any sale of the Bristol Township hospital.

In 2010, the Bucks County commissioners approved the redevelopment authority borrowing the money by issuing bonds secured by the county and the hospital’s dedicated .05 percent from Pennsylvania table games revenue at Parx Casino in Bensalem, which is estimated to be $750,000 to $1 million a year.

Under the agreement, the redevelopment authority took title to the hospital property as collateral, and leased it back to Lower Bucks Hospital. In exchange, the hospital committed all its rights to future gaming revenue to pay the debt service on the bond.

The hospital agreed to repay the loan with interest over 20 years and buy back the property. The total amount the hospital promised to repay would be almost $30 million.

But now that the hospital is slated to be sold to Prime Healthcare Services, a California-based, for-profit chain of 18 mostly West Coast hospitals, some are wondering if the county will be stuck paying off a loan for the new for-profit owner.

White said that there are “no simple answers” to questions regarding the bond and its repayment with the pending sale. He added that the redevelopment authority has not received any “official” notification about a sale.

If the $14 million is not carried as a liability on the hospital’s balance sheet, then it is unclear as to how the debt would be satisfied, said Robert Hill, director of business and financial practices for Health Strategies & Solutions Inc., a Philadelphia-based national health care strategy consultant firm.

Lower Bucks Hospital CEO and President Albert Mezzaroba said that the new owner would not be responsible for the debt service on the loan.

“The short answer is no, there is nothing in the lease, or any other document that would require a new owner to ... pay the debt service,” he said.

Rather, Mezzaroba said the new owner would step into the current lease agreement that exists between Lower Bucks Hospital and the redevelopment authority; if the sale is approved, Prime Healthcare would have the same responsibilities as Lower Bucks Hospital including operating the property as a health care center.

Bucks County Commissioner Diane Marseglia expressed frustration at the lack of answers.

“I am mystified as to why (the commissioners) are in the dark,” she said.

She said her inquiries with county financial people confirm one possible scenario is that the county would be required to keep paying the bonds using the casino revenue until they reach maturity in 15 to 20 years.

The other scenario, Marseglia said, is that the new owner pays off the bond debt or agrees to pay off the bonds over the next 15 to 20 years from its profits.

If the new owner pays off the bond, the county could reap up to an additional $1 million a year in gaming revenue, Marseglia said.

That’s because Prime Healthcare is a for-profit group, which means it is not entitled to receive the table gaming revenue under state law. Instead, the money will go to the county.

If the bond is paid off at the time of the sale, the county could use the table game revenue for other purposes, such as to offset tax increase or make infrastructure repairs, Marseglia said. Otherwise, the county cannot use the gaming revenue until the bond is repaid.

Lower Bucks Hospital would be the second Pennsylvania hospital in Prime Healthcare’s growing portfolio; in February it bought the financially struggling Roxborough Memorial Hospital in Philadelphia.

The company specializes in financially challenged hospitals that treat mostly low income patients and rely heavily on government reimbursement, according to published reports.

In January, Prime Healthcare Services was recognized one of the top 15 U.S. health systems by Thomson Reuters, a business data provider.

In formally announcing the sale last week, Lower Bucks Hospital said that as part of the sale agreement Prime Healthcare had agreed to a list of conditions, including:

• Maintain all services, including emergency departments.
• Provide access to a $3 million loan for working capital, with plans to invest up to $10 million for needed capital improvements.
• Hire all employees and maintain all collective bargaining agreements.
• Assume all health care contracts and liabilities.
• Provide the same level of charity care for indigent and low-income patients.

Pennsylvania regulators could require the new owners to fulfill those promises, too, said Health Strategies & Solutions’ Hill, who has worked on a number of hospital sales.

With hospital sales, the state will develop and impose a set of conditions on the buyer and monitor to make sure the conditions are adhered to, Hill said. That said, the employees could be terminated for cause and the new owner could request state permission to terminate a service.

Nonprofit community hospitals, such as Lower Bucks Hospital, generally have higher levels of charity care than for-profit hospitals because they offer a wider array of services, some of which require they accept low-income patients, Hill said.

Increasingly nonprofit hospitals are finding access to capital more difficult because of the challenging credit markets. nonprofits tend to run on tighter margins, which makes lenders more reluctant to approve loans, Hill said.

As a result, more for-profit health care groups, such as Healthcare Services — which has substantial capital reserves — are buying up nonprofit hospitals. The attraction for the for-profit groups is that a nonprofit hospital is still a money generator — and a good investment, Hill said.

Often for-profit health care companies will buy struggling hospitals, invest in infrastructure and services, and improve the economies of scale so they can buy things at better prices — then once the portfolio is in a good financial position, they sell them, Hill said. Typically the turnaround process is five to 10 years, he said.

The biggest downside to for-profits, Hill said, is that the organization likely doesn’t have that same community commitment and roots. Also there is a loss of local control of what many people consider a critical community asset.

For-profit owners might be more inclined to terminate select services that they deem unprofitable.

PUC wants answers from PECO about smart meters overheating

Posted: Sunday, September 2, 2012

The Pennsylvania Utilities Commission wants more information about PECO Energy’s handling of its smart meter program, including failure rates of its meters, the number of overheating incidents and how many overheating incidents resulted in damage.

A PECO spokeswoman on Friday said that such PUC data requests are not unusual.

Regulators in other states, including Illinois and Maryland, are investigating allegations of dangerously overheating electric smart meters and reports of meter fires.

PECO’s smart meter program came under scrutiny last month after some Bucks County fire marshals raised concerns about newly installed smart electric meters overheating and causing house fires. After the safety worries went public, PECO temporarily suspended installing new smart meters Aug. 15.

PECO officials said the utility is aware of overheating problems in 15 of the 186,000 digital meters that it has replaced in Bucks County and Northeast Philadelphia since March.

The utility has completed investigations into six of the incidents, which it says shows the meters are not faulty and that pre-existing conditions with wiring on the customer’s side caused the overheating issues.

PECO spokeswoman Cathy Engel Menendez could not say how long the suspension would last.

So far, more than 15,000 Sensus meters have been replaced with another brand, L & G, and no overheating problems have been detected with the L & G meters, Engel Menendez said.

Last week, the first software upgrade was remotely installed in the existing Sensus meters, which is designed to automatically shut off electric service if any problem with the meter is detected.

A second safety upgrade will be available starting Sept. 6 and will include an early-alarm signal that will immediately alert PECO if a problem is detected and allow the utility to respond.

But in an Aug. 24 letter, the PUC requested PECO answer 17 questions involving its smart meter program as a result of safety concerns raised about the program as a whole, said PUC press secretary Jennifer Kocher. PECO has until Friday to respond.

The PUC is looking for any potential code violations, Kocher said. Once it reviews the answers, the agency will decide if the matter should be forwarded to its Bureau of Investigation and Enforcement.

Among the questions that the PUC wants answers to:

• The number of meter incidents that resulted in damage to PECO equipment or customer’s property;
• 
  
• A list of meter failures by incident type:
• 
  
• How many meters were installed by each vendor as of Aug. 24;
• 
  
• What were the installation guidelines, notes or procedures for smart meters given to installers;
• 
  
• The outcomes of any investigations in the “root cause” for meter incidents and an estimated timeline 
• when remaining investigations will be done;
• 
  
• What type of “due diligence” PECO performed to ensure the approved meter vendors were providing “safe and reliable” equipment and installation, and if PECO become aware of any potential overheating issues or other problems with selected meter equipment.

Between July and Aug. 17, the PUC received three informal complaints involving smart meter installations including one involving a fire, Kocher said. During the same time period, it received an additional 22 calls with general questions about the meter installations, but no complaints were filed.

Engel Menendez called the request “fairly standard,” adding that the state regulatory agency makes similar information requests “many times” throughout the year. She said that the utility has provided the PUC with regular updates on its meter installation process.

PECO is required to replace the electric meters of its 1.6 million business and residential customers in the Philadelphia region and part of York County as part of a 2008 Pennsylvania energy efficiency law. The law requires all Pennsylvania utilities to update meter technology to encourage energy conservation.

Senate to drop high-end employee health coverage, increase copays

To read the entire State of Health series click here: here

Posted: February 15, 2012 

The Pennsylvania Senate is dropping its rare and expensive employee medical plan and increasing medical and drug co-pays, changes expected to save the state more than $1 million a year, according to the Senate's top ranking lawmaker.

The Senate Committee on Management Operations, whose nine members decide on employee benefits, approved the elimination of indemnity health plans in December, Senate President Pro-Tempore Joe Scarnati confirmed in a Feb. 9 letter to the Bucks County Courier Times.

Scarnati estimated that the two changes would result in a savings of more than $5 million to $6 million over a five-year period.

Lawmakers, employees and retirees enrolled in indemnity plans will be moved into the other available health plan option, a Preferred Provider Organization plan, effective April 1, Scarnati said.

About 60 percent of senators are enrolled in indemnity plans, compared with only one-third of other Senate employees. The Senate provides health benefits for roughly 860 active employees.

In an email Tuesday, Scarnati estimated that $2 million would be saved over three years just by eliminating the indemnity plans. The savings is derived from also increasing current PPO co-pays from $5 to $10 for office visits, $10 to $20 for specialists and $25 to $50 for emergency room visits without admission.

Also at the December meeting, Management Committee members approved increasing some prescription drug co-pays for active and retired employees effective April 1, a move expected to save $1 million over three years.

Co-pays for name brand drugs with no available generic will increase from $12 to $25, and brand name drugs where generic is available will jump from $26 to $40. The $6 co-pay for generic drugs won't change.

Scarnati didn't mention increasing employee contributions toward health premiums. Senate and House employees contribute 1 percent of their salaries toward their medical and health benefits. For the average lawmaker, that's about $800 a year, which is less than the monthly premiums for some plans.

"As we shrink the costs of health insurance by moving from the indemnity plan to the PPO and through prescription co-pay increases, the 1 percent of salary covers a greater portion of the total cost of health insurance," he said Tuesday.

Scarnati added that outside counsel has advised Senate leadership that the 1 percent contribution rate is "likely legally locked in" for current employees, although the 1 percent obligation is subject to an ongoing review.

Also, the Senate and House leaderships are in ongoing conversations about the possibility of offering the same health plan to cover both chambers, Scarnati said.

The Pennsylvania Legislature's expensive taxpayer-subsidized health and medical benefits were the subject of a three-part series titled "State of Health" in the Bucks County Courier Times and The Intelligencer in May, and several related follow-up stories.

Following the series publication, which led to a public outcry about the benefits, Bucks County Sen. Tommy Tomlinson, R-6, vowed that he would introduce legislation to raise employee contributions to at least 20 percent of the cost of the plans and eliminate indemnity plans. Tomlinson and fellow local Sen. Stewart Greenleaf, R-12, both switched from indemnity plans to the cheaper PPO option in July.

The Courier Times was unsuccessful Tuesday in reaching Tomlinson or Greenleaf for comment.

Last year, state taxpayers footed most of the $16.8 million cost for medical and supplemental health benefits for roughly 900 Senate employees, according to the Chief Clerk's Office. The indemnity plan alone cost $6.1 million last year.

In July, the Senate's employee medical and drug premium costs jumped 14 percent after the plans were renewed without changes. The indemnity plans were responsible for almost all of the cost increase.

This year, premiums, including drug coverage, for the Senate indemnity plans range from $12,566 for individual coverage to $35,453 for a family, while the costs for the Preferred Provider Organization plan with drug coverage are from $6,969 for individual coverage to $19,311 for a family.

Indemnity plans are virtually nonexistent in the private sector today. Their popularity declined dramatically in the 1990s as businesses converted to managed-care plans with cost-saving features such as provider networks, pre-certifications and referrals.

Last year, only 1 percent of U.S. employees in private industry were covered under traditional indemnity plans, according to health care consultant Mercer's National Survey of Employer Sponsored Health Plans. Only 5 percent of active state employees were enrolled in indemnity plans as of 2009, according to the National Conference of State Legislatures.

Generally, with indemnity plan coverage, the insured pays 100 percent of medical bills until an annual deductible is met. Indemnity plans don't use provider networks so members can see any doctor who accepts the insurance. The plan pays a portion of the medical costs and the insured picks up the rest. Plans often have an out-of-pocket maximum, after which the plan pays 100 percent of medical bills.

This fiscal year, the annual deductible for the Senate's indemnity plan is $100 for individual coverage and $300 for family coverage; the annual out-of-pocket maximum is $380 for each person covered.

In the last three fiscal years, the Senate's indemnity premiums have jumped 42 percent while PPO premiums have increased by less than 1 percent, according to contract information.

The Senate's health benefits are more expensive than the House's, where employees have four medical plan choices (including an indemnity plan) with premiums ranging from $4,543 to $20,420 this year for medical and drug coverage alone. Premiums for three of the plans have not changed since they were renewed in July 2009.

Among the 203 House lawmakers, 27 percent are enrolled in indemnity plans compared to 15 percent of the 1,673 active House employees. Three of the five bipartisan Management Committee members responsible for choosing the health benefits are enrolled in family indemnity plans, the most expensive option.

On Monday, House Chief Clerk Tony Barbush said the House's five-member benefits management committee will give "consideration" to similar changes for its plan renewals, which are expected to take place before the July expiration.

State Rep. Frank Farry, R-142, has introduced a bill seeking to raise lawmaker contributions to 20 percent of plan premiums, phased in over 10 years. The 10 Bucks County representatives and two of the three eastern Montgomery county representatives have signed on as cosponsors.

Only eastern Montgomery County Rep. Kate Harper, R-61, is enrolled in an indemnity plan. She also is the only local state representative who has not signed on as a cosponsor for Farry's bill.

As of Tuesday, Farry's bill had 28 cosponsors; generally 50 to 70 co-sponsors are considered good numbers to increase increases the chances of the House leadership moving a bill to the floor for a vote.

Jo Ciavaglia: 215-949-4181; email: jciavaglia@phillyBurbs.com; Twitter: @jociavaglia

Senate missed opportunity to save on its health plans

Posted July 31, 2011

Pennsylvania taxpayers will pay roughly 14 percent more for some Senate medical and drug benefits after lawmakers recently renewed the plans without making changes.

If the committee responsible for the benefits had eliminated only indemnity plans, a rare insurance coverage that is virtually non-existent in private industry, the state would have lower health costs this year.

The reason is that the new premiums for the Preferred Provider Organization plan, the only other medical benefit plan the Senate offers, are slightly lower this year, according to the new contracts.

This fiscal year, which started July 1, indemnity plans with drug coverage will cost $12,566 for single coverage and $35,543 for family coverage, an average increase of $3,100.

The PPO premiums, which will cost $6,969 for single coverage and $19,311 for a family, are $76 to $287 a year cheaper than last year, even with the increased drug coverage costs this year.

The difference is significant for taxpayers, who pay almost all of the Legislature’s medical benefits. The employees contribute 1 percent of their salary toward the cost of their health plans. The average lawmaker contribution is $780 a year.

Had the Senate replaced indemnity plans with a PPO, at least a 10 percent savings would have been seen immediately through negotiated fee rates and other managed care features, estimated Ross Schriftman of Ross Schriftman Insurance in Horsham.

The Senate’s health benefits are more expensive than the House’s, where employees have four plan choices (including an indemnity plan) with premiums ranging from $4,543 to $20,420 this year for medical and drug coverage.

Only one House medical contract, which had expired June 30, also was renewed without changes, according to the Chief Clerk’s Office. The remaining medical plan premiums are the same as last year.

The renewed plan, an HMO through the University of Pittsburgh Medical Center, had 19 legislative employees enrolled last year at a cost of $146,000. Under the new contract, the premiums increased a little more than 5 percent, according to contract documents.

Medical benefits for 2,800 state legislative workers was the subject of a three-part series in the Bucks County Courier Times and The Intelligencer. The series, which ran in May, generated dozens of calls and emails from readers across the state who were angry that lawmakers kept expensive, taxpayer-subsidized health benefits while calling for deep cuts in education and other programs to fill a $4 billion budget hole.

In late June, Senate Chief Clerk Russell Faber said he didn’t envision any decisions involving changing the health benefits would happen until the Senate reconvened in late September.

“And again, I don’t have a timetable at this point,” he wrote in an email.

The Senate can change its health benefit contracts at any time “via amendments,” Faber added.

In the recent fiscal year, taxpayers footed most of the $16.8 million cost for Senate medical and supplemental health benefits for roughly 900 employees, according to the Chief Clerk’s Office.

The indemnity plan alone cost $6.1 million, though it currently enrolls only about one-third of Senate’s employees. The PPO plan costs were $5.8 million last year.

Among senators, the enrollment swings the other way, with about 60 percent enrolled in indemnity plans. The number includes seven of the nine senators who sit on the Committee on Management Operations, which decides the Senate’s benefits.

In recent years, the Senate’s indemnity premiums have increased far faster than the PPO, rising 42 percent between 2009-10 and 2011-12 while PPO premiums increased less than 1 percent, according to contract information.

Indemnity plans, also known as fee-for-service plans, saw their popularity among private-sector employers drop dramatically in the 1990s as more businesses converted to managed-care plans with cost-saving features.

Last year, only 1 percent of U.S. employees in private industry 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. Only 5 percent of active state employees in the U.S. were enrolled in traditional indemnity plans as of 2009, according to the National Conference of State Legislatures.

What makes indemnity plans so expensive is what makes them so attractive to consumers. They typically don’t have provider networks like managed care plans, meaning the insured can be treated by any health care provider who accepts the plan.

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 a portion of the medical costs, usually 80 percent, and the insured picks up the rest. Plans usually have an out-of-pocket maximum, after which the plan pays 100 percent of medical bills.

Until recently, Tommy Tomlinson, R-6, and Stewart Greenleaf, R-12, were the only Bucks or Eastern Montgomery county state senators enrolled in indemnity plans. They both switched last month to a PPO, the Senate Chief Clerk’s Office confirmed.

Tomlinson said in May that he met with Joseph Scarnati III, who chairs the Senate benefits committee, and Scarnati reacted “positively” to dropping indemnity plans and raising employee contributions to “at least” 20 percent of the cost of the plans.

At the time, Tomlinson vowed to introduce legislation next session to raise employee contributions to at least 20 percent of the cost of the plans if the benefits committee did not. Reached last week, Tomlinson said the health plans were discussed in caucus, and a COMO meeting is scheduled for September, where they will be discussed again.

If a compromise isn’t reached, Tomlinson affirmed that he would introduce legislation to increase lawmaker contributions.

Tomlinson said he’d model the bill on one introduced in the House by Bucks County Rep. Frank Farry, R-142, which seeks to raise lawmaker contributions to 20 percent of plan premiums and would be phased in over 10 years.

“The problem is what is happening to the cost of health care and I don’t know what that answer is,” Tomlinson added. “I think we should be doing our fair share to ease that burden.”

In the House, only one of Bucks County’s 10 representative, Katharine Watson, R-144, was enrolled in an indemnity plan, but she also promised in May to switch to the less expensive PPO. The newspaper is awaiting confirmation of the change from the House chief clerk.

Jo Ciavaglia: 215-949-4181; email: jciavaglia@phillyBurbs.com; Twitter: @jociavaglia

Lawmakers: We'll push for health plan changes

Sunday, May 29, 2011

Three Bucks County state lawmakers say they'll drop their expensive taxpayer-subsidized health insurance plans, while others last week vowed to step up pressure for significant changes in Pennsylvania Legislature employee health plan costs and employee contribution levels.

Sens. Stewart Greenleaf, R-12, and Tommy Tomlinson, R-6, and Rep. Katharine Watson, R-144, last week said they'll look into switching their indemnity plans to cheaper health coverage as soon as possible.

"I was unaware the costs were that high and I believe we need to take action to control them," Tomlinson said. "A large number of employee groups in the state are renegotiating their contracts this year, and I believe we have to lead by example by lowering our costs and increasing our contributions to our plans."

In the state House, as of Friday, 10 more representatives signed on as co-sponsors of bills that would raise employee contributions to 10 percent or 20 percent of the cost of the plan.

A bill proposed by Bucks County Republican Rep. Frank Farry, R-142, would require lawmakers to increase contributions to the cost of their health benefits gradually over 10 years until they reach 20 percent of the premium costs. Luzerne County Democrat Rep. Gerald Mullery has proposed raising those contributions to 10 percent starting in January.

The seven Bucks County Republican representatives issued a joint statement last week in support of Farry's bill, calling it "a good start."

"The more numbers we can get on either one of these bills the better,'' Mullery said. "I think now is the time. We may have a better chance in his session than others,"

As of Friday, Farry's bill had 25 co-sponsors; Mullery's bill had seven. The more co-sponsors - 50 to 70 is considered a good number - the more likely the House leadership will move a bill to the floor for a vote, Farry said.

The newly energized efforts among local lawmakers to change the Legislature's health benefits followed a three-part State of Health series in the Bucks County Courier Times and The Intelligencer earlier this month. The series took an in-depth look at the health benefits of more than 2,800 House and Senate employees.

The series generated dozens of calls and emails from residents who are angry and frustrated over the failure of state lawmakers to address the high cost of and low participant contributions to health coverage for them and their staffs, at a time when the budget calls for deep cuts in education and other programs to fill a $4 billion budget hole.

House employees and retirees don't contribute to their health benefits, though they'll start giving 1 percent of their salary in July. Senate employees and retirees have contributed 1 percent of their salary since 2007.

With the 1 percent contribution, most lawmakers pay or will pay less than $800 a year for coverage that, this year, costs anywhere from $4,317 to $20,420 in the House and $7,045 to $31,237 in the Senate, depending on the type of plan and number of dependants.

In separate statements issued in the past week, 10 Bucks County representatives agreed that dramatic changes are needed.

Democrats Tina Davis, D-141, John Galloway, D-140, and Steven Santarsiero, D-31, said this week they'll present a letter to both political parties' leadership asking them to move the bills calling for higher employee contributions to the House floor for a vote "as soon as possible."

'Pretty shocking'

Change could come first in the Senate, where the Committee on Management Operations is negotiating its medical benefits contracts, which expire at the end of June.

Among the changes under consideration are eliminating indemnity plans, expensive coverage that is virtually nonexistent in the private sector, Tomlinson said. Also on the table are adjusting copays, plan designs and employee contribution rates, and consolidating the House and Senate plans.

Tomlinson met with Senate President Pro Tempore Joe Scarnati, who chairs the committee, and he reacted "positively" to dropping indemnity plans and raising employee contributions to "at least" 20 percent of the cost of the plans.

"There seems to be an indication to me there is movement," Tomlinson added. "I don't think any of us knew what the costs were. They were pretty shocking."

Tomlinson said he had thought the 1 percent employee contribution reflected 10 percent of the plan cost. He added that several months ago, he asked about increasing his contributions to 2 percent but was told it wasn't legally possible.

If the Senate committee doesn't implement changes, Tomlinson said he'll introduce legislation next session to raise employee contributions to at least 20 percent of the cost of the plans.

Meanwhile, only one of the four medical benefit contracts covering House employees expires at the end of June. (The plan, an HMO with 19 employees enrolled, costs the state $149,000 this year)

The remaining contracts run through July 2012, and the House Bipartisan Management Committee, which is responsible for employee benefits, has started the negotiation process.

The seven local Republican representatives said they've been assured by the Bipartisan Management Committee that all options will be considered, including decreased benefits, increased copays and higher contribution levels.

"Like any other company or organization, we will attempt to reduce our costs for benefits each and every year," the Republican lawmakers said in their joint statement.

The House hired an outside consultant a few years ago to review salaries and benefits, Rep. Scott Petri, R-178, said in an email. He did not respond to requests for details or a copy of the analysis.

Dramatic benefit changes in the Senate could influence House leadership to implement similar ones, Farry said.

"It definitely brings more awareness, if the Senate moved in that direction," he said. "The bipartisan committee is aware of the need for health care contributions. They moved us in the 1 percent (direction) now, so they are not ignorant to the issue."

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

Experts: Apply private sector controls to state plans

Tuesday, May 17, 2011

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

Hundreds of officials have expensive indemnity plans

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