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Health care benefits plans: GFOA members' perspectives.

Many state and local governments, in an effort to curb health benefit plan costs, increasingly rely on cost sharing with their employees--both by requesting contributions toward insurance premiums and by increasing deductibles for employees and their dependents. Some jurisdictions are cutting benefits, especially coverage for drug and alcohol rehabilitation programs, mental health benefits and, in some instances, dental and vision benefits. Many governments are switching from traditional plans to various managed care programs and self-funding alternatives; they also provide incentives for their employees to utilize these lower cost alternatives when other options also exist.

The GFOA obtained this information through its survey of members in March 1993. The goal of the study was to assess GFOA members' main health care benefits concerns, their approaches to containing rising costs, and the types of GFOA services and products that would best assist them. All GFOA members received the survey along with GFOA's March research bulletin, Diagnosis of Health Care: Issues for State and Local Governments. The questionnaire, which requested information on practices and concerns in the health care area, was developed by the health care task force of GFOA's Committee on Retirement and Benefits Administration, chaired by Sheryl Wilson, director of the State of Washington's Department of Retirement Systems. Trends and results presented in the following summary of responses are based on an analysis of the first 1,000 questionnaires received between March 25 and April 15.

Major Trends

Along with cost-sharing and reduction of benefits, state and local governments are employing a number of techniques to control health care benefits costs. Public employers are trying to keep their workforce healthier by implementing wellness programs--health fairs, newsletters/magazines, fitness classes, smoking-cessation classes and others. Another alternative is a flexible benefit cafeteria-style plan, where participants can choose from a menu of benefits and pay for them with pre-tax dollars. To promote cost savings through competition, local governments are sending out requests for proposals for health care services more frequently, with some jurisdictions asking for new bids on an annual basis. Reviewing utilization of benefits and outcomes of care given are other techniques used to determine how effectively benefits are being used. Others are exploring their options with the help of health care consultants.

Managed care. The move toward managed care programs is evident in the percentage of jurisdictions participating in health maintenance organizations (HMOs), preferred provider organizations (PPOs) and other non-indemnity plans. Generally, members indicated that their governments are most likely to utilize HMOs (46 percent) to provide health benefits to their plan participants. Self-insured indemnity plans and PPOs each were reported by about 39 percent of respondents, and insured indemnity plans came in at 31 percent. Many governments indicated that they were moving toward new plans and approaches; at present, however, only 3 percent participate in purchasing coalitions. Other options listed typically were various combinations of the plans discussed above.

Finance Officials' Role

Seventy-eight percent of respondents participate in the administration of their governments' health benefits plans. Half of this group is solely responsible for this function, while the rest share the responsibility most often with the personnel department. As for communicating health benefits to employees and retirees, respondents were split down the middle: about 50 percent were directly responsible for this function, while the rest relied on the skills of their personnel/human resources, administration or payroll departments. In some instances, risk managers, third-party administrators and insurance committees also were responsible for communicating information on health benefits to employees and retirees.

What's the Plan?

The type of plan being used varied according to the number of individuals participating in the jurisdiction's plan. As respondents typically utilized more than one type of plan coverage, percentages cited below do not add up to 100. Plans covering less than 200 persons largely depended on HMOs (40.3 percent) and PPOs (40.3 percent), followed by insured indemnity plans (30.6 percent). Plans covering between 200 and 1,000 individuals still used HMOs (40.2 percent) and PPOs (36.1 percent) but shifted away from insured indemnity plans (23.8 percent) toward self-insured indemnity plans (61.5 percent). The largest jurisdictions, those covering 1000 or more persons, most often utilized HMOs (54.4 percent) and self-insured indemnity plans (55.5 percent), followed closely by PPOs (50.0 percent). For a graphical comparison of these responses, see Exhibit 1.

Two-thirds of respondents indicated that their plans cover both active employees and retirees, approximately one-third cited coverage only for active employees, and a handful (0.8 percent) indicated that their plans cover only retirees.

Only 34 percent of respondents provided information on the number of persons covered under their governments' health benefits plans. Out of those responses, the median number of persons covered was 310. The average number of plan participants was 2,543, with the largest plan covering 190,000 persons and the smallest covering 10. Sixty-three percent of these plans had 500 or fewer participants.

Major Concerns about Health Care

Respondents ranked their major concerns regarding health care. Their greatest concern is about the rising costs of health benefit plans and the impact of these costs on operating budgets. Several members listed other concerns, such as federal reform and its impact on state and local governments, taxation of employer-paid premiums and long-term funding to cover health benefits.

About 59 percent of the responding governments have examined the reasons for rising health benefit costs, citing many causes. Some factors mentioned were medical inflation, bad claims experience, retiree inclusion in health plans, lack of competition, defensive medicine to avoid litigation and malpractice suits, technology costs, aging population and other demographic factors, the rising number of uninsured people, costly procedures and operations, duplication of services, drug costs, fraud and greed. About 38 percent of respondents answered that their governments have not yet looked into the reasons for rising health benefit costs.

What GFOA Members Want

Respondents also indicated, in order of priority, health care topics on which they would like additional information. Three topics emerged as clear front-runners: cost-containment approaches, health plan evaluation techniques, and state and local government initiatives. Other topics mentioned included group purchase coalitions made up of smaller governments and self-funding requirements.

Survey results show that GFOA publications, such as research bulletins, Government Finance Review and the GFOA Newsletter, would be most welcome by members looking for assistance with health care issues. Other more comprehensive publications on health care also would be helpful. Respondents also suggested the following GFOA activities as being helpful: access to Washington, D.C., and lobbying efforts; information on other jurisdictions and what types of plans and services they provide, especially "success" stories; comparative health care statistics for similar sized cities; examples of successful implementation of wellness programs; training seminars on dealing with insurance companies and Medicaid/Medicare expenses; and information on flexible benefit arrangements.

GFOA Responds

GFOA already has begun to provide more information in its membership publications on health care issues, including best practices, federal health care reform, and state and local government initiatives. Also, GFOA's subscription newsletter, Pension & Benefits Update, tracks health care legislation along with coverage of public pension and other employee benefit issues. The GFOA's Pension & Benefits Center, located in Washington, D.C., is coordinating the association's efforts to provide governmental employers with information that they can put to work in their jurisdictions.

In the coming months, the Government Finance Review will carry articles that focus on cost-containment efforts and on state health care reform. A publication on flexible-benefit arrangements is planned for release by year's end. Another initiative, set into motion by GFOA's Executive Board, is to obtain outside foundation funding for a series of products and seminars to expand the tools available to public employee benefits managers.

Public finance officials will continue to search for techniques to keep health care costs in check while providing their workers with comprehensive health care coverage. When more than 40 of the nation's largest cities responded to a recent survey about their overall fiscal condition, a majority pointed to the cost of employee health care benefits as the factor most adversely affecting these cities' ability to balance their fiscal year 1993 budgets. GFOA is striving to provide resources that will facilitate the sharing of proven cost-containment and health care delivery techniques and promote networking among governments.

Authors OLGA SPAIC and CATHIE G. EITELBERG are, respectively, an analyst in GFOA's Government Finance Research Center and the director of GFOA's Pension & Benefits Center.
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Copyright 1993 Gale, Cengage Learning. All rights reserved.

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Title Annotation:Government Finance Officers Association
Author:Spaic, Olga; Eitelberg, Cathie G.
Publication:Government Finance Review
Date:Oct 1, 1993
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