Managed care.

The changes it has brought to health care go far beyond controlling costs.

Perhaps no other factor influences how North Carolinians take their medicine more than managed care. Banned by state law until the 1960s, managed care could be North Carolina's most-competitive business enterprise of the '90s.

While attention remains focused on its profits and size, managed care is advancing in other ways as well. Long associated with restrictions on the doctor-patient relationship, managed care these days is about choice. In North Carolina, employers and employees are growing accustomed to a plethora of options: type of plan, what benefits it covers and the out-of-pocket costs employees pay.

Another shift is toward open access, in which some plans no longer require patients to go through a primary-care physician. Access also involves whether a health-maintenance organization has evening and weekend hours and how long it takes to schedule appointments. For example, Kaiser Permanente members needing urgent but not emergency care are seen by a doctor that day. Routine appointments require a three-day wait; appointments for preventive care, two weeks.

As the market continues to grow, managed-care companies will be challenged to offer quality health care along with an expanding range of options at competitive prices. That's good news for employers and employees. The greater the number of companies offering managed-care products, the easier it will be for businesses to choose programs customized to the needs of their employees.

"There's a variety of products that a payer can take to their clients," says Ken Stanford, executive director of HealthMark Inc.'s Charlotte regional office. "We offer more different products within managed care than we used to ofter. Five years ago, we offered a PPO [preferred-provider organization] and a type of point-of-service project. We still offer those two products," he says, but also provide case management and review services.

HealthMark has 104,660 PPO members in North Carolina and 8,344 in South Carolina. In January, it will be acquired by HealthStar Inc., a Chicago-based PPO operating in about 20 states.

Like HealthMark, WellPath Community Health Plans offers more than a few choices. "We offer a full-product spectrum," says Sandy Scherer, director of public relations and marketing communications. Products include HMO, PPO, POS, multi-option and indemnity. There's also life, accidental death and dismemberment, and short- and long-term disability insurance. "And we're working on offering Medicaid and Medicare HMOs," she adds.

WellPath, a joint venture of Duke University Medical Center and New York Life Insurance Co., serves 91,800 HMO and PPO members in North Carolina. Licensed in North Carolina since 1995, the company employs 155 in Chapel Hill and Charlotte. It's also seeking a license to operate in South Carolina.

Cigna HealthCare of North Carolina, with offices in Charlotte and Raleigh, has been licensed as an HMO in North Carolina since 1986 and offers indemnity products, PPOs and POS plans. Its parent company is Cigna HealthCare Inc. in Bloomfield, Conn. In the Charlotte area, 1,074 physicians serve 56,000 Cigna members. About 1,730 physicians in the Raleigh area treat more than 50,000 Cigna members.

Clearly, managed care is a popular route for employers and employees in North Carolina. More than 1 million Tar Heel residents - one in six - are in managed-care plans. Generally, the system coordinates the financing and provision of health care to produce quality care on a cost-effective basis.

The state cleared the way for HMOs in the '60s, but it wasn't until the late '80s that managed care began to creep into the health-insurance-benefit packages. Acceptance has risen along with spiraling health-care costs, and in the last three years, enrollment in North Carolina has doubled.

Managed care evolved from indemnity plans, the oldest form of health insurance. Traditional indemnity insurance pays for illnesses and accidents with few restrictions. It covers a set percentage of the charge, often 70% to 80%. Employees usually pay a deductible but can choose any doctor or hospital they want. Indemnity plans protect about 18% of North Carolinians.

To many employers and employees, managed care is synonymous with HMOs. North Carolina has 22 full-service HMOs, plus four that serve only dental and vision patients. Following on the heels of HMOs were PPOs, which treat members at a discount through groups of private physicians and hospitals. Employees pay a premium if they seek treatment elsewhere, except in emergencies. About 2.6 million North Carolina residents are covered by PPOs. For many companies, PPOs are a first step toward managed care, a transition for businesses accustomed to indemnity plans that are trying to lower costs. PPOs often offer more flexibility in access and larger physician networks than HMOs.

"Typically, an insurance plan drops anywhere from 5% to 25% in premium when a PPO option is offered to a prospective client," Stanford says.

In October, Pitt County Memorial Hospital and Fayetteville-based Mid-South Insurance Co. launched a PPO that targets small businesses. The plan aims to help small employers with 50 or fewer workers that can't afford managed-care plans, says Allen Feezor, the Greenville hospital's vice president.

He calls it a "PPO with a soft self-referral." It creates an incentive for members to see contracted providers by requiring that they pay a higher deductible to go elsewhere. Members make a flat copayment of $5 to $10 for primary coverage. Those seeing specialists pay 20% of the bill; the employer pays 80%.

In plans such as the Pitt County/Mid-South venture, 25% to 38% of the enrollees have never been insured, Feezor says. That's why Dave McRae, president of the 40-year-old hospital, decided to pursue the partnership. "He became concerned about the plight of small employers," Feezor says. "The employees of small employers have the least amount of coverage. He felt that it was serving the social good" to start such a plan. On average the plan costs employers $100 a member per month.

For Pitt County Memorial, more alliances of this kind are on the horizon. "This is a good first step for a segment in our community," Feezor says. "We are aggressively pursuing some joint-venture partnerships with a couple of HMOs which are committed to the region."

Managed care continues to evolve. QualChoice of North Carolina Inc., a Winston-Salem-based HMO, offers a POS plan. "A balance of cost and freedom has led to POS," Vice President Terry Brewster says. QualChoice's POS plan is an insurance hybrid that can be tailored to the needs of any employer and its employees by combining three options: an HMO-type option for reimbursement at the highest level; a PPO-type option, in which an employee can choose to see a specialist within the QualChoice network; and a traditional option, in which an employee can choose any doctor outside the network.

"Employer groups who are writing the monthly premium checks for group health insurance want efficiency, accountability, responsiveness, and they want to be able to evaluate quality of care," Brewster says. "Employees consider cost as well. But if they have been used to traditional indemnity plans, they may be reluctant to switch to an HMO or PPO.

"Both employers and employees find the flexibility of a POS plan appealing. It offers employees the opportunity to base their choices upon their needs at any point in time. If an employee has cancer and wants to go to the best clinic in the country, he or she can do that."

POS plans are "catching on with a lot of HMOs," says Stuart Veach, vice president of Partners National Health Plans of North Carolina Inc., a Winston-Salem-based HMO. "We've had [POS] for about 10 years," Veach says. "It gives members an option. They can take regular HMO coverage or they can take what's known as out-of-network coverage." The company, licensed in 1986, operates in the Carolinas and Virginia. About 10% of the HMO's members participate in the POS plan.

Long before POS, Kaiser Permanente established itself in California as the original HMO provider. For a set fee per member, HMOs treat illnesses and injuries and provide preventive care. Typically, patient care is initiated through a primary-care doctor, or gatekeeper, an arrangement that helps to hold down costs. HMOs negotiate volume discounts with doctors, hospitals and pharmacists.

Kaiser Permanente is now the second-largest HMO in North Carolina, serving 128,000 members in Charlotte and the Triangle. It offers an extensive network of community medical providers and doctors at its medical centers.

With Kaiser Permanente's POS option, "in addition to medical centers and the network, a person can choose to go out of the network," says Mark Warren, executive director. Warren, who is based in Charlotte, says the POS is "like an indemnity wraparound," meaning it requires the employee to meet a deductible and make copayments.

Two thousand employer groups offer Kaiser's health-care plan to their workers. Individuals as well can now obtain health care from the company through its Kaiser Permanente Individual and Family Plan.

HealthSource North Carolina, with 175,254 members the largest HMO in North Carolina, offers a POS option as well.

Dual-choice plans allow employees to select an HMO (with copayments as low as $5 per doctor's visit but with more restrictions on which doctor they can see) or a PPO (with higher copays and more freedom to choose physicians, usually at greater cost).

These plans can also offer indemnity and other managed-care options. They are expected to become the rule. In fact, Care Alliance, a health-insurance purchasing cooperative, offers multiple options to small employers in six regions across the state. Care Alliance has contracted with an insurance carrier in each region. They offer enrollment in HMOs, PPOs, indemnity plans or multiple plans. The cooperative, launched in November 1995, serves 300 employers including sole proprietors, independent contractors and self-employed workers.

Now that more managed-care options are available, are employers and employees reaping big savings? Soaring medical and insurance costs, after all, fueled the rise of managed care. The accounting firm KPMG Peat Marwick says the nation's employers paid 2.1% more for health-care benefits in 1995 overall, but those in HMOs saw costs go down 3.8%. As for the cost difference between managed care and indemnity plans, some in the industry say it's substantial.

"Traditionally, across the board, there is a difference of about 30% between managed care and the indemnity plans," says Scherer of WellPath. Warren of Kaiser Permanente believes the savings "in terms of total premiums is 10% to 15%."

So what's the bottom line on cost savings? A. Foster Higgins & Co., a New York-based employee-benefits consulting firm, tracks health-benefits costs each year. In 1995, 1,700 employers responded to its national survey of employer-sponsored health plans. Responses were categorized by region and type of insurance plan.

North and South Carolina's region included Alabama, Arkansas, Delaware, Florida, Georgia, Kentucky, Maryland, Mississippi, Louisiana, Oklahoma, Tennessee, Texas, Virginia and West Virginia. Cost per employee, which included employer and employee contributions, was: POS, $3,493; indemnity, $3,239; HMO, $2,935; PPO, $2,812.

Survey respondents offering HMOs or PPOs saved about 10% over indemnity plans. Those with POS plans offered employees the greatest options and flexibility - and paid more. Still, POS plans are often coupled with other managed-care products, which help to offset their higher costs.

No matter what the product, most respondents are convinced that managed care is the better bargain.

"[Managed-care premiums are] still lower than conventional-type coverage," says Veach of Partners National Health Plans of North Carolina.

RELATED ARTICLE: 10 Questions to Ask When Picking a Managed-Care Provider

1. Does your company want to be involved in an "open panel" or "closed panel" HMO? Closed-panel HMOs restrict the practice of physicians to the enrolled HMO patients. Open-panel HMOs contract with physicians and other providers who practice in the general community. Do you want to select an HMO that has both?

2. What are the specialties of the physicians?

3. Are all of the medical services coordinated at a central location, or are they scattered in various, possibly distant, locations?

4. What types of incentives, if any, does the HMO offers to its primary-care physicians to constrain health-care costs?

5. What opportunity does a patient have to form a continuing relationship with a particular physician?

6. Can your company effectively communicate to your employees the reasons for going to an HMO or PPO and what the advantages are?

7. Does the company want to emphasize preventive care or after-the-fact medical care? Is the health-care provider committed to the same objectives?

8. Does the HMO or PPO have the financial and organizational resources to be a reliable provider of medical benefits?

9. What is the financial condition of the physician practice as well as the parent corporation? Are they willing to show you their financials?

10. Is there a primary-care physicians who acts as a gatekeeper to authorize services to specialists?

Source: The Employers Association

Constance Holloway is a Charlotte-based free-lance writer.