SCE sets layoffs as it dismantles employee health plan; utility opts to contract with outside firms for coverage.

Southern California Edison will lay off an unspecified number from its 200-employee health care department as it dismantles much of its in-house health plan.

The action is being taken by SCE in order to stem the ever-rising cost of health care for its 55,000 employees by contracting with outside firms for coverage.

"We don't need a claims department or a provider area, so we will be having some separations," said Margaret Jordan, SCE's vice president in charge of health care. "We're in the middle of determining how many that will be."

In January, SCE will eliminate its HealthFlex plan, a preferred provider network of 7,000 doctors it created in 1989.

It is opting for outside plans from Blue Shield, Kaiser, Cigna Healthcare and Health Net.

"The new plans are better plans," Jordan said. "They control costs better and are more accountable. It also removes ourselves from the unusual situation of running a large PPO network when our business is electricity."

Ed Susank, a partner in the Los Angeles office of benefits consultant William M. Mercer Inc., said that SCE's decision is "part of a trend by companies in Southern California to outsource in-house services so as to reduce costs."

Susank did not want to comment directly on SCE's decision because the utility is a Mercer client.

HealthFlex contains a lot of infrastructure: 15 full-time staff physicians, 10 SCE-owned clinics and a pharmacy that dispensed nearly $7 million a year in drugs. The pharmacy and some or all of the clinics could be assimilated into the new plan, Jordan said, but she could not yet provide specifics as to how that would be accomplished.

Under the present plan, employees have the option of seeing HealthFlex network doctors and paying 10 percent of the bill, or seeing physicians outside of the network if they pay 30 percent of the bill. Emergency visits or procedures are 90 percent covered by HealthFlex.

In addition, SCE offers plans through outside health maintenance organizations, where physicians are paid a monthly fee per subscriber and there is no option to leave the network. About 20 percent of the employees have chosen to take the HMO option, according to SCE spokesman Steve Hansen.

HealthFlex is generally praised by employees, but has been costly: averaging $4,467 an employee in 1992. Costs have been increasing by about 10 percent a year. Meanwhile, SCE employees enrolled in outside HMOs cost $3,899 per person on average in 1992.

By comparison, large employers in the western U.S. spent $3,661 an employee for health care benefits in 1992, according to New York-based benefits consultant Foster Higgins Inc. Utilities nationwide spent much more -- $4,727. Large companies increased their spending 6.7 percent in 1993 to $3,863 per employee. Utilities spent $5,179 per employee, an increase of 9.3 percent.

While an HMO option will be offered under the new plan, point of service will anchor SCE's new plans. Like a PPO, point of service plans allow the option of seeing doctors outside of the network, but use of the network itself is closely controlled, with physicians being paid set fees and acting as "gatekeepers," giving final approval for referrals to specialists.

"We cannot push all of our workers into HMOs," Jordan replied when asked if switching exclusively to HMOs was considered.

SCE's two unions, the International Brotherhood of Electrical Workers and United Utility Workers of America, which represent about 45 percent of SCE's employees, voted on Aug. 5 to approve the change. Jordan said the large union representation was not a factor in choosing a point of service plan.

"Point of service plans are probably closer in structure to HMOs than PPOs, and some people see it as a midpoint," said Peter Boland, president of Boland Healthcare, an industry consultant based in Berkeley. "However, the more aggressive PPOs have begun offering point of service products." He added that few subscribers leave the network if the care given is of high quality.

Hansen said that under the new plans, annual costs will be reduced to an estimated $4,183 per subscriber, and that they will rise only 4 to 6 percent a year.

While that is less expensive than the average health care costs for utilities, Foster Higgins calculated that point of service plans ran $3,206 per employee last year -- more than 30 percent below the SCE estimates.

Hansen cautioned that the Foster Higgins study and the benefits SCE will offer are not necessarily comparable in all aspects.

"Southern California and Los Angeles have the highest medical costs in the country, which tend to affect (a program's) costs," he noted.

Other factors cited by Hansen include a higher utilization of health care by utility employees than the norm, richer benefits packages offered by utilities than other businesses, and wide cost variables in point of service plans -- which are newer and less established than HMOs and PPOs.

Boland could not find fault with the switchover: "SCE's health care delivery is well-planned," he said.