Serving Every Need.

In an attempt to attract and retain members, health insurers are beginning to offer coverage or discounts for services that traditionally have not been covered.

After years of wearing strong prescription glasses and contact lenses, Nan Krochta, a High Bridge, N.J., art teacher, underwent laser surgery in 1999 to correct her vision. Krochta was surprised when her health insurer, Guardian Life Insurance Company of America, covered the procedure.

Like many insurers, Guardian wrestled with the issue of whether to cover the surgery. "It was really a debate and a struggle internally Some felt it was cosmetic," said Susan O'Connor, Guardian's director of managed care. "We felt we didn't have language to exclude it at the time, and we decided to take a wait-and-see attitude."

On June 1, Guardian stopped covering the procedure and joined the growing ranks of insurers offering discounts to meet the increasing demand for health services--like laser vision surgery--that aren't considered medically necessary. "We saw explosive claims in the past two years," O'Connor said. "It's not easy, but it always comes down to a pool of premium dollars to be spent on all medical costs."

Subscribers to Guardian's vision insurance plan qualify for discounts through Vision Service Plan, which provides the company's vision benefits. Employers who had coverage prior to 1995 and want to keep laser vision surgery as an insured benefit have the option to pay extra to keep it. "More than 90% are opting to terminate it," O'Connor said.

Health insurers are looking for ways to respond to a growing demand for traditionally uncovered health-care services that can help customers feel and look good. While a few insurers cover alternative therapies, others are turning to discount networks to provide a wide range of services, such as vitamin discounts, acupuncture and massage therapy.

"Health insurers are looking for ways to improve and differentiate themselves, and this is an easy way to do it," said Greg Crawford, an equity analyst for Fox-Pitt, Kelton Inc.

By paying more attention to the desires of consumers who use healthcare services--rather than just the brokers who sell plans and the employers who buy them--insurers are responding to a consumerism trend that goes well beyond the boundaries of health care.

"We're getting back to basics and focusing on what the consumer wants. We're focusing on where we're going to compete tomorrow," said Bob Wadsworth, director of product management for Blue Shield of California, which offers discounted alternative-medicine programs. "Many employers offer multiple health plans to employees. We have to be service-oriented to the consumer in dealing with the overall health issue."

The immense cultural influence of baby boomers with their taste for alternative therapies and anti-aging regimes--such as exercise, plastic surgery and spa treatments--has created a marketing opportunity for insurers. By 2010, 32% of all Americans will be over 50. 'What we see here are market forces at work. Health care does not follow the typical supply-and-demand dogma. Health insurers have to differentiate themselves in order to remain competitive," said Dr. David B. Nash, director of health policy and clinical outcomes at Thomas Jefferson University Hospital, Philadelphia. Nash is co-author of Connecting With the New Healthcare Consumer which was published earlier this year.

United Healthcare, the second-largest health insurer in the United States, has been studying the types of health-care services that people pay for on their own and is looking for ways to offer programs that help them access those services.

"With baby boomers moving into their 50s and 60s, many are paying for plastic-surgery procedures. How can we help them access that coverage?" Jeannine Rivet, chief executive officer of United Healthcare said (Best's Review, "Following Doctors' Orders' January 2000). "How can we leverage discount arrangements for people who may still be paying out of pocket, but do credentialing on those services and help them to pay less?"

The company has pilot programs that cover vitamins and packages that deal with stress reduction.

Services that help their members stay healthier can have a long-term benefit for health insurers. "One of the cornerstones of HMOs was to provide programs for people to be healthier so they wouldn't require as many services," said Brad Kieffer, a spokesman for Health Net, a health plan and subsidiary of Foundation Health Systems Inc., Woodland Hills, Calif.

At the same time, the type of people attracted to health plans that offer self- care services, such as discounts for vitamins, health clubs and alternative therapies, tend to be the type of people that health plans want to attract: people who have an interest in taking care of their own health.

"We're looking ideally to attract healthy women as members. We want to create an enduring relationship through the positive care they receive from us and enhance that relationship through selected products and services. It's good business," said Dr. Edward Anselm, a medical director who worked on HIP New York Health Plan's alternative-medicine services.

For many insurers, offering coverage or discounts for services that traditionally have not been covered is necessary to attract new members and keep current members from leaving.

"Forward-thinking leaders of health plans are asking themselves, 'How can we attract and retain our members and offer the most and best we can without breaking the bank?"' Nash and his co-authors wrote in the preface to their book.

HIP New York Health Plans stepped gingerly into this new role. This year, the insurer is bringing discounted access to acupuncture, massage therapy and yoga therapy to its members though a network packaged by Consensus Health Corp., Emeryville, Calif. The insurer also offers discounts for laser vision correction procedures.

"Health insurers have basically the same doctors, so they are always looking for ways to differentiate themselves to improve retention of members and recruitment of new ones," Anselm said.

HIP New York admits it is offering alternative therapies cautiously because they are viewed as uncharted territory in medicine. "We took a conservative approach on choosing services from hundreds of potential therapies, but we knew we needed to be in the marketplace," Anselm said. HIP decided to offer long-standing treatments that have licensed practitioners and a low potential for harm.

"We don't know what works--no one does--we don't even know if it should be covered by insurance--but our intent is to learn about how our members use these services. We're positioning ourselves for a future marketplace. Our goal right now is to learn how to price it," Anselm said.

Part of HIP's contracts with providers is collecting utilization data, although it's too soon to gauge results because the program began in November. HIP can collect usage data, "but why they went will be harder to track," Anselm said.

A Question of Affordability

While insurers want to respond to consumers' needs, they have to balance a desire for coverage with efficacy and cost.

After years of keeping medical costs under control, managed care is currently facing inflation attributed to the aging baby-boomer population, rising prescription-drug costs and technological advances. Medical costs rose by 3% to 5% from 1995 to 1999, according to the Health Insurance Association of America. For publicly traded health companies, health-care expenses increased 10.7% to $80.5 billion in 1999, according to A.M. Best Co. data.

If the price of a pound .of butter rose at the same rate as health costs over the past 20 years, consumers would be paying $58 for the product, said Terry Tullo, president of New Benefits Inc., a Dallas-based provider of specialty networks. Large employers, especially Fortune 500 companies, see health-care costs eating up 35% of their bottom line, but at the same time they want to offer more options to their employees, she said.

When adding coverage, insurers have to consider whether there's a way to offer what consumers want without affecting the premium. "Are the benefits something everyone wants to subsidize, or are they better offered in a discount program?" said Wadsworth of Blue Shield of California.

More for Less

Discount programs generally are offered to employers, health insurers and life insurers through networks such as New Benefits, Consensus Health and American Specialty Health Networks, San Diego These businesses find the contractors and ensure that they are licensed. Discount plans typically offer alternative-medicine procedures, vision care, vitamins and health club memberships. Consumers can access the programs through catalogs, the insurer's Web site or toll-free telephone numbers. The networks also sell discounted vitamins and health-related videos, audio tapes and books on their Web sites. There are no claim forms, the programs don't significantly affect the insurance premium, there are no preexisting conditions to determine and the contractors don't have to wait for reimbursement.

Depending on whether the networks provide administrative functions, insurers pay from nothing to 4 cents per member per month for these services, said John Weeks, publisher of the Integrator, a newsletter covering the alternative-medicine industry. "Some of the networks are literally giving away programs as loss leaders," Weeks said. The discount networks are looking for the adjunct business they pick up when plan members purchase health-related products from their Web sites. They also believe that by being in the alternative-medicine market now, they are positioning themselves for the future when more insurers will start covering these therapies, Weeks said. "It amounts to a Trojan-horse approach. Networks are inside the gates with the affinity products and will be available when insurers want covered benefits," Weeks said.

New Benefits offers travel assistance, discounted pharmaceuticals, a nurse hot line, chiropractic, cosmetic surgery, vision care, dental care, plastic surgery and mental-health counseling by telephone. Life insurers, such as Transamerica, offer New Benefits' programs to policyholders as a way to differentiate themselves and attract and maintain satisfied customers, Tullo said. Transamerica selected some of the services to offer its policyholders: a nurse hot line and discounts for vision care, pharmaceuticals, dental care, hearing care, chiropractic, travel assistance, cosmetic surgery, counseling and vitamins.

New Benefits also has the technological capability to individualize its discount health packages. The standard package features pharmacy, vision, dental and hearing. If an individual who has access to New Benefit's programs through an employer wants to delete or add a service, New Benefits can comply. Using proprietary software in tandem with a high-speed Xerox electronic-publishing system, individualized discount program cards can be printed for members. The ability to offer a modular program gives members more choices and increases participation, said Amy Bonney, director of marketing and communications for New Benefits.

American Specialty Health Networks offers networks of chiropractors, acupuncturists, massage therapists and dieticians. With 19,000 providers nationwide and 68 health plans under contract, it calls itself the largest network of its kind. The company's affiliate, American Specialty Health Plans, offers chiropractic, acupuncture and massage-therapy insurance. The programs can be purchased by employers as riders to current health plans.

The discount programs are the first phase in offering alternative-medicine coverage, and the second phase already has started with the creation of the managed-care rider, said George DeVries, president and chief executive officer of American Specialty Health Networks. "We had customers come to us reporting the discount program worked out so well and asking, 'Do you have health plan coverage?' So we created the supplemental-benefit program, and it turned out to be truly integrated with existing health plans," DeVries said.

Weeks also expects a movement from discounts to covered benefits. As long as the tight employment market continues, he sees employers leading the way for insurance coverage of complementary and alternative programs as a way to retain employees. "When the baseline has everyone carrying affinity products, [then] insurers will begin offering coverage on [complementary and alternative] programs to differentiate themselves," Weeks said.

Alternative Medicine

The majority of options offered under discount plans are in alternative medicine. This increasingly popular approach to health encompasses naturopathic medicine and biofeedback, although acupuncture, yoga and massage therapy are seen the most frequently in discount plans.

The growing interest by consumers and acceptance by the orthodox medical community has added to the popularity of alternative-medicine therapies. Consumer Reports magazine recently released what it calls the largest and most detailed survey of alternative medicine in North America, with more than 46,000 respondents. It found that while 58% of respondents use conventional medicine for backaches and pain, 25% used a combination of conventional and alternative therapies. A March 1999 Landmark Healthcare study on alternative health care found that 66% of HMOs offer at least one form of alternative care, with 61% offering chiropractic and 31% offering acupuncture. The study also reports that 50% of the HMOs that offer alternative care provide the services through outside vendors.

Cautious Moves

Oxford Health Plans, Trumbull, Conn., says it was the first health plan in the United States to create a credentialed network of alternative providers. Oxford's network of more than 2,000 alternative-medicine providers includes acupuncturists, chiropractors, naturopaths, nutritionists, massage therapists and yoga therapists. Oxford members can access the providers in three ways, depending on their plan design and coverage region. All Oxford members can pay a contracted rate that sets a maximum fee the provider can charge. In some states that require insurance benefits for chiropractors and naturopaths, members need a referral from a primary-care physician. Oxford's alternative-medicine rider offers access to chiropractors and acupuncturists without a referral at the standard network copay. In Connecticut, naturopaths are included in the rider, too.

Insurers such as Aetna U.S. Healthcare, Kaiser Permanente in Hawaii and Ohio, Trigon Healthcare Inc., Horizon Blue Cross Blue Shield of New Jersey, Blue Cross & Blue Shield of Oklahoma and Blue Cross Blue Shield of Michigan offer discounted alternative-medicine programs. Many others are cautiously dipping their toes into these waters.

Blue Shield of California was concerned about how its physicians would react to the alternative-medicine offerings it placed in its discount network, which it calls mylifepath, so screening and credentialing was important, Wadsworth said. "Consumers told us they want to be thought of in terms of mind and body. We're now taking health as a starting point. Five to seven years ago, we didn't do that," Wadsworth said.

The San Francisco-based insurer contracted with the third-party network service Consensus Health, but it first double-checked that the network's credentialing was up to its standards. "We have a brand name to protect," Wadsworth said. Blue Shield of California offers insurance coverage for chiropractic and acupuncture through its preferred-provider organization, but consumers in its HMO need a physician referral prior to use. Once the plan's limits are reached, subscribers can use the 25% discount offered through the mylifepath network. The network also offers discounts on fitness center membership, health spa use, massage therapy and stress management.

Blue Shield of California recently introduced a guided-imagery program to help members deal with the stress of an impending surgery. But before it began offering the program, Blue Shield of California performed extensive research on the effectiveness of guided imagery in pre-surgical preparation. "The program converges market research with clinical research," said Deborah Schwab, director of mind-body products for Blue Shield of California.

Preferred-provider organization members who are scheduled for one of about 90 types of surgery receive a free 3&minute audio tape or compact disc. The program began in early May, so no data about effectiveness is available, but evaluation plans are in place.

Laser Vision Correction

One hot area for discount programs is laser vision treatment. Used to correct vision for even severe prescriptions, Lasik, the most common type of laser vision-correction procedure, costs $1,500 to $2,500 per eye. With the promise of low risk and quick recovery, the Lasik procedure has become extremely popular, with one of the largest providers, Lasik Vision Corp., reporting a 424% increase in the number of procedures performed in the first quarter from the same period in 1999.

HIP New York Health Plans, Blue Cross Blue Shield of Michigan, Guardian and Highmark, a Pennsylvania Blue Cross and Blue Shield plan, are among the programs offering discounts for the vision procedures. "The marketplace for this service is competitive. HIP was able to leverage its large membership to provide a significant discount for those who choose to use the service," Anselm said,

Plastic Surgery

Although plastic surgery isn't widely offered in discount programs, consumers showed a high level of interest, according to Blue Cross of California, Thousand Oaks, Calif. Some plastic surgeons wanted to get involved, although others considered a discount program as infringing on their territory, said Kathleen Brozee, senior provider contract manager for the health plan, a subsidiary of WellPoint Health Networks Inc. Another problem the health plan encountered: California's Department of Corporations that oversees managed-care plans nixed the idea, because medical procedures can't be offered for a discount in the state, Brozee said.

New Benefits finds that plastic surgery is usually not the drawing card for discount programs, although it offers a cosmetic-surgery discount program to insurers and employers, with a 20% discount on procedures that typically start at $2,000. "Even though cosmetic surgery is being more widely used and is less expensive than in the past, more people want discounts on dental, vision and pharmaceuticals," Bonney said.

Another reason for offering the discount programs is to keep in tune with the current business climate. Health insurance has changed over the last 40 years; first it was offered to cover catastrophic illness and then the focus was on preventive care, Wadsworth said. "The next generation of health insurance has evolved to coverage based on consumers' desires."

Putting Patients First

In the eight months since United Healthcare announced it was giving physicians the final say on medical care, the second-largest U.S. health insurer says its customers and providers are more satisfied and enrollment has increased.

"I have a binder 2 inches thick with satisfaction studies and physician-support letters written to a managed-care company," said Jay Silverstein, United Healthcare's chief marketing officer. Silverstein said there had been an improvement in enrollment, but it's still too early to release any quantifying information.

"The move established United Healthcare in a leadership role," said Susan Pisano, a spokeswoman for the American Association of Health Plans. While other health insurers aren't exactly following United Healthcare's steps in giving physicians a final say in treatment, the company established a trend toward more focused use of utilization review that tracks variation in the use of particular procedures, Pisano said.

In November, United Healthcare announced a broad "Care Coordination" program that included a move away from preauthorization of medical treatments in favor of retrospective monitoring of utilization.

Rather than requiring prior approval for medical treatments, United Healthcare is trying to identify physicians who commit "egregious or fraudulent behavior," Silverstein said. "When we eliminated utilization review, we didn't establish an open checkbook."

United Healthcare's announcement was not necessarily a unique step, but what set the company apart was how it made several changes in one swoop, said equity analyst Greg Crawford of Fox-Pitt, Kelton Inc.

More insurers will be following United Healthcare's retrospective monitoring, because preauthorization is a sore point with consumers and providers, and it's time-consuming and expensive, said John Rex, an equity analyst with Bear, Stearns. "It's more cost-efficient and goodwill-building to target providers. When 20% of members account for 80% of costs, it's more cost-efficient to manage the costs of the 20%," Rex said.

Following the announcement last year, the media focused on the elimination of preauthorization and paid little attention to the less sexy retrospective-monitoring program that replaced the medical-review process. "We eliminated 'Mother, may I,' "Silverstein said. United Healthcare took the staff and the $100 million it spent annually on utilization review and is using it to identify gaps in care. The Care Coordination program monitors members who have chronic and complicated medical conditions, and it coordinates complex and fragmented services, while measuring outcomes. In its regional centers across the United States, United Healthcare is using pharmacy claims, data about the treatment patterns of individual physicians and information it has about individual patients to improve the quality of care its members receive. Part of that involves ensuring that patients follow through with prescribed treatments.

United Healthcare recently identified a diabetic subscriber who was discharged from a hospital with a prescription for oral insulin. By reviewing pharmacy records, staff members in the Care Coordination program realized that the prescription was never filled. A United Healthcare nurse called the patient, who was confused and was still taking injections of the medication instead.

United Healthcare's new rules are the basis for a class-action lawsuit filed by the legal team that sued tobacco companies and is now focused on health maintenance organizations. Last year, the lawyers filed five class-action federal lawsuits alleging that HMOs are engaged in fraud and racketeering. A sixth suit alleges that United Healthcare fraudulently promised subscribers that physicians would make the final call on the necessity of medical treatments. The suit points out that the health insurer still requires preauthorization for a number of procedures, including CAT scans, MRIs and mental-health care, and that it can deny payment for services it doesn't consider to be medically necessary, said Sidney Backstom, an attorney with Scruggs, Millette, Bozeman & Dent. "It's put doctors in a Catch-22 situation. Now they can authorize payments but don't know what's covered," Backstom said.

The complaint against United Healthcare alleges violations of the Racketeer Influenced and Corrupt Organizations Act and the Employment Retirement Income Security Act. Backstom said the lawsuit stems from complaints the firm received from individual enrollees over the last year. United Healthcare was asked to address the complaints, he said, but the insurer never responded.

Silverstein labeled the suit "questionable."

Currently, the suit is awaiting a judge's decision on whether it should be heard in the U.S. District Court in the Southern District of Florida, where the other class-action suits were filed. "They want to avoid a risk of inconsistent rulings," Backstom said.