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CONVENTIONAL HEALTH PLANS HEADED FOR EXTINCTION AS EMPLOYERS SEEK TO CURB COSTS WITH MANAGED CARE

 CONVENTIONAL HEALTH PLANS HEADED FOR EXTINCTION
 AS EMPLOYERS SEEK TO CURB COSTS WITH MANAGED CARE
 NEW YORK, Oct. 28 /PRNewswire/ -- Health insurance as many Americans know it, featuring conventional indemnity coverage provided free to employees, will soon be a thing of the past, according to a new survey of employer-sponsored health benefits by international accountants and consultants KPMG Peat Marwick. The survey found that the percentage of employees who work for companies offering conventional coverage has declined dramatically, from 89 percent in 1988 to 62 percent in 1992.
 In 1992, for the first time, the survey reveals that a majority, or 55 percent, of workers in mid-sized and large companies are enrolled in a managed care plan, defined as a health maintenance organization (HMO), a preferred provider organization (PPO), or a point-of-service plan (POS). As employers struggle to control the rising cost of health benefits, which currently amount to between 8 to 10 percent of payroll, conventional enrollments are dropping and fewer workers are receiving health insurance without having to pay toward the premium. Despite concerns about health care costs, however, few firms are planning draconian cuts in covered benefits.
 "Based on the results of our survey, managed care will dominate the private health insurance market within a few years," said James Buckley, national director of group insurance for KPMG Peat Marwick. "If current trends continue, Americans can expect more out-of-pocket costs for the health care they receive, greater incentives to use selected providers and almost universal review of provider's treatment decisions," observed Buckley.
 "While fewer employees are being offered the choice of a conventional plan, many workers who enter high-quality managed care networks are finding themselves generally satisfied with the level of care they receive," Buckley said.
 The new study, "Health Benefits in 1992," is KPMG Peat Marwick's second annual national report on the state of employer sponsored health insurance. Findings are based on a 1992 survey of 1,057 randomly selected private and public employers with 200 or more employees.
 Following are highlights of "Health Benefits in 1992":
 Managed Care Moves Into First Place
 Enrollment in managed care plans continued to grow from 1991-1992, with PPO and POS plans recording the largest growth. POS plans -- distinguished from PPOs by the presence of a primary care "gatekeeper" and stronger incentives to use preferred providers -- showed greatest gains in companies with more than 5,000 workers in the Northeast. In HMO plans, more workers elected independent practice associations than traditional group/staff models, a reversal from 1988.
 -- Managed care constituted 55 percent of enrollments in 1992, up from 29 percent in 1988.
 -- Combined PPO/POS enrollments grew from 24 percent to 34 percent over the last year.
 -- The percentage of employers "highly satisfied" overall with their HMOs increased from 22 percent in 1991 to 36 percent in 1992.
 -- The percentage of employers who said their HMO "saves a lot" of money increased from 15 to 22 over the past year, while those who said their HMO "saves a little" stayed almost level at 42 percent.
 "Many employers view POS plans as a vehicle to move all employees from a conventional plan into a managed care environment," observed Buckley. "With a POS plan, the transition is eased because workers are permitted to retain their own physicians outside the network if they're willing to pay higher out-of-pocket costs."
 Flexible Benefits a Popular Option
 The popularity of flexible benefit programs, where the employer pays for a core package and workers pay for upgrades, often with pre-tax dollars, continued to grow. The move toward flexible benefit plans increases the ability to better tailor health plans to the needs of a changing workforce, and permits workers to shop around for the most suitable coverage.
 -- 43 percent of employers offer a flexible benefit plan, up from 37 in 1991.
 -- 32 percent of employers offer the payment of health insurance premiums with pre-tax dollars as a flexible benefit; 28 percent of companies provide the payment of child care expenses and unreimbursed medical expenses with pre-tax dollars.
 -- Companies in the health care, high technology and finance/insurance industries are most likely to offer flexible benefits.
 "The survey suggests that flexible benefit plans encourage the adoption of cost-control strategies. Enrollments in HMO plans are nearly 25 percent higher when employees offer a full flexible benefits program," Buckley noted.
 Employee Contributions on the Rise
 For all types of plans -- conventional, (HMO), (PPO), and (POS) -- workers paid an increasing share of the cost of health insurance in 1992. The percentage of employees receiving fully paid coverage declined across all plans. Employees' absolute monthly contributions for managed care were substantially greater than for conventional plans.
 -- Average monthly out-of-pocket expenses ranged from $20 for conventional single coverage to $112 for family HMO coverage.
 -- In conventional single plans, 32 percent of employees received health insurance fully paid, compared to 51 percent in 1988 (a).
 -- Deductibles in conventional plans rose 10 percent for single coverage and 17 percent for family coverage between 1991-1992. By contrast, deductibles fell when preferred providers were used.
 -- Co-payment requirements rose in HMO plans, and co-insurance rates increased in PPO/POS plans when using preferred providers.
 -- Employee monthly contributions for family coverage averaged $112 and $120 for HMO and PPO/POS plans, respectively, but only $84 for conventional plans.
 "Our survey suggests that employees are being forced to become more price sensitive in choosing their health plans. As increased contributions for premiums encourage employees to select managed care plans, increased deductibles, co-insurance and co-payments will reduce the use of services," Buckley observed.
 (a) 1988 data from the Health Insurance Association of America survey.
 Premium Increases Slow, For Now
 The cost of employer-sponsored health insurance rose 10.9 percent between spring 1991 and spring 1992. Although the increase was three times the overall rate of inflation, it was the lowest annual increase since 1986-87.
 -- Average rate of increase in HMO premiums was 9.8 percent, about 1.3 point lowers than conventional and PPO/POS figures.
 -- Manufacturing, finance and retail industries experienced the largest rates of increase.
 -- Premiums increased most in the Northeast and the least in the South, which has the smallest share of employers enrolled in HMOs.
 "If historical trends hold, insurers are expected to suffer financial losses in 1992, resulting in sharp increases in premium by 1994. Based on a look at first quarter data in 1992, there are early signs that this pattern may not hold," Buckley said.
 Other Finding of Note
 -- More conventional and PPO/POS plans are offering preventive benefits, reflecting a competitive response to HMOs, which continue to offer the most comprehensive range of preventive services.
 - 98 percent of HMOs cover well-baby care, compared to 75 percent for PPO/POS plans and 45 percent for conventional plans.
 -- More than 90 percent of Americans with employer-sponsored health insurance are enrolled in plans with utilization management provisions such as hospital pre-admissions review and high-cost case management.
 -- Pre-existing condition clauses were used in nearly two-thirds of companies with 200 or more employers, with a typical exclusion period of 12 months.
 -- HMOs continued to move toward experience rating and away from community rating. The percentage of HMO enrollees in plans that used experience rating grew from 31 to 40 percent over the past year.
 -- With the exception of HMO plans, overall employer satisfaction with health plans has declined dramatically since 1988.
 Through 135 offices in the United States, KPMG provides industry- specific accounting, taxation, and consulting services to a broad range of businesses and other organizations in the financial, commercial and private sectors. The worldwide KPMG network has more than 76,000 people operating in 125 countries.
 -0- 10/28/92
 /CONTACT: Lynn Peebles of KPMG Peat Marwick, 212-481-7000/ CO: KPMG Peat Marwick ST: New York IN: HEA SU:


AH-TM -- NY004 -- 5798 10/28/92 09:02 EST
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