EMPLOYER-SPONSORED COVERAGE: Is It The Best Approach?
This week's New England Journal of Medicine concludes a two-part look at how large employers have restructured (and continue to restructure) the U.S. health care market. As stated by the authors -- University of California-San Francisco's Dr. Thomas Bodenheimer and Minnesota Citizens Organized Acting Together's Kip Sullivan -- the articles are intended to provoke readers to ask: "Should employers have such a major influence on health care?" In last week's issue, the authors provide a brief history of employer-based health insurance and look at how large employers brought about the managed care revolution. The article also explores the rise of employer purchasing groups such as the California-based Pacific Business Group on Health and the Minnesota-based Buyers Health Care Action Group (4/2 issue).
The Direct Contracting Model
This week's concluding installment details BHCAG's success in contracting directly with providers and its effort to bring about higher-quality health care. Several lessons can be taken from BHCAG's experience, the authors note, including the fact that the employer cooperative "used the clout of joint employer purchasing to reduce costs and to induce players in the Minnesota market ... to reconfigure themselves." However, "with only 125,000 enrollees, the direct-contracting experiment of BHCAG is a small one." The authors point out that "HMOs have an edge because of their appeal to employers who want to contract with a single organization that can deliver care to employees over a wide geographic area." Physicians may not like the direct-contracting model because "low reimbursement rates" made BHCAG resemble "another tightfisted HMO." According to the authors, how "rapidly direct contracting spreads will depend on three factors: the strength of the employer-coalition movement, the emergence of physician-led or hospital-led provider networks, and the willingness of employers to allocate the additional resources needed to switch from health plan to provider contracting."
Is The Time Right In California?
Bodenheimer and Sullivan point to PBGH as an example of the many factors employers must take into account when considering direct contracting. The California purchasing group "has not copied BHCAG because its employees are scattered around" the state, and setting up "competing care systems in 20 cities would be a formidable job." However, the authors write, "PBGH is concerned about the concentration of HMO power: Three health plans already care for 90% of PBGH employees. If these HMOs force a new round of price increases, direct contracting might become attractive. If so, PBGH would probably conduct a narrow experiment in a limited geographic area, with one or more of California's large medical groups."
In their conclusion, the authors write that many "persuasive arguments can be made that health insurance should be separated from employment." First, they note that the U.S. economy is shifting away from providing jobs with good benefits: "To link such a vital social need as health insurance to the vicissitudes of the job market may be ill-conceived public policy." They also contend that "employment-based health insurance is a regressive way of paying for health care," since it "takes 5.7% of the income of the lowest tenth of households and only 1.8% of the income of the highest-income tenth." The authors further state that "employers do not necessarily represent the best interests of their employees" because businesses have pushed changes in the health care system "in order to reduce the cost of doing business," not necessarily to improve care. Moreover, the move to direct contracting "may not presage an improvement for providers, because the chief interest of the employer payers will continue to be cost containment, achieved through the use of techniques similar to those pioneered by HMOs." The authors also write that cost pressures on employer groups "may ultimately defeat the impetus for quality" (Bodenheimer/Sullivan, 4/9 issue).