Cutting Cost, Not Care - Managed Care Takes Center Stage

By Amir Zaman, WEA Insurance employee benefits specialist

September 1996

“Small and midsize companies kept their health-care costs in check last year by migrating toward less expensive managed-care plans, a national study says.” — The Wall Street Journal, July 10, 1996.

“The American Hospital Association has reported that increases in hospitals’ cost of delivering care declined to a 40-year low. Among the factors cited as contributing to the drop was the expansion of managed care.” — Employee Benefit Plan Review, July 1996.

“Managed care cuts hospital costs, reduces stays: study” — Employee Benefit Plan Review, July 1996.

“Blues growth tied to managed care: Plans reorganize to compete” — Business Insurance, June 3, 1996.

Managed care has everyone’s attention in the health care industry these days because — as the news items above attest and the chart shows — it has had a major impact on slowing the rising cost of health insurance.

In a July report, the U.S. Labor Department said that in the preceding 12 months, employers’ health insurance costs rose by only 0.1% — the smallest annual increase ever recorded! The report credits several factors for the slowdown, but the most significant was the steady move away from unmanaged health insurance plans to various types of plans that control costs by incorporating one or more elements of managed care.

What is managed care?

Managed care is a concept that encompasses a wide array of activities — all of which are aimed at efficiency and accountability in health care delivery and, ultimately, at reducing claims costs. It employs such tools as preauthorization of services, preadmission hospital review, case management, concurrent hospital review, close scrutiny of the necessity and appropriateness of health care, and so on. Increasingly, the term also encompasses proactive approaches such as preventive care, consumer education, management of chronic diseases such as diabetes and asthma, and wellness initiatives.

Health insurance plans employ these tools to varying degrees. The general premise is that a plan which makes extensive and aggressive use of managed care tools will have lower claim costs, and can compete in the marketplace with lower insurance premiums than a plan that uses no managed care tools.

Why managed care?

Unmanaged health insurance plans that have a fee-for-service reimbursement structure have often been blamed for largely fueling the increase in health care costs. By paying medical providers for every office visit, lab test, or procedure they perform, these plans encourage expensive and excessive care. Under this system, the more services doctors perform, the more money they earn. Therefore, medical providers have no incentive to keep an eye on costs.

Managed care, by contrast, attempts to bring discipline to how — and with what intensity — health care is delivered. Where unmanaged plans simply pay the claims without inquiring about the cost, necessity, or appropriateness of the service delivered, managed care plans take a more aggressive role. Before, during, and after care is delivered, managed care plans try to ensure that a patient receives all the appropriate care he or she really needs — neither more nor less.

One glaring example of excess

More health plans are employing managed care tools because there’s immense waste and excess in medicine. In addition, physicians’ practices differ widely from one region of the country to another. According to one recent study:

• You are more than twice as likely to get an angioplasty in Stockton, Calif., than elsewhere in the country.
• In Provo, Utah, your chances of getting back surgery are almost three times higher than the national average.
• In Miami, Fla., your doctor and lab fees are likely to be more than double the national average.
• In Boulder, Colo., a man is twice as likely to get radical prostate surgery as elsewhere in the country.

These higher rates of medical care don’t necessarily mean you’re getting better care. Over-treatment is a waste of your compensation dollars and can be dangerous to your health.

Managing costs vs. managing care

As commercial insurers introduced lower-priced managed care plans to school districts, WEA Insurance trustees realized that there were plenty of plans that were saving money by cutting benefits and calling it managed care. The trustees wanted members to have access to plans that managed health costs without cutting health care.

So, two years ago, WEA Insurance introduced two health plans that aggressively manage costs. These plans scrutinize claims more closely, they ask more questions and inquire more deeply when determining which medical services will be reimbursed. These plans pay particular attention to high-cost services to ensure that they’re being reimbursed only when they are necessary and appropriate for the patient’s condition.

In short, being covered under these plans is a very different experience than being covered under a plan that doesn’t manage costs. We’ll tell you about some of those differences in our next article and also explain how the difference between managing care and managing costs isn’t simply a matter of semantics to us.

Posted August 26, 1996