The Health Insurance Plans Big Corporations Use
Recently, managed care has emerged as the dominant healthcare delivery model in the U.S. One powerful impetus for this movement has been the decision of large companies to go with managed-care plans for their employees in order to contain costs. In order to understand the health plan purchasing strategies of big corporations, it is best to examine the most representative microcosm of this group: the Fortune 500. These companies set the precedent for small to medium companies, who tend to follow suit with any trends they observe among major corporations. In this post, we'll discuss health care purchasing rationale and trends for the largest, most profitable corporations: the Fortune 500.
Why the Fortune 500
Understanding the health care purchasing practices of the Fortune 500 is important for several reasons. For one, these corporations are integral to the U.S. economy. Secondly, the Fortune 500 organizations provide health care coverage for more than 20 million employees and millions more retirees and employee dependents. Moreover, Fortune 500 companies serve as a role model for small and medium organizations, as they tend to adopt the health care purchasing practices of their larger cohorts. Finally, due to the clout and influence held by Fortune 500 companies, these organizations have the ability to catalyze widespread reform in the health care system.
Three Major Trends
The examination of the health care purchasing of Fortune 500 companies reveals three key trends. First, large corporations have begun relying more and more heavily on competitive bidding in the selection of health insurance plans. Instead of working in an amicable partnership with HMOs and other insurers, Fortune 500 organizations have adopted hard-driving negotiation techniques to encourage more competition among insurers. Secondly, major corporations have implemented specific strategies to encourage the transition to managed care. For most companies, this involves a slight reduction in employer contributions that provides employees with a financial incentive to abandon indemnity care for managed care plans. Third, big corporations have created a glaring disparity in their single-minded focus on price innovations rather than the quality aspect of health plans. Fortune 500 companies do collect information about the quality dimension of the health plans they offer, but very few actually use the information to inform their health care purchasing decisions.
The Most Popular Health Plans
Increasingly, Fortune 500 companies have exhibited a preference for purchasing health "carriers" instead of managed care plans or products. These carriers then refer the companies to insurers that provide a variety of services, such as health maintenance organization (HMO), preferred provider organization (PPO), and point-of-service plans (POS). As a result, large companies have come to focus more on carriers rather than the specific health plan they purchase. According to a 2006 survey on employer health benefits performed by the Kaiser Family Foundation, the percentage distribution of employer-sponsored health plans by type is as follows:
- 60% PPO
- 20% HMO
- 13% POS
- 7% other/traditional
As Fortune 500 companies increasingly rely on carriers in their health plan selection, strong trends have emerged. Overall, carriers tend to refer corporations to the following major insurers because of the wide selection of plan types they offer:
- Aetna
- CIGNA
- Kaiser Permanente
Competitive Bidding & Financial Incentives
To explain the health care purchasing trends of large corporations, one must understand the driving forces behind them: competitive bidding and financial incentives. Competitive bidding is perhaps the most important reason why so many corporations have phased out indemnity health plans. Managed care insurers typically provide the most competitive bids, and the majority of large corporation prioritize cost-effectiveness over all other aspects of their health plan decisions. As a result, as of 1999, just 20% of Fortune 500 employees were enrolled in an indemnity plan, whereas, five years before, the overwhelming majority of these employees were covered by an indemnity plan.
To encourage employees to migrate to managed care for the purpose of cost containment, almost all Fortune 500 companies now offer some sort of monetary incentive to employees who choose this option. In recent years, large corporations have begun gradually reducing the employer contribution they make to employee health care. During the late nineties, the average large corporation made a contribution of 60%-100% of premiums. Now, however, close to 40% of Fortune 500 companies limit their contribution to below 60%-80% of premiums. The rationale behind the gradual decline in employer contribution is to create price sensitivity among employees, thereby persuading them to choose managed care plans that are much cheaper, but perhaps don't offer the same level of quality that other plan options might.