Magazine article Personnel Journal

Allied-Signal's Network Cuts Health Care Costs

Magazine article Personnel Journal

Allied-Signal's Network Cuts Health Care Costs

Article excerpt

IN 1987, EXECUTIVES AT ALLIED-SIGNAL Inc. were informed that the company's medical insurance premiums would increase by 39% -- up from only 8% the previous year. Future cost projections based on current trends were no less grim. By 1990, it was estimated that the company's $355 million annual health care bill would escalate to $613 million.

Rather than tinker with traditional remedies, such as increasing deductibles and shifting larger copayments to employees, the high-tech aerospace and automotive products company decided to write its own prescription for managing health care costs.

Today, after the conclusion of a three-year agreement with CIGNA Corp.'s Employee Benefits Co., Allied-Signal executives are calling its new nationwide managed health care plan a success. The savings, achieved from March 1988 to February 1991, included the following:

* Annual premium increases were held to less than 10%

* The average cost per employee was reduced from $3,200 under the old indemnity plan to $2,700 under the managed care plan, saving the company a total of $200 million in reduced premiums

* In 1990, the total health care premium paid by the company and its employees was $360 million, up from $355 million in 1987.

It was in 1987 that a task force of human resources executives from the corporate office in Morristown, New Jersey, was given the challenge of developing a custom-designed program that would hold down rapidly escalating health care premium costs. Under the direction of Ron McGurn, vice president of group insurance and labor relations, it was decided that the new program would be built on the following foundation:

* The insurance carrier would be a partner in the program with a financial risk, not merely an administrator that paid the bills as they came in

* The carrier would use its buying power to establish a strong network of primary care physicians and specialists coinciding with the company's locations throughout the U.S. and guarantee a high level of quality care

* Unlike what is found in true health maintenance organizations (HMOs), the maintenance organizations (HMOs), the employees would be able to switch from managed care to an indemnity plan at will, but would pay extra for exercising that option.

"We sought to change the way health care was delivered to our employees," says Al Gesler, corporate director of human resources for Allied-Signal. "The net result was a hybrid program, taking into account the best features of HMOs and indemnity plans and combining that with a partnership arrangement between the insurance carrier, Allied-Signal and its employees."

Once designed, the task force contacted several insurance carriers and asked for bids on the new program. While many declined the opportunity to bid, saying the new program was too much of a gamble, four companies submitted presentations. The company that came closest to Allied-Signal's requirements for service and quality health care and also had the best price was CIGNA.

"CIGNA had a health care network in place across the U.S., almost in a pattern that paralleled our major locations, so it was easier for them to adapt to our needs," says Gesler.

In March 1988, Allied-Signal signed a three-year agreement with CIGNA for a managed care program called the Health Care Connection. The plan covered medical, dental, vision and hearing care and prescription drugs. It also included well-care programs, such as prenatal care and an annual physical exam.

A major feature under the managed care portion of that agreement was that CIGNA guaranteed annual premium increases would be held to less than 10% during the next three years. For the traditional indemnity side, the guarantee was set at 15%. The actual figure for the managed care side would depend on how many employees would stay in the network.

"We wanted a very strong gatekeeper system," says McGurn. …

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