Health Insurance Trends in Cost Control and Coverage
Frumkin, Robert N., Monthly Labor Review
Health insurance trends in cost control and coverage
Influenced by rapidly rising costs of health care, companies often raised their employees' share of the total health care bill and also modified plans to encourage use of less costly health services during the 1979-84 period. At the same time, however, some health plans improved benefit features, such as increasing the maximum lifetime payments under major medical plans.
Although cost containment efforts and benefit improvements were common, approaches to achieve these objectives varied. To analyze these efforts, the Bureau of Labor Statistics traced provisions of 209 employee health plans for the 1979-84 period.
These plans were found in 173 establishments and covered at least 1.8 million workers.1 The plans were mainly those of large companies, with 61 percent covering 1,000 workers or more (6 percent of the plans covered at least 25,000). While clearly not a representative sample of all health insurance plans, they do cover a substantial number of both union and nonunion workers, and offer insights into plan provisions over the 5 years studied. All but 11 of the health plans changed at least one of the features reviewed in this article between 1979 and 1984.
The 209 plans analyzed in this article comprise all plans common to both the 1979 and 1984 Bureau of Labor Statistics Employee Benefits Surveys. This annual survey provides data on the incidence and detailed provisions of benefit plans financed at least partially by medium and large companies. Under health plans, the survey covers provisions for hospital, surgical, medical, major medical, extended care, and other benefits. It also looks at methods of funding benefits (but not actual employer costs) and the incidence and amounts of employee contributions for individual and family coverage.2
Efforts to curb costs stemmed from rapid increases in health care outlays. Total national health expenditures rose from $215.1 billion in 1979 to $387.4 billion 5 years later.3 This increase reflects both the introduction of new and expensive treatments for many illnesses and a sharp rise in prices for health services. Over the 1979-84 period, the medical care component of the Consumer Price Index rose at a 9.6-percent annual rate, compared with 7.4 percent for the index as a whole. Such cost increases helped to drive up employer financing of group health insurance, from $51.3 billion in 1979 to $96.9 billion in 1984.4
Cost containment measures took many forms. Quite noticeable were actions that increased the worker's share of health care costs. For example, a number of the plans were redesigned to eliminate basic coverage for certain types of care and transfer payment arrangements entirely under a major medical plan. (See table 1.) Basic plans, applying to an individual category of care--hospital, surgical, or medical --typically provide "first-dollar' coverage; that is, an insured individual is not required to make an initial payment for care.
Conversely, major medical plans--which cover several categories of expenses--eliminate "first-dollar' coverage and require cost-sharing by the employee through deductibles and coinsurance provisions. A deductible is a specified amount an insured individual must pay toward health care expenses before any benefits are provided by the plan. Slightly more than one-fifth of the plans increased the size of the deductible in existing major medical insurance policies between 1979 and 1984. Expenses in excess of the deductible are shared by the individual and the insurance plan on the basis of a specified coinsurance rate; plans typically pay 80 percent of covered charges, while the insured pays the remaining 20 percent.
Some employers also modified their approach to funding benefits. They substituted, either completely or partially, self-funding for the purchase of a health insurance policy from a commercial insurance company, such as Aetna, or an association of hospitals or physicians (Blue Cross-Blue Shield). …