^A G.C5 ?AU-' C_ U (Jf^t • f * UMASS/AMHERST III[ll[l:illlll9IIU|B|U|l 312066 0374 5954 3 Commonwealth of Massachusetts MASSACHUSETTS SENATE The Honorable William M. Bulger President of the Senate SEP 2 M931 fOora CONTROLLING STATE EMPLOYEE HEALTH CARE COSTS (Senate 1610) A Report of the SENATE COMMITTEE ON POST AUDIT AND OVERSIGHT Sen. Thomas C. Norton, Chairman Sen.-W. Paul White, Vice-Chairman Sen. Linda J. Melconian Sen. Robert A. Havern Senator Robert D. Wetmore M Senator Christopher Lane Senator Matthew Amorello J. Prepared by the SENATE POST AUDIT AND OVERSIGHT BUREAU State House, Room 312 Boston, Massachusetts 02133 (617)722-1252 Richard X. Connors, Director Nancy J. Wagman, Assistant Director James L. Hearns, Senior Policy Analyst (Principal Researcher) Andrew J. Parker, Senior Fiscal Analyst Christina Boyd Zavell, Policy Analyst Steven H. O'Riordan, Policy Analyst Claudia Andrea Bennett, Administrative Assistant June 1991 ?*? /2.HO SENATE COMMITTEE ON POST AUDIT AND OVERSIGHT MA Room 312. State House Boston. 02133 Si n Thomas ( Norton Hl< HARD \ ( lONNORS ' Cliuirman Bureau Din i toi (617)722-1114 817 722-1252 Sen. \V. Pail \\ mite Vice-Chairman June 11, 1991 Members Sen. Linda Melconian J. Sk\. Robert A. Havern Sen. Robert D. Wetmore Sen. (Christopher M. Lane Sen. MatthewJ. Amorello Edward B. O'Neill Clerk of the Senate State House, Room 2 08 Boston, MA 02133 Dear Mr. O'Neill: Pursuant to M.G.L. Chapter 3, Section 63 as most recently amended by Chapter 557 of the Acts of 1986, the Senate Committee on Post Audit and Oversight respectfully submits to the full Senate the following report: "CONTROLLING STATE EMPLOYEE HEALTH CARE COSTS ." This report by the Senate Committee on Post Audit and Oversight presents a preliminary review of the cost and utilization of the health insurance program available to state employees, retirees, and their dependents and survivors as administered by the Massachusetts Group Insurance Commission. The review also evaluates several proposed changes in the financing of the plan and changes to the benefit package itself. Respectfully filed by the Senate Committe it and Oversight: Senator Thomas C. /Norton Chairman t-yOLlLsy^ nda J. Melconian Senator Robert A. Hlaavveejrnni iobert D. Wetmcirp jrtstopher M. Lane jy>i\ V* ** \ latthew Jv Amorello SENATE COMMITTEE ON POST AUDIT AND OVERSIGHT MA Room 312, State House Boston. 02133 Sen. Thomas C. Norton Richard X ( Ionnom Chairman Bureau Directot (617)722-1252 (617)722-1114 Sen. W Paul White . Vice-chairman Members Sen. Linda Melconian J. Sen. Robert A. Havern Sen. Robert D. Wetmore Sen. Christopher M. Lane Sen. Matthew Amorello J. EXECUTIVE SUMMARY This report by the Senate Committee on Post Audit and Oversight presents a preliminary review of the cost and utilization of the health insurance program available to state employees, retirees, and their dependents and survivors as administered by the Massachusetts Group Insurance Commission. The review also evaluates several proposed changes in the financing of the plan and changes to the benefit package itself. The primary recommendation of the Committee is that no change be made to the present method or percentage of health care premium cost-sharing until the Group Insurance Commission performs a careful analysis of the impacts of that change. Because the state health insurance plan forms a significant portion of the total compensation package offered to state workers, any change in the way the plan is financed or any change in the type of benefits offered through the plan merits careful analysis. Well-designed alternative delivery systems and cost management programs can make a state health insurance plan more cost-effective without potentially harmful and ultimately expensive cost-shifting. Significant findings of the report include: The cost of health insurance for state employees and retirees is growing faster than even the rate of general health care cost inflation. •In fiscal year 1985, providing health insurance for state employees and retirees cost $185 million. By fiscal year 1990, the Commonwealth's share had increased to $400 million. Enrollment is not evenly divided between the indemnity plan (the State Hancock Plan) and the health maintenance organizations (HMOs), and the indemnity plan has a noticeably older membership. •As of January 31, 1991, of the 252,126 total enrollees, 107,902 (43 percent) were enrolled in the State Hancock indemnity plan, 144,224 (57 percent) were enrolled in HMOs. •As of January 31, 1991, 26,532 people (97 percent) were covered by Medicare through the State Hancock Plan and 954 (3 percent) were covered by Medicare through an HMO. •The median age of the non-Medicare enrollees in the State Hancock Plan is 46 years, while the median age of the HMOs is 32 years. Less than two percent of the non-Medicare enrollees in the State Hancock Plan are "high cost users," experiencing general inpatient hospitalization or specialty care that costs $15,000 or more per case. •Just 910 non-Medicare patients accounted for 28 percent of all admissions and 58 percent of inpatient days of care, costing approximately $30 million. •Among the top high cost diagnoses were cardiac infarctions, cancer, and schizophrenia. The Governor and the House Committee on Ways and Means have presented proposals that recommend increases of between 250 and 500 percent in the amount state employees and retirees pay toward the cost of their health insurance. Both proposals, designed to address the cost and utilization of health care benefits, will dramatically affect an employee's or retiree's choice of health insurance, and will have serious financial impact on the employee or retiree and the Commonwealth. n A 1989 federal Health and Human Services study, performed by the National Center for Health Policy Research, indicates that a ten dollar per month premium increase induces 20 percent of individual enrollees and 10 percent of family enrollees to switch to a less expensive health plan. HMO HMO Although coverage costs less out-of-pocket for the enrollee, enrollment is actually more expensive to the state than the State Hancock Plan for an infrequent user of health care. Thus, by changing the employee share of the health care costs from 10 percent to 25 percent (State Hancock Plan family coverage would go up about $78 a month if employees were asked to pay 25 percent rather than 10 percent of their health care costs), the Commonwealth will inadvertently drive thousands of members of the State Hancock Plan to an HMO, potentially costing the state millions of dollars. Accordingly, the report makes the following primary recommendations: 1. Before making any change to the present method or percentage of health care premium cost sharing between the employee, retiree and the state, the Group Insurance Commission should further evaluate the various options for distributing the costs of health insurance between the plan members and the Commonwealth (equal percentage, equal dollar, and blended rate) and study the potential impact of any proposed policy change on plan cost, enrollment and utilization. 2. The Group Insurance Commission should develop an alternative system of financing and delivering health care for employees, retirees, and their dependents and survivors. 3. The John Hancock Mutual Life Insurance Company (the current administrator of the state indemnity plan) should be allowed to negotiate for discounts with health care providers who treat State Hancock Plan enrollees. 4. The Group Insurance Commission should, when economical and possible, enroll retired plan members in the Medicare program. 5. The Group Insurance Commission should make the medical case management program mandatory for all plan members enrolled in the State Hancock Plan. 6. The Group Insurance Commission should investigate the cost and utilization of state mandated benefits, the level of deductibles, coinsurance and copayments.and should review the benefit plan changes recommended by John Hancock for implementation in fiscal year 1992. in INTRODUCTION This report by the Senate Committee on Post Audit and Oversight reviews the changing cost of health insurance provided to state employees, their dependents and survivors and to state retirees. Specifically, the report reviews trends in the cost and utilization of health insurance provided by the John Hancock Mutual Life Insurance Company and by a variety of health maintenance organizations as administered by the Massachusetts Group Insurance Commission. The report also discusses initiatives taken by other states and by private industry to control the rising costs of health care, and makes recommendations about alternatives to the current system of health care delivery that the state should consider. The cost and quality of health insurance for state employees has become a critical concern as the legislature deals with the state's present fiscal crisis. The health insurance employee benefit is an important part of the compensation package provided to state employees, and is a significant factor in attracting and retaining talented employees. A primary, but not well considered, strategy presented to address the rising costs of health insurance involves increasing the state employee's and retiree's share of the health care premiums. However, before implementing any major change that, in effect, significantly decreases the employee's or retiree's compensation, it is essential to review the effectiveness and efficiency of the current health benefit system. Moreover, before the state implements any sort of policy that would change the amount enrollees contribute for their health care, it would be prudent for the state to carefully weigh the potential impact on enrollment that the change might bring about. This preliminary report reviews why this is so urgent and suggests ways to reduce the possibility of serious error. This report is divided into four sections. The first section describes the current health insurance system for state employees and retirees administered by the Group Insurance Commission in Massachusetts. The second section discusses health care cost inflation and its impact on the health insurance system. The third section identifies private sector initiatives to control health insurance costs. The fourth section makes recommendations as to how Massachusetts should change its current system in order to ensure that state workers and retirees are guaranteed adequate access to health care in a time of serious fiscal constraint. The data on health benefits for Massachusetts state employees and retirees come primarily from information submitted to the Massachusetts Group Insurance Commission by the John Hancock Mutual Life Insurance Company and the numerous health maintenance organizations. The data are unaudited and therefore preliminary. We also reviewed current literature on employee health benefits and interviewed individuals familiar with the area. SECTION ONE; THE MASSACHUSETTS STATE EMPLOYEE HEALTH INSURANCE PLAN PLAN DESCRIPTION As part of its total compensation package, the Commonwealth offers an employee insurance to cover a portion of the costs of that employee's health care. This health insurance coverage is also available to the dependents and survivors of state employees, and to retired employees. The Commonwealth also offers health insurance, for which the state receives full reimbursement, to certain municipal and county employees, employees of some public authorities, and to employees who are paid through federal contracts and grants. Massachusetts provides health insurance to its employees and retirees in a number of ways. The