Health care: where do we go now?

• Position: Special Report: Health Care

What steps are companies taking to contain employee health care costs?

And what form of national health care will be most effective in providing coverage for all those who need it?

Financial Executive spoke with five financial executives to learn what solutions they have found to deal with rising health care costs in their companies and what they feel is necessary to make the U.S. health care system work. Four of the five serve on Financial Executives Institute's Committee on Employee Benefits.

A COMPLEX SOLUTION FOR A COMPLEX PROBLEM

Like most employers, Gillette is concerned with the continuing double-digit cost increases we are experiencing in our health care programs. While we have been instituting controls, such as pre-admission hospital certification, second opinions for certain surgical procedures, and concurrent case review, none of these has enabled us to bring the cost increases to an acceptable level.

Because the medical care delivery system is so complex, we find that controls initiated in one area, such as hospital admissions, create a bulge in the health care cost balloon in another area, such as outpatient costs. The complexity is further aggravated by the cost shifts within the system because of the uninsured and the government's limited Medicare reimbursements.

With all these issues, a second major problem has to be recognized because of the adoption of FAS 106. Many of our companies promised employees postretirement medical benefits at a time when there were few retirees. FAS 106 is forcing us to recognize these liabilities.

At Gillette, we will be relying more on managed care techniques to control costs. We have just completed a major analysis of our claims data using an outside consultant, and are now establishing managed care performance targets with our primary health benefit insurer. The analysis has also uncovered some flaws in our plan design which result in the use of more expensive facilities than is needed. Needless to say, we are correcting these defects. And when we have major cost concentrations, such as at several local hospitals, we will be negotiating some kind of discount structure.

One interesting thing that has come out of our analysis is the impact our extensive in-house medical facility has on our costs. We are finding that our employees have much better cost profiles than their dependents, who do not use the facility, so we are evaluating whether we should broaden the role of the in-house medical center to include dependents.

In the retiree medical area, we introduced an ESOP to replace the retiree medical benefit for all employees hired after july 1, 1990. Employees hired before that date will also begin paying a portion of their retiree medical costs. Both groups will have the ESOP accumulations to pay for retiree medical costs. In effect, we have substituted the defined-contribution ESOP for the open-ended retiree medical liabilities.

While most companies provide health insurance for their employees and may be tempted to resist programs to cover the uninsured, this view is shortsighted. We pay for the health care the uninsured receive through cost shifting or hidden premium taxes. An improved U.S. health care delivery system must address access and coverage for the uninsured. As an example, prenatal care for the uninsured might very well save the system significant catastrophic cost.

There are some obvious changes that should be made to the system, among which are malpractice reform and the preemption of state mandates through a national program. Some kind of system is needed to provide better balance between health care providers and health care purchasers. And the current tax treatment of health care benefits for employees is not as efficient as it should be.

Our administrative costs are much too high. Have you ever tried to sort out Medicare and employer-covered claims for a loved one? It is almost impossible. This question, of course, leads to consideration of the single-payer system.

As a society, we should also face the question of the major expenditures that occur in the months just before death. Are they all necessary, or even humane? The concept of living wills or health care proxies needs to be encouraged.

FEI's Committee on Employee Benefits is developing a discussion draft position on these and other national health care questions. It is no easy task. One recent speaker before our group finished with this axiom:

"The successful...