Large Employers Reducing Number of Health Plan Contracts, Offering Employees Fewer Options

In a "narrowing trend," large employers are beginning to "sharply reduce their rosters" of HMOs and other managed care insurers, forcing employees to drop their health plans and to select different ones, the New York Times reports. According to health care economists, large employers are attempting to limit the number of large contracts, "forc[ing] the managed care companies to hold down their charges." By reducing the number of plans, employers can save money and "tighten control over the quality of care," the Times reports. The "widespread" change comes after years during which companies increased the number of medical options available. Because of the "managed care backlash," employers "backed away from the tougher forms of managed care," Jim Maxwell, health policy director at the JSI Research and Training Institute, said. But now employers are facing rising health costs and a weak economy, and their "only way" to control costs is to "negotiate more aggressively with the carriers," Maxwell said. Employers said that using many insurance plans, each with a relatively small number of employees enrolled, limited their power to negotiate better rates with the insurers. In addition, the Times reports that the recent economic downturn has forced employers to downsize their benefits departments, "leaving fewer workers to deal with health care insurers." Larry Boress, executive director of the Chicago Business Group on Health, said, "There is a greater push to [reduce plans] this year because the rates are up and the benefit department has been downsized along with the rest of the firm." In five years, 93% of Fortune 500 companies have reduced the number of health insurance options they offer. None have increased their options. In the past two years alone, Sears, Roebuck and Co. dropped 120 HMOs, retaining 65; American Express dropped 164 health plans, keeping 48; and Xerox dropped 92 of 222 health plans.

New Strategy?
Alain Enthoven, professor of management at Stanford University and an expert on managed care, says employers are "going in exactly the wrong direction," adding, "With fewer choices, doctors and hospitals will be under less pressure to compete by lowering prices." And consumer advocates say that the cutbacks are "part of a strategy to shift" more health costs to employees gradually. "Businesses have found that they don't have a magic bullet to reduce their own costs," Families USA Executive Director Ron Pollack said, adding, "Their strategy is going to be to shift those costs and the burdens, and push people into more restrictive health plans" (Freudenheim, New York Times, 11/9).