2010 Hospital Benefit Plans and Strategies Report

2

INTRODUCTIONIntroduction For purposes of clarification, in this booklet we will refer to health-

care (as one word) when discussing the term in relation to the

industry and utilize the term health care (as two words) in refer-

ence to the type of coverage.

We have moved into new territory. The Patient Protection and

Affordable Care Act is now law, and much of the regulation

addresses reform of the healthcare system. These new regula-

tions will impact your employee medical benefit plans and your

business. Gallagher Healthcare Practice Group has extensive

information discussing the impact of reform on your organiza-

tion, and we would be happy to share this information with you.

However, this report, while containing information about strategic

program initiatives that may also be of use to your organization

as the health system reforms, is focused on helping you as an

employer manage the conflicting interests of your employees

and your organization’s fiscal health as it relates to your medical

benefits program.

We initiated this project on behalf of hospital and health system

plan sponsors to better understand current benefit and opera-

tional strategies as well as future plans. This is the second year of

our analysis so we can look at current medical program compo-

nents as well as benefit trends since last year.

MethodologyData was compiled from 142 client benefit plans of Gallagher

Benefit Services (GBS) and UMR in April 2010. This represents

a 14.5 percent increase over 2009 when 124 plans were

reviewed. In addition 62 supplemental survey responses were

received, representing an increase of 19 percent over the 42

responses received in 2009.

The survey was conducted on an organizational basis, with

only one recipient per hospital, and data was reviewed for

validity and completeness of response. When respondents

chose not to answer a question or indicated the question was

“not applicable,” the base size used was that which applied to

the specific question. When the accuracy, completeness or

validity of the data was in question, it was not used.

When an employer offered more than one medical or pharmacy

program option, the prevalent plan (plan with the highest enroll-

ment) was selected for inclusion in the data set.

Plan options that include a higher level of benefits for employees

who use domestic facilities and/or providers are noted as such.

In this report...

In this report .....................................................................2

Methodology ....................................................................2

The participants ................................................................3

The respondents ..............................................................3

Key findings .....................................................................4

Managing costs with plan design ...................................5

Managing costs with techniques unique to healthcare

providers ..........................................................................7

Population health risk management ................................9

Making better decisions ...................................................9

A closer look at plan design ..........................................10

About Gallagher Benefit Services, Inc. .........................12

About UMR ....................................................................12

3

15.5% 27.5%

47.2%

9.9%

There are 142 hospitals in 35 states and the D.C. participating in the dataset.

The participantsThe plan design analysis represents benefit plan

data from 142 hospitals and health systems across

the country. Thirty-five states and the District of

Columbia are represented, up from 31 last year. The

biggest concentration of participants continues to

be from Texas, with Wisconsin, North Carolina, New

Jersey, California, and Georgia representing the

largest next five. This year 67 hospitals are located

in the South, 39 in the Midwest, 14 in the Northeast

and 22 in the West.

The average group size in 2010 was 2,117

employees, up four percent from 2009, and the

average number of plans offered was exactly 3 (it

was 2.88 in 2009). Once again 75 percent of the

plans renewed in the first quarter of the year, so

their data represents 2010 plan design. The other

participants renewed later in the year, so their data

reflects 2009 plan design.

11.3% 43.5%

33.9%

11.3%

The respondentsSupplemental survey responses were received from 62 hospi-

tals across the country, with the largest concentration from the

Midwest and South. Over half operate a single acute care

hospital, and four of the respondents operate 10 or more facili-

ties. Academic facilities represent just over 20 percent of the

respondents.

One-third of the 2010 respondents employed 1000 or less

employees, 45 percent employed between 1000 and 5000

employees, with the remaining 21 percent employing over 5000

employees. Eighty-seven percent of respondents employed

primary care physicians and 77 percent employed specialists,

up from less than 70 percent last year. Twenty-seven percent of

the respondents have union employees, about the same as

last year.

There are 62 hospitals in 25 states responding to the survey.

4

CO

ST

S

KE

Y F

IND

ING

S

0%

10%

20%

30%

40%

50%

60%

70%

80%

AggregateSpecific

Stop Loss

Yes

No

Key findings • Healthcare employers increased employee

cost sharing in 2010, using significant plan

design changes rather than premium

contribution increases to do so. Prevalent

plan individual deductibles were up as much

as 36 percent over last year, and family

deductibles were up 33 percent, but only for

non-domestic providers. Contribution

amounts did not seem to shift significantly, so

the healthcare employers chose to increase

cost sharing from those who used the plan

more and did not use domestic facilities,

rather than from everyone across the board.

• New this year were questions on the use of

stop-loss insurance against the risk of budget-

busting catastrophic claims. We found that

nearly 80% of the respondents use this

financial risk management tool, although not

all cover domestic claims under the insurance

contract and many set their own domestic

claim reimbursement schedules lower than

their commercial contracts, both of which

serve to lower the premium cost.

• While benefits for preventive services have become richer

and more comprehensive (a good thing), a disconcerting

trend from last year continues: less than half of the

respondents are offering Health Risk Appraisals or Health

and Wellness Incentives to their employees. This

indicates that many healthcare facilities are still providing

sick care insurance for their employee medical benefit

programs and not a longer term focused health and

wellness approach. Interestingly, this is a common

complaint among those who championed reform about

the system overall.

• Those organizations that use domestic staff to deliver

aspects of existing health, wellness and chronic disease

management programs are still in the minority. As the

Center for Medicare and Medicaid Studies continues to

push healthcare reform toward integrated delivery with a

health and wellness focus, more healthcare organizations

may realize the wisdom of using the medical benefit plan

program as a platform to gain competencies for the future

(not to mention medical program cost-containment).

• Use of online benefit enrollment seems to be on the rise

among healthcare employers.

-10%-5%0%5%

10%15%20%25%30%35%40%

Ind OOPFam OOPInd DeductFam Deduct

Percent change from 2009

Domestic

Out

In

5

CO

ST

S

0%

15%

30%

45%

60%

<60%60-69%70-79%80-89%>90%

Employer Contribution

Single

Family

NO76%

YES24%

Offer CDH

Managing costs with plan design Multi-tiered benefit plans Once again open access PPO plans are the plan of

choice for most hospital facilities and employees.

PPO plans were the prevalent plan for 83 percent of

the participant organizations, the same as last year.

Within these plans, the network plan design features

an average individual deductible of $758 and a

family deductible of $1841. The employees’ coin-

surance obligation average 21 percent, up from last

year’s 19 percent. Once again three-quarters of the

respondents pay for between 70 and 90 percent of

the cost of coverage for employees in the prevalent

plan. Fifty-nine percent of the participants this year

offer employees more comprehensive benefits if

they use domestic facilities or providers, up from 51

percent last year. On average, for the domestic

plan, the individual deductible is reduced to $323

and the family deductible is reduced to $1001,

about the same as last year’s averages. The

employees’ coinsurance obligation under the

domestic plan averaged four percent, again about

the same as last year. While the domestic program’s

deductible and coinsurance features are about the

same as they were last year, the domestic option

must seem even more attractive to employees since

deductible and coinsurance obligations have

increased for nondomestic services.

Consumer-driven health plans Once again healthcare respondents who offer high-deductible,

consumer-driven health plans are in the minority (24 percent

this year as compared to 29 percent of last year’s respondents)

and they offer these plans as an option to more traditional

programs. Of those 15 respondents offering consumer-driven

plans, four also include an employer-funded Health Reimburse-

ment Account, and 6 offer Health Savings Account access.

When a respondent contributed employer funds to the HRA or

HSA, the most common amount was between $250 and $500

for single coverage and between $500 and $1000 for family

coverage, the same as last year.

5%

10%

15%

20%

25%

30%

35%

40%

45%

HDHP w/HRAHDHP w/HSAHDHP only

If so, do you offer a cash account?

6

Incentives Forty-seven percent of responding hospitals (about the same

as last year) use incentives within their benefit structure to

encourage healthy behavior and participation in health

management programs. Of these, 58 percent use premium

contribution reductions (about the same as last year) and two-

thirds offer assistance in meeting deductibles (about double

last year’s results).

There can be any number of criteria that must be met in order

for employees to receive the incentives. Almost all (93 percent)

who offer incentives do so if the employee completes a health

risk appraisal, this is up from about 50 percent last year. In addi-

tion, three-quarters of respondents specifically indicated a

requirement of having a biometric screening in conjunction with

the Health Risk Appraisal. Other criteria included participation

in specific health and wellness activities (seventy percent of

respondents who offer incentives this year as compared to 48

percent last year), participation in disease management

programs (over 50 percent this year as opposed to about 40

percent last year), or being tobacco free (also over 50 percent

this year as opposed to about 40 percent last year).

NO53%

YES47%

Offer Incentives?

0% 20% 40% 60% 80% 100%

Non-smoker

DM participation

HW participation

Biometric Results

HRA participation

Incentive Criteria

0% 16% 32% 48% 64% 80%

Other

Premium reduction

Deductible assistance

Incentives

7

0% 9% 18% 27% 36% 45% 54% 63% 72% 81% 90%

% of billed charges

DRG

Per diem

ASC case rate

% of Medicare

Other

Facility Domestic Reimbursement Methodology

Managing costs with techniques unique to healthcare providersDomestic reimbursement methodologies This year about 57 percent of our respondents indi-

cated that they set their own domestic facility

reimbursement rates rather than running claims

through existing provider network contracts, up

from 49 percent last year. This approach gives

hospitals additional control over the cost of the

employee medical plan, eliminates fluctuation in

revenue from employees when carrier changes are

made and, when reimbursement is set at a rate

lower than typical payment contracts, results in

lower out-of-pocket expenses for employees. In

addition, the facility that uses a reimbursement

schedule which is less than existing contracts can

also have a positive impact on the cost of any stop-

loss insurance purchased for the program. Once

again, the majority of hospitals that set their own

domestic facility rates did so on a simple percent of

billed charges basis. The percentage used,

however, varies greatly. Nearly a quarter of our

respondents use a percentage equal to or greater

than 90 percent of billed charges, while over a third

(37 percent) use between 50 and 70 percent of

billed charges. Sixty percent of the respondents

indicate that their methodology includes some

margin for profit while the other 40 percent are

offering services at cost to their employees.

About a third of respondents set their own domestic

professional reimbursement as well, up from about

20 percent last year. Again the most common meth-

odology was to use a percent of billed charges

(used by half of those who set their own profes-

sional reimbursement methodology); however,

billing as a percentage of Medicare (25 percent) or

using a combination of approaches (17 percent)

were also used. One respondent used the RBRVS

schedule.

0% 6% 12% 18% 24% 30% 36% 42% 48% 54% 60%

% of billed charges

RBRVS fee schedule

% of Medicare

Professional Domestic Reimbursement Methodology

0%

5%

10%

15%

20%

25%

>40%40-49%50-59%60-69%70-79%80-89%>90%

Average Domestic Reimbursement

8

Po

pu

lati

onPharmacy

Once again more than half of all respondents indicate that they

provide incentives for their employees to use owned or in-house

pharmacies (57 percent, up from 53 percent last year). Using a

PBM negotiated contract to set prescription drug prices remains

the most common pricing strategy for these domestic pharma-

cies, but one in five of the respondents has used more

aggressive GPO or Medicare 340B pricing contracts to which

they have access.

Managed careThis year, 42 percent of the

respondents indicate that

they are using domestic

staff as part of the delivery of

health and wellness

programs. This is an

increase from 34 percent

last year. At these organiza-

tions, domestic personnel are most likely to be involved with the

wellness program (74 percent), smoking cessation program

(64 percent), or an employee assistance program for behavioral

health issues (50 percent).

On-site clinicsUse of on-site clinics by health systems

and hospitals remains low. This year

33 percent of respondents indicate

that they are using an on-site clinic (up

from 29 percent last year). Once again

the majority of those who have on-site

clinics requires employees to pay

something for their use and about sixty

percent of the respondents allow

dependents to also use the clinic. As

was the case last year, only half of the respondents generate

claims and track clinical activity and cost at the clinic. Over 80

percent of the respondents indicate that there is a registered

nurse on staff at the clinic while three-quarters report physicians

or LPNs on staff and half use physician’s assistants.

Financial risk managementNew to our report this year is information on the use of stop-loss

insurance contracts in self-funded medical plans. Seventy-nine

percent of the respondents purchase individual stop-loss

coverage to protect them against the effects of a single cata-

strophic claim. Of those who purchase stop-loss insurance 57

percent use an attachment point equal to or greater than

$250,000 and 70 percent also cover domestic claims under the

policy. When domestic claims are covered, a little more than

half cover the claims at 100 percent, while the others receive

less than 100 percent reimbursement for domestically gener-

ated catastrophic claims. Three-quarters of individual stop-loss

coverage include medical and prescription drug expenses.

Only 23 percent of respondents also purchase aggregate stop

loss coverage.

0% 7% 14% 21% 28% 35% 42% 49% 56% 63% 70%

PBM contract schedule

340B

GPO

Acquisition Plus

Other

Pharmacy Pricing Strategies

NO21%

YES79%

Do you purchase individual stop loss coverage?

NO77%

YES23%

Do you purchase aggregate stop loss coverage?

NO67.2%

YES32.8%

Do you have an on-site clinic?

NO58.1%

YES41.9%

Are domestic clinicians/staff personnel involved in the delivery or management of any of your care management programs?

9

Po

pu

lati

on

Making better decisionsPlan sponsor data analysisEffective population health risk management requires capturing data about claims, biometric indicators, and self-

reported health status. A robust engine to analyze the data and create predictive models is essential for turning the

data into useful information and concrete action steps. This year’s respondents use engines from actuarial organiza-

tions like Medstat and Ingenix, from their claims administrator or, in the majority of cases, from their broker consultant.

In all cases it is important to make sure that the engine has been developed by a team that includes actuaries, clini-

cians and information technology experts.

Employee and dependent toolsThe respondents’ use of tools for their employees and their dependents remains quite similar to last year: about 90

percent have provider directory assistance; about 70 percent provide a library of health and wellness information,

about 60 percent provide employee self-service and about 15 percent make available provider quality information. The

one significant increase in use was for online enrollment, which increased from 49 percent of our respondents last

year, to over 60% this year.

Population health risk managementEmployers, including hospitals, are focusing more on

proactive health and wellness management. An effec-

tive approach will include a high level of preventive

service benefits, tools to help employees determine

what areas of health and wellness they need to focus

on individually, and chronic condition management.

Preventive careThis year half of our respondents indicate that they

cover routine in network preventive care at 100 percent,

up from just over 40 percent last year. Preventive visits

allow individuals face-to-face interactive dialog with

caregivers, and the blood work usually associated with

these visits can provide additional biometric data.

Health and wellness initiativesWhile quantitative biometric data has proven to be very

useful in identifying individual health and wellness

needs, studies at the University of Michigan Healthcare

Management Resource Center (Baunstein, Yi, Hirsch-

land, McDonald, Edington. Am. J. Health Behavior.

25(4):407-417, 2001) indicate that self-reported data is

even more useful. Unfortunately, less than half of our

respondents offer a formal health risk assessment tool

to their employees. Many do, however, offer general

support for some well-known health and wellness chal-

lenges: for the second year in a row over 80 percent of 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Depression

CAD

CHF

COPD

Asthma

Hypertension

Diabetes

Conditions targeted with disease management

2010

2009

respondents offer smoking cessation programs, over

half offer obesity reduction and about half offer well-

ness coaching services.

Disease managementChronic disease management programs were most

likely provided by a third party and, according to this

year’s respondents, use of these programs is up across

the board. Over 60 percent of respondents have

disease management programs targeted at diabetes,

hypertension, asthma, chronic obstructive pulmonary

disorder (COPD) and congestive heart failure (CHF).

Last year only one of these (diabetes) was targeted by

more than half of the respondents.

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A closer look at plan designPlan prevalenceOnce again 83 percent of the prevalent plans

were PPO plans. We defined a PPO plan as a

program where services can be obtained from

any license provider; where services obtained

from a specified group of providers, which

usually includes the domestic facility and

related providers, are covered at a higher

benefit level; and where there are no primary

care “gatekeepers.”

This year HMO plans were presented 6 percent

of prevalent plans, and POS plans comprised

11 percent of prevalent plans. Again there was

one indemnity program.

We defined an HMO program as one where

services must be obtained from a specified

group of providers, which usually includes the

domestic facility and related providers; and

where no benefit is payable for services outside

the network unless for true emergency treat-

ment. We defined a POS plan as one where

services can be obtained from any license

provider; where services obtained from a spec-

ified group of providers, which usually includes

the domestic facility and related providers, are

covered at a higher benefit level; and where

specialists within the specified group of

providers must be accessed through a primary

care physician who is also within the specified

group of providers.

PO

SH

MO

PP

O

Benefit Domestic In-Network Out-of-Network

Annual Deductible/Family $1,001 $1,841 $3,661

Annual Deductible/Individual $323 $758 $1,496

Annual Out-of-Pocket Limit/Individual $4,308 $6,335 $12,773

Annual Out-of-Pocket Limit/Family $1,866 $2,700 $5,582

Brand (Formulary/Preferred) ($) $33 $41 $41

Brand (Formulary/Preferred) (%) 23% 26% 28%

Brand (Non-Formulary/Non-Preferred) ($) $48 $65 $64

Brand (Non-Formulary/Non-Preferred) (%) 33% 39% 37%

Coinsurance 92% 79% 56%

Generic ($) $10 $12 $14

Generic (%) 12% 20% 26%

Lifetime Plan Maximum $2,028,571 $2,261,062 $2,165,179

Office Visit/Exam ($) $19 $24 $31

Office Visit/Exam (%) - 28% 42%

Benefit Domestic In-Network Out-of-Network

Annual Deductible/Family $267 $435 $1,710

Annual Deductible/Individual $150 $187 $830

Annual Out-of-Pocket Limit/Individual $3,417 $4,304 $9,150

Annual Out-of-Pocket Limit/Family $1,857 $2,354 $5,000

Brand (Formulary/Preferred) ($) $25 $37 $53

Brand (Formulary/Preferred) (%)

Brand (Non-Formulary/Non-Preferred) ($) $30 $64 $60

Brand (Non-Formulary/Non-Preferred) (%)

Coinsurance 96% 90% 60%

Generic ($) $5 $13 $40

Generic (%)

Lifetime Plan Maximum $1,833,333 $2,166,667 $2,625,000

Office Visit/Exam ($) $17 $22 $50

Office Visit/Exam (%) - 20% 36%

Benefit In-Network

Annual Deductible/Family $107

Annual Deductible/Individual $36

Annual Out-of-Pocket Limit/Individual $3,336

Annual Out-of-Pocket Limit/Family $1,583

Brand (Formulary/Preferred) ($) $36

Brand (Formulary/Preferred) (%)

Brand (Non-Formulary/Non-Preferred) ($) $57

Brand (Non-Formulary/Non-Preferred) (%)

Coinsurance 97%

Generic ($) $16

Generic (%)

Lifetime Plan Maximum $3,000,000

Office Visit/Exam ($) $28

Office Visit/Exam (%)

PO

SH

MO

PP

O

p\graphics\GBS\HospitalGroup/HG_EB_2010.indd

© 2010. No part of this document may be reproduced without permission.

About Gallagher Benefit Services, Inc. Arthur J. Gallagher & Co. (AJG) prides itself on being a national risk management and insurance

consulting leader in the highly specialized Healthcare employer industry. AJG continues to

differentiate itself with incomparable industry expertise, outstanding market leverage, and supe-

rior client service. As a division of AJG, Gallagher Benefit Services (GBS) focuses on all aspects

of compensation and benefit program strategies, analysis, products, and implementation. Since

Healthcare employers have unique requirements, we organized the Gallagher Healthcare Prac-

tice Group in 2003 to address the complexities and ever-changing issues inherent to the

Healthcare industry. Gallagher Healthcare personnel possess the experience and expertise

necessary to meet the unique challenges in this market.

Matt Warner

Area Vice President

Healthcare Practice Group

561.801.7011

matt_warner@ajg.com

About UMR UMR is the country’s largest third-party administrator of health benefits, providing customized

solutions, cost-effective networks and compassionate service for self-funded medical, dental,

vision and disability plans. Serving more than 425,000 hospital members, UMR offers flexibility,

scale and cost savings necessary to help hospitals design customized employee health plans

to meet their unique needs as both employer and health care provider. In addition, UMR offers

a variety of programs to help clients manage their benefit Plans and control costs, including care

management, pharmacy benefits administration, reinsurance products, claim recovery manage-

ment, claim repricing and provider data management services, and non-network claims

cost-containment.

Tony Anastasia

Vice President

Hospital Market

952.992.4731

tony.anastasia@umr.com