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Health Tracking

TRENDS

Workers And Their Health Plans: Free To Choose?

In the 1990s the word choice constituted an emotional rallying cry for both the political left and right. The right advocated "school choice" through vouchers and a "free-to-choose" libertarian economic philosophy. The left advocated "pro-choice" abortion policies. To both the left and the right, choice signified greater control over one’s life.

Today, "choice" plays an important role in the clashing ideologies of health care finance. Advocates of single-payer plans note that all Americans could choose any provider under a single-payer system. Alternatively, choice, as Alain Enthoven and others have described it, is the driving force under managed competition that steers the system toward desirable outcomes.¹ Consumers’ and employers’ choice of health plans, for example, should ensure that the plans provide an acceptable benefit package for a reasonable premium. In turn, health plans’ choice-of-provider panels should ensure that high-quality services are provided at reasonable prices.

"Choice of plans" and "choice of providers" are related concepts: Those who have a choice of health plans are more likely to have a plan option that offers a greater choice of providers. Although evidence indicates that there has not been much change recently in the proportion of employees who have a choice of health plans, it is clear that fewer have the opportunity to choose a conventional fee-for-service (FFS) plan where they are not limited in their choice of providers.²

The purpose of this paper is to further our understanding of the availability of health plan choice for employees. After reviewing previous research and providing information on the data set employed, we examine changes in the extent of health plan choice over the past decade and the choices available to workers in 2001.

Previous Research

 
Susan Marquis and Stephen Long, using data from 1993 and 1997 employer surveys, found that 43 percent of workers nationwide had a choice of two or more plans in 1997, a slight decline from 45 percent in 1993.³ The main determinant of choice was firm size. Whereas only 12 percent of those in firms with fifty or fewer employees had a choice, this was true of 34 percent in firms with 50–499 employees, and 59 percent in larger firms. Other measures of choice showed large declines, however. There was almost a doubling over the four years in the percentage of employees with only health maintenance organization (HMO) options and a large reduction in those who were given a choice of both managed care and indemnity plans.

A more recent study by the Center for Studying Health System Change (HSC) examined choice in the context of the family rather than the individual.⁴ The study found that the percentage of families who have a choice of plans increased slightly between 1996–97 and 1998–99. Furthermore, choice varied across several dimensions. For example, 55 percent of families living in areas with fewer than 200,000 people had a choice of plans, compared with more than 65 percent in areas with one million or more persons. Firm size was again the major determinant, with rates more than twice as high in firms with fifty or more employees.

In a survey of four large urban markets, Ralph Ullman and colleagues reported that having a choice of health plans is a more important determinant of satisfaction than is having a greater choice of providers.⁵ Other researchers have replicated these findings. The 1994 Managed Care Survey sponsored by the Commonwealth Fund found that persons in managed care plans who did not have a conventional FFS choice were less satisfied than were their counterparts who had the FFS option. Satisfaction levels were not confined to the plan, however. Those without choice also showed more dissatisfaction with their overall physician care.⁶ Nor were these patterns temporary. A similar survey sponsored in 1997 by the Henry J. Kaiser Family Foundation and Commonwealth reached similar conclusions.⁷

A study conducted in 1997, designed by researchers at the Kaiser Family Foundation and Harvard University, also found choice of plans to be a key determinant of health plan satisfaction.⁸ Atul Gawande and colleagues reported that almost 40 percent of those not given a choice gave their plan an average-to-failing grade—nearly double the proportion of those who chose their plan.⁹ Lack of plan choice had a much greater negative impact on satisfaction for those in HMOs than for those in point-of-service (POS) plans, preferred provider organizations (PPOs), and FFS plans. This is most likely because even those with a single choice of a POS, PPO, or FFS plan do have varying degrees of provider choice—which is less true in HMOs.

Finally, Barbara Schone and Philip Cooper, using data from the 1996 Medicare Expenditure Panel Survey (MEPS), examined whether workers had a choice of plans either through their own job or through their spouse’s.¹⁰ Viewed this way, 55 percent of workers had a choice of two or more health plans from any source; 27 percent had access to a single plan; and 18 percent had no access to employer coverage. Their multivariate results indicate that those with a choice of plans had slightly higher insurance take-up rates, had slightly higher satisfaction that their family’s health care needs were met, and were much more likely to be enrolled in an HMO.

Data Sources

Top Previous Research Data Sources Study Findings Discussion NOTES

 
The primary data set used in this study is a 2001 survey of employers conducted by the Kaiser Family Foundation and the Health Research and Educational Trust (Kaiser/HRET). Surveys in 1988, 1996, and 1999 enabled us to examine trends. These data are not only the most recently available on this topic, but they have the advantage of constituting a consistent time series of thirteen years.

The Health Insurance Association of America (HIAA) conducted the 1988 survey, and KPMG Peat Marwick conducted the 1996 survey. The 1999 and 2001 Kaiser/HRET surveys are a continuation of those done in previous years by KPMG, and the 1988 survey formed the basis of the latter surveys.¹¹ Many of the questions in the HIAA, KPMG, and Kaiser/HRET surveys are identical, as is the sample design. However, it should be noted that POS plans did not exist in 1988.

The sampling frame for these surveys was Dun and Bradstreet’s list of public and private firms with three or more employees. We stratified the sample by firm size and industry. Because firm size is perhaps the most critical determinant of health plan choice, we present some of the findings by firm size. The number of firms in the 2001 sample was 1,907, and the response rate, 50 percent.¹²

National Research LLP, a Washington-based survey firm, conducted interviews by telephone with the person "most knowledgeable about health benefits in your firm." Respondents were asked questions about their largest FFS, HMO, PPO, and POS plans.

An important limitation of our data is that our unit of observation is the firm, not the establishment. Firm-based statistics may overstate the amount of choice employees in individual establishments have, particularly with regard to the availability of HMO coverage. Because states license HMOs, different HMOs are licensed in different states. A firm may offer twenty HMOs, each in a different state. A second limitation is that the survey contains no information about the carriers with which the employer contracts. Hypothetically, an employer may contract with Aetna, which offers an HMO, POS, and PPO plan to the employer. The Kaiser/HRET survey regards the employees as able to choose among three plans. If one carrier offers all three plans, many employees may regard themselves as locked into one carrier and thus believe that they are offered just one plan.

Study Findings

Top Previous Research Data Sources Study Findings Discussion NOTES

 
Changes in health plan choice, 1988–2001. We concentrate here on three measures of choice: having a choice of two or more health plans; having access to one or more FFS or PPO plans; and having only one or more HMO choices available. The first measure provides an overall picture of choice; that is, whether the employer offers more than a single plan. The second measure looks not at plan choice per se but at employees’ access to FFS or PPO coverage—even when the employer offers a single plan. It keys in on those who have access to the types of plans that provide the most flexibility in choosing a provider. We chose to group PPO plans with conventional plans, rather than with POS plans and HMOs, because (1) they do not require that enrollees go through primary care gatekeepers to access specialist services, and (2) there are fewer financial ramifications in choosing a nonnetwork provider. Employees can be classified in this category irrespective of whether their employer offers two or more plan choices.

The final measure, like the second, focuses on the flexibility of provider arrangements. It shows how many employees can choose only from plans with limited freedom of provider choice—that is, their employer either offers a single HMO or offers a choice of only HMO plans. In both instances, enrollees cannot receive reimbursement for services obtained outside the plan’s provider network.

Fluctuating pattern. Overall, health plan choice has fluctuated since 1988. In that year 53 percent of employees were offered two or more health plans. This rose to 65–67 percent in 1996–1999 but fell to 60 percent in 2001 (Exhibit 1). Although the 1999–2001 reduction was not statistically significant, the change that occurred between 1996 and 2001 was. The second measure of choice shows a more consistent pattern, however. In 1988, 99 percent of employees were offered a conventional or PPO plan, but since 1996 this has steadied at 77–81 percent. Finally, as shown in the exhibit, few U.S. employees have only HMO choices available.

View larger version (23K): [in this window] [in a new window]   EXHIBIT 1 Health Plan Choice And Availability, Among U.S. Employers, Selected Years 1988–2001

View larger version (22K): [in this window] [in a new window]   EXHIBIT 2 Health Plan Choice And Availability For Employees In Firms With 3–24 Workers, Selected Years 1988–2001

Top Previous Research Data Sources Study Findings Discussion NOTES

Future trends in choice are unusually difficult to predict. Double-digit premium inflation has returned, and health plans are dismantling much of their cost-containment apparatus. Employers’ likely immediate response will be to increase monthly contributions for premiums, deductibles and copayments.¹³ One could imagine in the next two years that employers might have a renewed interest in cost containment with a resulting resurgence of tightly managed care, although this might be difficult if Congress passes a strong patients’ rights bill. Another possibility is that firms will move toward defined-contribution health plans, where workers who want more benefits and flexibility will have to pay for these extras themselves. Thus far, however, there has been more talk than action in this regard. A big unknown is whether firms will feel more confident in making such large-scale changes in their health benefits if the labor market continues to deteriorate.

Choice, an emotional rallying cry for both the political left and right, is likely to be determined in the future, as it has in the past, by employers’ strategies for containing costs. Whatever that strategy, employees in small firms will have far fewer choices than will workers in large firms—unless legislation alters the way small employers buy their health insurance. But that is a subject for another day.

Editor's Notes

 
Thomas Rice is professor of health services at the University of California, Los Angeles, School of Public Health. Jon Gabel is vice-president of health systems studies at the Health Research and Educational Trust (HRET) in Washington, D.C. Larry Levitt directs the Changing Health Care Marketplace Project for the Henry J. Kaiser Family Foundation in Menlo Park, California. Samantha Hawkins is senior research assistant at the HRET.

This research was supported by the Henry J. Kaiser Family Foundation. The authors thank Jeremy Pick-reign of HRET for his statistical consulting. All conclusions are the authors’ own and do not reflect those of the Kaiser Foundation or its staff, the HRET, or the University of California.

NOTES

Top Previous Research Data Sources Study Findings Discussion NOTES

 

1. In fact, Enthoven’s original proposal was called the "Consumer-Choice Health Plan." See A. Enthoven, "Consumer-Choice Health Pan," New England Journal of Medicine (23 and 30 March 1978):650–658 and 709–720.
2. G.A. Jensen et. al., "The New Dominance of Managed Care: Insurance Trends in the 1990s," Health Affairs (Jan/Feb 1997): 125–136.
3. M.S. Mariquis and S.H. Long, "Trends in Managed Care and Managed Competition, 1993–1997," Health Affairs (Nov/Dec 1999): 75–88.
4. S. Trude, Who Has a Choice of Health Plans? Issue Brief no. 27 (Washington: Center for Studying Health System Change, February 2000).
5. R. Ullman et al., "Satisfaction and Choice: A view from the Plans," Health Affairs (May/June 1997): 209–217.
6. K. Davis et al., "Choice Matters: Enrollees’ Views of Their Health Plans," Health Affairs (Summer 1995): 99–112.
7. K. Davis and C. Schoen, Managed Care, Choice, and Patient Satisfaction (New York: Commonwealth Fund, August 1997).
8. A.A. Gawande et al., "Does Dissatisfaction with Health Plans Stem from Having No Choices?" Health Affairs (Sep/Oct 1998): 184–194.
9. Ibid., 189.
10. B.S. Schone and P.F. Cooper, "Assessing the Impact of Health Plan Choice," Health Affairs (Jan/Feb 2001): 267–275.
11. In 1998 KPMG Peat Marwick divested itself of its compensation and benefits practice and donated its annual survey of health benefits to the HRET.
12. For more details on the 2001 survey, see J. Gabel et al., "Job-Based Health Insurance in 2001: Inflation Hits Double Digits, Managed Care Retreats, "Health Affairs (Sep/Oct 2001): 180–186.
13. B. Strunk, P. Ginsburg, and J. Gabel, "Tracking Health Care Cost," 26 September 2001, <www.healthaffairs.org>

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