Health Insurance Managed Care Can Cost More

Managed-care health plans can produce major savings for employers, but some actually cost more than traditional plans, concludes a recent nationwide survey. The survey of 2,409 employers, conducted by A. Foster Higgins & Co., a New York-based benefits consulting firm, found that employers last year spent an average of $3,573 per employee for traditional indemnity, or fee-for-service, health plans. In contrast, the per-employee average cost for health maintenance organizations (HMOs) was $13,046, or 14.7 percent less. And the average cost for preferred provider organizations (PPOs) was $3,355 per employee, or 7.9 percent lower than traditional plans. The averages combine the cost of both individual and family health plans.

"For many employers, managed-care plans offer the best chance to control costs over time," says John Erb, one of the study's authors. "However, the survey underscores that all managed-care programs are not alike, and not all programs save employers money."

In Los Angeles and San Francisco, benefit-rich PPOs actually cost far more than traditional plans. (See the chart above.) Among 12 cities highlighted by the survey, PPOs also cost more than traditional plans in Cleveland, Houston, Minneapolis/St Paul, Richmond, and Seattle. But PPOs in Chicago, Dallas/Fort Worth, and Philadelphia had significantly lower costs than traditional plans. The survey also found that HMOs now cover only 23 percent of employees, and PPOs cover only 17 percent.

"Considering that managed care has been strongly promoted for 10 years, these numbers are low," says Erb. "It partly reflects the mixed cost management results employers have experienced, and the fact that it takes time to move employees into a managed-care environment."

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