MCOL Blog

Benefits Cycle

Mercer, the national human resources and benefits consulting firm, in their annual employer health plan sponsor survey findings, recently projected that the average total cost to renew health plans for 2008 with no changes would yield a 9% increase, but actual increases for 2008 are projected at 6.7% dues to changing plans, adding lower-cost options or by altering benefit design. (see “After a three-year lull, health benefit cost growth picks up a little speed in 2008”, Mercer Press Release, September 5 2007,
http://www.mercer.com/pressrelease/details.jhtml/dynamic/idContent/1279545

Thus what health plan premium rate an employer winds up with from year to year is a result of negotiations and changes in the plan design.

Earlier this month, The Wall Street Journal ran an article by M.P. McQueen, “New Health Plans Tout Predictable Premiums” (see Wall Street Jouranl, October 9, 2007; Page D3; http://online.wsj.com/article/SB119188282779652669.html - subscription required)

The article cites an example of Guardian Life offering muti-year premium rate contracts and guarantees, that build-in the ability for Guardian to alter cost-sharing provisions if actual costs for the group exceed specified thresholds. The article also cites multi-year rates from Humana, based upon other requirements.

Multi-year rate guarantees are a sign that premium rate competition may be heightening, which is of course is addressed in the concept of the Underwriting, or Premium Rate pricing cycle.

The pricing cycle phenomena has existed for more than four decades. Under the cycle, during profitable periods for health plans, the plans desire to expand or protect market share and intensify price competition. Competing plans keep pace, triggering mini price-wars and multi-year contracts. Depressed pricing in turn triggers unprofitability, which ultimately escalates to the point where market leaders accelerate their price increases. Other plans follow suit, and soon escalating industry wide increases bring the sector back to profitability and the cycle begings anew.

They cycle has softened during this decade, as plans have grown less competitive due to product and market consolidation, and changes in plan behavior. This softening of competitive behavior, combined with the advent of consumerism and cost sharing, brings us to the concept of a benefits cycle.

Under a benefits cycle, benefit coverage and cost sharing can fluctuate based on plan competition for consumer enrollment during profitable and unprofitable points in the cycle. Guardian Life’s strategy would seem a step in that direction.

Earlier this week, the Convenient Care Mini-Summit was held during the National Consumer Driven Healthcare Summit in Washington, DC. The Mini-Summit was sponsored by the Convenient Care Association. Speakers included: Tine Hansen-Turton, Executive Director, Convenient Care Association; Mary Kate Scott, President, Scott and Company; Chris Kersey, MD, Chief Business Development Officer and Chief Medical Officer, RediClinic; Ann Ritter, Policy Director, Convenient Care Association; Sarah Ratner, Senior Legal Counsel, MinuteClinic; and Brian Jones, Chairman and Chief Executive Officer, MedBasics.

Here's some key tidbits on what's going on in the Convenient Care sector that the faculty shared during the Mini-Summit:

• The first Convenient Care clinic opened in 2000, today there are 500 clinics operated by over 20 companies, and there may be as much as 700 clinics by the end of the year
• New facilities getting smaller - many around 220 square feet in size
• Health Plan formulary compliance has not a significant issue due to limited scope of services
• 30-35% of clinic patients represent a new Rx to the sponsoring Rx retailers
• Minute clinic has experienced 1 million cumulative visits with no malpractice cases. The lack of malpractice claims is at least partially due to the limited scope of services provided in a Convenient Care setting
• The target demographic, based on studies: the most typical Convenient Care consumer is female, the healthcare decision maker in their household, and a mom.
• BCBS Minnesota for example in their claims for Convenient Care found that 63% of patients were female and 48% under age 21
• The two big challenges facing Convenient Care are state regulations and proving the financial model. Regulation of the industry is fragmented on a state-by-state basis, with some states proactively welcoming the industry, while a few have hostile regulations that often don't apply to other types of providers. Problem regulation states cited included NY, CA, PA, and KY.
• A clinic system might have 85% fixed costs, with 100+ clinics needed for breakeven in a standard retail model
• A Hospital sponsored financial model is very different than the standard retail model

For any stakeholder interesting in Convenient Care Delivery, if they aren't already a member, they should consider joining the Convenient Care Association. More information about the Association can be obtained at their web site: www.convenientcareassociation.org , or by calling 215-731-7140