Successful alternative health care plans today embrace two different delivery system philosophies:
managed care systems, such as preferred provider organizations (PPOs), point of service (POS), and health maintenance organizations (HMOs); or
Managed care systems can deliver the same benefits to employees as more traditional plans and in some cases may even offer benefit enhancements. At the same time, districts can realize significant savings, and the more control their managed care organization has over its providers, the higher the savings.
Another benefit is that some managed care plans can provide a district with its claims history. This is important in controlling costs and bidding for coverage from a variety of providers. The drawback to managed care is that it frequently offers less choice in health care providers. Employees understandably may not like having to change physicians or hospitals.
The dual-funded approach involves the use of a different funding mechanism for a more traditional approach to health care delivery, similar to existing programs. This approach actually creates a health care plan that is controlled by the district and its employees, allowing each district to control its own destiny. The dual-funded plan typically works as follows:
The district purchases a high-deductible, insured, comprehensive major medical program from a reputable health care benefit vendor, such as Blue Cross and Blue Shield of Michigan.
The district commits to self-funding part of the health care program's risk. This risk should have a reinsured safeguard for the district and its employees.
The district obtains third party administrator (TPA) services from a reputable company that can satisfactorily adjudicate claims in a timely and accurate manner. Customer service is a key element: The TPA should be able to provide information on both the insured and the self-funded parts of the plan. The TPA should also be able to provide the district's claims history in an appropriate format that maintains employee confidentiality.
Some districts have used this dual-funded approach for a number of years and reaped substantial savings. Dual-funded plans have also successfully delivered comparable benefits while maintaining the same provider networks for employees. When negotiating such plans, districts should use the bargaining process itself as the vehicle to decide all the benefit levels that will be delivered.
The savings realized under these plans are directly related to the claims used by a district's employees, and can therefore vary from district to district. Savings can also vary according to a district's geographical location and the rating and pricing methodology of a particular plan's products.
Most districts have also insured the self-funded portion of their plans with an umbrella protection policy which allows for budgeting based on an established cap for an annual period. Savings compared to MESSA have been anywhere from 6.4 percent to 28.4 percent for districts of all sizes.120 A district with
40 enrolled employees achieved total savings of 9.9 percent over two years.
100 enrolled employees achieved total savings of 13.4 percent over three years.
200 enrolled employees achieved total savings of 28.4 percent over three years.
500 enrolled employees achieved total savings of 6.4 percent over two years.
1,000 enrolled employees achieved total savings of 7.4 percent over three years.121
The amount of money saved varies based on the time the plan has been in effect and the number of enrolled participants in the group. In the examples above, the approximate savings range from a two-year cumulative savings of $50,000 to $357,000. For groups that have had three years of experience with their own plans, the approximate cumulative savings range is $217,000 to $1,558,000.
Dual-funded plans can also incorporate a managed care component that provides employees with the opportunity to gradually enter a managed care program without fear of sanction. This approach is referred to as a "passive" PPO. Districts using this "passive" approach to managed care dual-funded plans secure additional savings while maintaining current employee benefit levels.
School districts using either the traditional or managed care approach to a dual-funded delivery arrangement receive the benefit of their group's claims history. Having this data allows districts the flexibility to evaluate different health care options in the future. Without this data, school districts tend to be "handcuffed" to their current plans.