The pros and cons of point-of-service plans

The point-of-service health care plan is a relatively new addition to the list of managed care options. Developed during the mid-1980s, it contains elements of the totally managed care provided by an HMO, plus some of the freedom of choice inherent in a PPO. Employers get a degree of cost control and utilization management. Employees get to choose their own doctors, within limits.

Though there is no central registry to indicate exactly how many POS plans exist, a 1991 study of 792 employers by Hewitt Associates, benefits consultants in Lincolnshire, Ill., showed that 7% had POS plans and another 10% planned to offer one in the future.

Also known as open-ended HMOs or managed care networks, POS plans have been touted by proponents as useful transitions from total indemnity plans to HMOs (i.e., as a good way to ease workers into managed care with minimal resistance). "We have found that once people use the network providers, they tend to stay in-network. So it's really more a matter of employees having the perception of choice," says John Erb, a benefits consultant with Foster Higgins in New York City.

Most POS plans haven't been around long enough to invite detailed analysis or generate in-depth studies. Nevertheless, industry consultants and benefits managers who have implemented such plans say that among the pluses are potential cost savings and a high level of employee satisfaction. The minuses include a need for significant ongoing employee education and difficulties with administration. Here are the main features of POS plans, plus advice to employers considering such plans for their own companies.

Freedom of choice

As managed care options have proliferated, the distinctions among them have begun to blur. Nevertheless, POS plan typically differ from HMOs and PPOs in several basic ways. One of the most important has to do with employee choice. In an HMO, employees use member doctors for their primary care. If specialty care is needed, a patient is referred by the "gatekeeper" physician to a specialist within the HMO.

In both cases, the out-of-pocket cost to the employee is minimal--usually a small copayment.

In a PPO, the employee is encouraged to choose from among a list of network physicians. Specialists are selected from either within or outside the network. If the employee stays within the network, his copayments and deductibles are small. If he goes outside the network, his rate of reimbursement decreases.

In a POS plan, the employee selects a primary care physician when he signs up. He may choose to work within the plan structure, using the plan specialists to whom that doctor refers him. At any point, however, he may also choose to go outside the network. If he uses the plan, he pays little, if anything. Copayments are small. Deductibles, if any, are limited. If he goes outside the network, there are deductibles and larger copayments.

Shared risk

For the employer looking to minimize health care costs by implementing managed care, the HMO would seem to be the clear first choice. HMOs are usually less costly than other managed care options, particularly when a company employs many workers who are starting or expanding families and are presumably heavy potential users of health care services.

However, in certain circumstances, HMOs may not be the least expensive option. If most HMO subscribers are relatively young and healthy, employers may pay HMO premiums that exceed the amounts they would have paid had their employees been covered in a traditional indemnity plan. "The adverse selection rule of thumb in considering an HMO is 'How much would I have paid for this employee in an indemnity plan?'" says Erb. "When enrollment in an HMO is over 50% of your employee group, you have a potentially high risk of adverse selection."

Even if HMOs are less costly, employees may object to the lack of choice they offer, thereby creating other problems for the employer.

In PPOs, doctors work for reduced fees, which should also logically lower costs to the employer. However, PPO network doctors usually assume no risk. Therefore, they have no stake in controlling either costs or utilization. Some may actually increase usage to offset their discounted fees. The result: not only can expected savings be wiped out, but employer costs can actually increase.

In the typical POS plan, doctors do assume a portion of the risk. Some receive lump-sum, or capitated, annual fees for the total care of each subscriber. Others work on a discounted fee-for-service basis, in which part of that fee (called a "withhold") is held pack and allocated to a pool for hospitalization and outside referrals. This pool covers expenses in excess of those anticipated in the budget. At the end of the year, if expenses have been within budget, the withholds are returned to the doctors.

Chubb and Son Inc., a diversified financial services firm with 8,000 employees, in Warren, N.J., put in a POS plan in 1989. The plan covers 3,000 employees so far. The Chubb plan is typical of most POS programs: When employees or dependents need medical care, they can visit their primary care gatekeeper physician for a $10 copayment. There is no annual deductible and they need not file a claim. If they choose to see a nonnetwork physician, they pay 30% of the physician's charges after satisfying an annual deductible of $200 for an individual or $500 per family.

Referral to specialists works the same way. If the patient is sent to a member specialist by his primary care physician, there is a copayment of $10. Otherwise, he pays 30% of the specialist's bill, once the initial deductible is satisfied.

Patients using a network pharmacy pay only $5 per prescription, while those who take their prescriptions to out-of-network pharmacies must pay 30% of the cost of each prescription, after satisfying a $50 deductible.

If plan participants require hospitalization and agree to go to member hospitals, the plan pays full costs. If an out-of-network doctor recommends hospitalization, or if an employee chooses to go to a hospital outside the plan, the employee must still obtain prior approval from the plan insurer. Even with approval, however, only 70% of that employee's hospital bill will be paid.

Donald B. Lawson, vice president of compensation and benefits, says Chubb has been so pleased with its POS plan that the company has expanded its use of the plan each year. It is now offered in 50 of its 65 locations. "As soon as networks of doctors are established in the remaining geographical areas in which we have employees, we'll use the plan there, too," he adds.

Lawson says implementing its POS plan has helped Chubb hold health care cost increases to a reasonable level. "The industrywide indemnity inflation rate is about 22% annually," he says. "But by reducing the number of HMOs we deal with from 56 to 18, by streamlining our indemnity coverage, and by adding the POS plan, we expect an increase of only 12.2% in 1992. In 1991, our cost per active employee was $2,623. This year, we expect it to be $2,924." He says.

Lawson adds that 80% of the employees covered by the POS plan stay within the network. "That indicates to us that people are happy with their doctors," he says.

Allied-Signal Corp., a diversified manufacturer of aerospace, automotive, and engineering materials, based in Morristown, N.J., has 72,000 covered lives in the United States. Some 50,000 of those are enrolled in the POS plan, which was launched in early 1988. (See B&H, "The king of convtroversy: Joe Duva.," April 1990.) Participants who use in-network doctgors pay $10 per office visit and $5 for prescription drugs. Out-of-network deductibles vary according to the employee's base salary. "We feel that an out-of-network deductible should be a function of an employee's ability to pay," says Gary Yeaw, director of group insurance for Allied-Signal. Employees who use a nonnetwork doctor pay 20% of their charges up to a stop-loss of 4% of their base annual salary.

Although Yeaw will not release exact cost savings figures, he notes that the POS plan is saving Allied-Signal 35% over its previous indemnity costs. Moreover, the level of employee satisfaction and usage remains high; 76% of employees covered by the POS plan use the in-network portion 95% of the time. Eighty-six percent of POS plan participants maintain that they're "very or somewhat satisfied" with their primary care physician and 91% say they've been pleased with the specialty care they've sought, Yeaw reports.

According to industry consultants savings in a POS are almost entirely related to the ability to keep employees using network providers. "About 10% of your people are responsible for 90% of your claims," says Kenneth Sperling, a consultant with Hewitt Associates, in Rowayton, Conn. "It's important to keep them in-network and to carefully manage their care and claims."

"About 75% of our employees stay in-network, and that's where our savings are," says Dan Bronson, vice president of human resources for the Racal Corp., an electronics manufacturer with headquarters in Sunrise, Fla. Of the company's 4,000 employees, 2,300 are enrolled in the POS plan. Bronson says that the company is currently conducting a survey on employee satisfaction and will release cost savings figures when the survey has been analyzed. However, Bronson notes that he anticipates positive results. "We've significantly reduced costs," he says.

Hard to launch and administer

Though savings eventually may come, implementation and administration of POS plans can be difficult. "Point-of-service plans are complicated and very difficult for employees to understand," says Erb of Foster Higgins. From concept through implementation, including time to educate employees properly, can take a small company three to six months. Putting in a POS plan as a large company can take as much as nine months to a year, he says.

Jacobs Engineering Group, a Pasadena, Calif., engineering and construction business with 12,500 employees (3,800 enrolled in its POS plan), had enormous difficulties at first. Bill Gebhardt, director of human resources, explains: "It was a matter of culture shock. The POS arrangement is a big change, and it took about a year for employees to adjust to it." Gebhardt says his company should have spent more time and money on employee educational materials, such as video presentations, during that year. "We did it all too fast," he says, in retrospect.

Administration is also a potential source of difficulty with POS plans. Since employees can use out-of-network providers, the claims process becomes more complicated. So does tracking usage, monitoring costs, and ensuring that employees and dependents receive quality care. "When a company puts in a PPO, it usually adds 2% to its administrative expenses. The administrative costs of a POS plan may be three times that much," says Sperling of Hewitt. In fact, he adds, it's not unusual for total first-year administrative costs to outweigh savings.

The amount of money it takes to run a POS plan depends on company size, but Sperling estimates that ongoing administrative costs increase by $96 to $120 per employee per year over the costs of any plan it replaces.

Overcoming obstacles

To overcome the potential drawbacks of a POS plan requires extensive planning, the experts agree. During the formative stages, "talk to a lot of other companies with POS plans," advises Chubb's Lawson, "and talk to one or more benefits consultants."

"Carefully check the references of any plan sponsor," cautions Erb of Foster Higgins. "Call companies that have used the sponsor and ask questions, such as 'Are you happy with the claim payment services? Is the sponsor administering the indemnity portion of the plan as well as your previous insurer did? Are claims being paid within 10 days? Are employees complaining about difficulties in dealing with the plan doctors or administrators?'" Most important, he emphasizes, ask other company executives what they would have done differently. "That will help you focus on the biggest potential problems," says Erb.

"Never buy based solely on a big name," advises Gebhardt of Jacobs Engineering. "Buy according to the sponsor's ability to provide services you need, where you need them."

If Chubb had its POS development to repeat, says Lawson, it would do more careful homework to assure that network providers were accessible to its employees. "I had to tell your employees that everyone can't expect to find a doctor two or three miles from their home, and we can't guarantee that their present doctor is on the list, but that they can expect a majority of the providers to be accessible," he says. (For more advice on how to select a POS plan provider, see "Evaluating point-of-service vendors," page 33.)

Employee education

To minimize employee confusion and resistance, education and open communication are critical. All employees should be involved in initial surveys, voluntary discussion groups, or interviews to establish their views and address their concerns.

Employees need to understand from the outset that cost savings are in everyone's interest and that the more they use the network care, the more predictable costs will be.

Employee education requires an ongoing commitment. Developing slide or video presentations and employee meetings is time-consuming and expensive but extremely important. "It's a continuing educational process," agrees Erb. "With people receiving care in and out of the health network, you need new material that continually reinforces employees' understanding of how the plan works."

To reduce the problems of implementing a POS plan if your company has offices in several locations, consider starting the plan at only one or two of them, at first. Or possibly phase in the POS plan in several offices at the same time. "That will permit time for assessment and modification," Lawson advises.

Looking ahead

Because of the inherent problems with out-of-network coverage, industry experts such as Sperling and Erb think POS plans won't last in their present form.

"As the number of POS plans increases, their discount component will become less important. Once everyone has a discount, no one has a discount. The network with heavy discounts but without a lot of controls will be caught short. The network that best controls its quality of care and its administrative procedures will be the most effective," he says.

Nancy Bell's last article for B&H was, "Seeing benefits in vision care," December 1991.

COPYRIGHT 1992 A Thomson Healthcare Company
COPYRIGHT 2004 Gale Group