Employers evaluate risk for self-insured vision programs

Employers that want to add vision to employee benefits as a self-insured item should know two basic facts--two-thirds of any workforce will eventually wear glasses or contact lenses and at least 55% of employees will use the benefit.

Vision plans are an employer's dream benefit--they are simple, noncatastrophic, and low-risk. Though vision plans tend to be low-cost, employers can cut costs further by using a vendor for the first year, when utilization is often highest. Employers can them switch to self-insurance status in the second or third year when typically use of vision services level off.

Allegheny Ludlum Corp., a Pittsburgh-based speciality steel company with 5,500 employees, did just that. The company has a safety eyewear vision program that is separate from its regular self-insured plan. Vision coverage for salaried employees had been suspended years ago, but vision benefits were always offered to workers who are paid an hourly rate.

Veronica McDonough, manager of employee benefits, says the company reinstated vision coverage for its salaried employees three years ago. "We predicted utilization by looking at what it had been for our hourly employees, then we added on to accommodate pentup demand and the higher utilization you get in the first year," she explains.

The company insured the new plan with a vendor for the first two years and then switched to self-insurance a year ago. McDonough says opting to insure in the first year made economic sense because first year usage was higher than the company anticipated.

"This year, we think we're going to break even," McDonough says, although she declines to estimate the company's cost to self-insure. However, over the long run, she says she expects self-insuring to be a less expensive option.

Through its vendor, Allegheny Ludlum paid $2.35 per single employee coverage and $7.14 for family coverage. Under its self-insured plan, the company still provides for an exam every two years (dependents under age 19 are eligible for a yearly eye exam), as well as lenses, frames, and contact lenses at a scheduled amount. If employees receive their benefits through the vendor's participating provider network, they can take advantage of negotiated discounts with providers. If employees go to out-of-network providers, they are still reimbursed the scheduled amount. And the company pays its vendor an administration fee.

"The biggest advantage to self-insuring is cost," McDonough says. "Vision is generally not that expensive a benefit. You can get an idea of what your maximum liability is going to be" based on your employees' demographics.

In 1983, Commonwealth Edison, a public utility in Chicago that employs more than 20,000 people, decided to self-insure from the outset rather than use a vendor. Employees pay no deductible, but they contribut $10 a year for single coverage or $25 for family coverage. The plan covers an eye exam and a pair of nondesigner frames and lenses. Illustrating that first year costs can be high, the utility says that last year 18,400 employees were eligible for vision benefits; of that number, 17,800 used the vision benefit.

To compensate for high first-year utilization, Brian Dolan, a benefits consultant at Hewitt Associates, Rowayton, Conn., say employers could choose to offer vision as a two-year election. Employees would then be eligible for an eye exam and glasses or contact lenses every two years, instead of annually, thus allowing employers to spread their risk. This strategy would also help to offset adverse selection.

Another strategy is to spread usage and tie coverage to medical or dental coverage, requiring, for example, that if employees choose family coverage for medical, they must do the same for vision. Employing that strategy and making vision an employee-paid benefits helps employers spread the risk and prevents the employee from choosing the benefit for only his dependents who will actually use the benefit, Dolan explains.

Pat Coyle is manager of employee benefits, Rohm & Haas Co., a speciality chemical company employing 8,500 people. The company also provides benefits for 3,500 retirees and surviving spouses. Coyle says vision is a fragment of its medical expenditure. "Vision cost us $432,000 last year, but our total medical bill ran to nearly $50 million," Coyle says.

Vendors says they use usual, customary, and reasonable price tables to predict how much vision services cost. In deciding whether to insure, vendors also consider risk factors, such as whether the business employs a lot of older people who tend to use more vision services.

Employers offering vision benefits to retirees, for example, can expect higher utilization, and those with heavy use or occupational safety issues to confront, may require a plan design that accommodates special needs. For example, employers with a lot of computer users may also see higher utilization.

AT&T opted for a self-insured vision plan 10 years ago and asked consultants and vendors to help it predict utilization based on the experience of other large employers. The telecommunications and computer business employs 319,000 people worldwide and has headquarters in New York. Ralph Graham, plan administrator, says the company is happy with it's self-insured approach. "It's more cost effective for a large company like ours," he says.

Employers that want to self-insure should consider a worst case scenario--what would happen if every eligible employee decided to use the vision benefit? Advise vendors. Those considering offering vision benefits for the first time should consult at least two employers to see what their experiences have been.

Nancy Bell's last article for B&H was "Does direct reimbursement cut dental costs?" February 1992.

COPYRIGHT 1992 A Thomson Healthcare Company
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