The brief respite from health care inflation enjoyed by the nation for the past several years may be over.

Managed care appears to be reaching a point of diminishing returns in terms of its ability to contain costs, according to the 11th annual National Survey of Employer-Sponsored Health Plans of 1996 by Foster Higgins.

The survey reports the cost of health care coverage for 3,290 employers using a national probability sample and weighted results to reflect the demographics of all employers in the U.S. with 10 or more employees.

The consulting firm reported a modest 2.5 percent increase in health care costs in 1996, continuing a three-year trend in which costs have remained relatively stable--a phenomenon largely attributed to the effects of managed care.

But the news this year is that the trend may be ending.

"[W]ith over three-fourths of active employees now enrolled in managed care plans, most employers have already enjoyed the one-time cost savings of moving employees out of expensive indemnity plans," said John Erb, principal consultant with Foster Higgins and the lead author of the 1996 study. "In addition, HMO rates are rising for 1997, following two years of premium rollbacks and sagging profits in 1996."

Erb cited a "backlash" against managed care, including "any willing provider" requirements enacted by state legislatures and mandated minimum hospital stays following childbirth.

Significantly, employers responding to the survey told Foster Higgins they expect their health plan costs to go up in 1997 by about 4 percent.

Also significant in the Foster Higgins study is the dramatic success of "point of service" (POS) plans--sometimes referred to as "open-ended HMO's."

Enrollment in traditional HMO plans appeared to stall in 1996 at 27 percent--the same as in 1996. POS enrollment, in contrast, shot up from 14 percent to 19 percent in 1996, driven by a particularly spectacular increase in the Northeast (where enrollment rose from 20 percent to 38 percent).

Preferred provider organizations (PPO's), which offer incentives for enrollees to see network providers, also gained marginally in enrollment, from 29 percent to 31 percent.

"The conventional wisdom that closed-panel HMO's are our destiny may well be false," said Erb. "Employers and employees are stubbornly clinging to plans that allow access to out-of-network physicians even though, for the most part, employees stay within the network."

Also contributing to the diminishing effects of managed care is the continuing consolidation of providers, who are gaining more bargaining clout with managed care companies, according to the Foster Higgins report.

Despite forebodings about the future, costs to employers of providing health care coverage for workers remained relatively stable in 1996.

Total health benefit costs averaged $3,915 per employee in 1996, compared with $3,821 in 1995, according to Foster Higgins.

Average costs for large employers (those with 500 or more employees) rose 3.6 percent in 1996, while smaller employers experienced a decrease of 2 percent.

One factor slowing overall cost growth is the movement of retirees into managed care. Among large employers, more than half (52 percent) of early retirees and 29 percent of those age 65 and over are enrolled in managed plans. The number of large employers offering HMO plans for Medicare enrollees rose sharply, from 21 percent to 38 percent in 1996.

Nationally, only 8 percent of Medicare-eligible retirees are enrolled in HMO's, but in the Western states enrollment has reached 25 percent, according to Foster Higgins.

The movement of retirees into managed care plans could offset the expected increase in active employee health care costs, Erb said.

Other Findings

These are other findings from the Foster Higgins survey:

• Nearly two-thirds (62 percent) of companies with 10 or more employees offered health benefits. The larger the employer, the more likely it is to have a health plan. Among firms with fewer than 50 workers, 57 percent offer coverage, while among the largest firms (20,000 or more workers) 100 percent do.



• The average contribution as a percentage of premium has been relatively constant for the past four years. Among large employers, for each plan type the average individual contribution has remained between 20 percent to 25 percent of premium, and the average contribution for family coverage has remained between 30 percent and 35 percent.



• Mail-order prescription-drug plans and retail card plans are now a routine part of the package of services provided through a medical plan. Among large employers, mail-order plans are a part of 53 percent of traditional indemnity plans, 63 percent of POS plans, and 51 percent of HMO's.

Card plans are found in 59 percent of traditional indemnity plans, 82 percent of POS plans, and 76 percent of HMO plans. Prescription drug costs rose 7.2 percent in 1996, according to Foster Higgins.

Copies of the National Survey of Employer-Sponsored Health Plans of 1996 are available for $500 from Tara Lewis at Foster Higgins, 125 Broad Street, Fourth Floor, New York, N.Y. 10004.

(Psychiatric News, March 7, 1997)