When Linda Ricks had cataract surgery in 1991, the 53-year-old secretary at International Paper Co. never gave the bill a second thought. Whatever her doctor charged, the company's health insurance would typically pick up 80%. Then in 1992, the company overhauled its medical plan, paying providers only a set fee. So when a second operation became imminent, Ricks sprang into action. She persuaded her doctor to charge only what the company would cover and got the hospital to slash its tab by hundreds of dollars. "When I saw the schedule, I said, `O.K., I'd better be a bargain shopper,"' says Ricks.
Newt Gingrich would love to see more patients haggle as Ricks did. As the House Speaker wrestles with how to curb unchecked Medicare spending, he's holding up International Paper as a model. Gingrich told BUSINESS WEEK that its plan is "one of the most interesting products I've seen so far." It's now being considered as an option for seniors when the GOP rolls out its Medicare-reform package later this summer.
KEEPING OPTIONS OPEN. What's especially appealing to Gingrich is that the International Paper plan motivates employees to shop for care but doesn't restrict their choices (table). Workers receive full reimbursement if they see a doctor who charges at or below the company's schedule of benefits. The reimbursements are set at the median of providers' fees in a given area.
Another enticing feature is that the plan discourages employees from seeking unnecessary care by setting steep deductibles and out-of-pocket maximums. In 1994, the median deductible for individuals at large corporations was $200 and the median out-of-pocket maximum was $1,200, says a recent survey by consultants A. Foster Higgins & Co. At International Paper, however, an employee earning less than $25,000 a year would have an annual deductible of $325 and an out-of-pocket maximum of $1,500. Employees earning $50,000 and up pay $470 and $3,250, respectively. "We believe employees have to have enough of a financial stake to change behavior," says Jerry L. Bower, director of special projects at International Paper.
The company's new plan is slowing spending. After a year, medical costs for covered employees dropped 12.5%. Since then, costs have held fairly steady. The scheduled plan covers 15,854 employees, including all salaried workers, some hourly workers, and some retirees. The rest of International Paper's 53,000 employees, who are unionized and hourly workers, still use more traditional plans--which have seen steep jumps in spending.
Such results look good but may mask potential problems with quality, say some experts. Lonny Reisman, a practicing cardiologist and principal at benefit consultants William M. Mercer Inc., says the International Paper model operates more like managed care than a traditional indemnity plan, because it encourages employees to seek out the cheapest doctors. But unlike managed-care companies which pre-screen providers, he notes, International Paper doesn't "qualify" doctors.
EMERGENCY PROCEDURES. Instead, it makes available reams of survey data concerning doctors' credentials, most common procedures, and fees. Reisman's fear: "If employees just focus on cost they might not appreciate variations in outcomes." Bower says no one has figured out how to effectively compare doctors' performances and says the survey data help workers comparison-shop.
But shopping for care isn't something ill employees can readily do. Last fall, Lisa Tillotson, a secretary at International Paper's Vicksburg (Miss.) mill, was rushed to the emergency room while visiting in another state. "I did not shop," Tillotson says, "I was comatose." Cost for her 10-day stay in Rapides General Hospital in Alexandria, La.: $18,000.
Fortunately for Tillotson, the hospital had a contract with International Paper to discount its fees, and wrote off $5,000, leaving her to pay $980. But the company has contracts with only 180 hospitals nationwide to give flat rates or discounts. In all situations, the company pays just 65% of in-patient care and a scheduled rate for room and board.
Bower says International Paper wouldn't have to seek deals with hospitals if Gingrich adopted its approach--and forced all providers to disclose fees. Then, market forces could hold down costs, and patients would have the information they need to shop around. The challenge for reformers like Gingrich is to make sure the hunt for bargain-basement fees doesn't lead to bargain-basement care.
House Speaker Gingrich is holding up International Paper's health plan as one option for Medicare reform. Here's how it stacks up:
-- Strong incentives for patients to shop for doctors and negotiate discounts
-- Freedom to choose own doctors
-- Protection from catastrophic illness
-- No quality controls
-- Higher-than-average out-of-pocket costs and annual deductibles
-- Reimbursements can be based on outdated data for fees