Health insurance options

Q

I'm disappointed that UCAR no longer offers a "catastrophic" health care
coverage option (formerly UCARflex option 3). This sort of coverage is fine
for single individuals or healthy couples. It has a nice balance between
providing protection and having low paperwork overhead for both the insured
and the insurer. Basically, one provides for one's own ordinary needs,
retaining a safety net to protect against major calamity. It is insurance,
not a health plan.

When initially offered, this option had the lowest cost of all the plans.
Without clear explanation, the cost was rising, but last year it was still
cheaper than option 2 (preferred provider organization, or PPO).

Like most people, I prefer to continue a long-term relationship with the
physician of my choice. He doesn't happen to be one of the EPO (exclusive
provider organization) physicians [in option 1]. With the old option 3
dropped, I find myself forced into the PPO plan. Since I'm just worried
about major illness, I probably would want the flexibility of the PPO
anyway. (I had this flexibility in the event of disaster with the old
option 3.) However, the PPO is both expensive and inappropriate for me. As
a healthy single person using an out-of-network physician, I would rarely
exceed the deductible. UCAR and I are paying for coverage beyond that
offered in the catastrophic plan that I don't want or need.

To me, this seems like an equity issue. The plans offered are probably
cost-effective for families with children, but they don't make sense for me.

Answered on December 05, 1997

A

The writer raises some good points. An effective catastrophic health
plan can provide a safety net for individuals or families who want to take
care of their own routine health care needs. It can work as a true
insurance plan and only take care of "calamities." Unfortunately for us,
the expenses for UCAR and employees under the catastrophic plan were way
too much. It had gotten to the point where costs under the catastrophic
plan were higher than under the PPO plan.

How can this be if the benefits under the catastrophic plan are much
lower than the PPO's? There are two reasons this happened at UCAR.

The first part of the answer is in the cost of calamities and
"almost-calamities." In the world of health care, groups can get
significant discounts if there is a likelihood that a medical provider
(like a hospital) will get additional business from the group. The way this
works is that the medical plan for the group must have an incentive for the
members to use the designated providers. The PPO plan has such incentives;
the catastrophic plan does not. For that reason, providers do not give any
discount for claims under the catastrophic plan. Without a discount, UCAR
and the employee pay full "retail" for medical services. The employee's
cost is limited by the out-of-pocket maximum, and UCAR pays the remainder
at the full retail cost. The difference between retail and the discounted
rate for even a short hospital stay can easily be over $10,000. So the
catastrophic plan is not cost-effective for UCAR if the participants in the
plan have significant medical claims. Over the past few years, the claims
in this plan have been high, which has resulted in higher costs and premiums.

The second part of the answer is in the number of participants in the
plan. This plan has never had high participation, and with the increase in
costs, participation has dropped even further. UCAR's medical plan is
self-insured, which means UCAR directly pays most claims. For this to work
properly, there must be a significant number of participants in the plan;
otherwise, the costs per participant fluctuate significantly. In 1997,
projected premiums for the catastrophic plan were higher than for the PPO
plan. The deductibles in the catastrophic plan were significantly increased
in an attempt to keep premiums below the PPO plan. Participation dropped to
just a handful and costs continued to increase. The only way to offer the
catastrophic plan in 1998 would have been to raise premiums higher than the
PPO, which made no sense. For that reason the catastrophic plan was dropped.

We hope that all of the plans are cost-effective for employees with
various needs. The catastrophic plan was not cost-effective. To offer it at
an acceptable cost to employees, we would have to increase the cost of the
other plans. This would mean that UCAR, and other employees, would be
subsidizing a plan with minimal participation.

--Bob Roesch, Manager, Human Resources