The Thriving Market Of Ancillary Benefits
Paul J. Disser is chairman and chief executive officer of Spectrum Vision Systems, inc., Kansas based PPO with more titan 3,200 independent optometrists under contract servicing over 1.7 million members in the Preferred Vision Care and Preferred Vision Care Plus plans throughout the United States.
Disser is also president of Spectrum Benefits Management Corporation, a consulting TPA working primarily with ancillary benefits products. He serves on the board of directors of the Mass Marketing Insurance Institute (MI2) and chairs the committee for education and seminars for MI2. He is also a member of the National Association of Health Underwriters.
Disser can be contacted at 8695 College Boulevard, Suite 220, Overland Park, KS 66210. Telephone: 913-451-1672.
Ancillary benefits additions to small and large employer group plans provide needed services while creating new sales and revenue opportunities.
There is an interesting anomaly that has been occurring during the reconstruction of employee benefits packages over the last couple of years. Whereas the conventional wisdom would have us believe that employers are “slashing” benefits and not adding new benefits, growth statistics in certain niche categories appear to run counter to this wisdom.
According to the Bureau of Labor Statistics’ Consumer Price Index , growth exceeding the general inflation trend has occurred in most areas of health care. This comes as no revelation to any of us in the health insurance or employee benefits business. It is all we hear these days! The effect on health care costs of high-tech medical equipment development, defensive medicine practices, malpractice damage awards, state mandated benefits, and Medicare/Medicaid cost shifting are well known to all of us.
Some of the tactics implemented thus far to battle rising health care costs have included pre-certification, second opinions, utilization/concurrent review, increasing deductibles and co-pays, capitation plans, and a whole range of self-funding mechanisms. The health care cost Leviathan continues to march forward seemingly unfazed.
This situation has reached such proportions that senators and congressmen from both parties are stumbling over each other in a rush to sponsor THE national health plan that will finally control all costs while delivering better health care on a timely basis to all Americans and all at a truly affordable price. Right!!
Meanwhile, beyond all of the political rhetoric and industry concern certain niche companies have reacted to market demographics and employer/employee needs to create thriving businesses in the world of ancillary benefits. Benefits such as mail order pharmacy, employee assistance plans, dental, hearing, and vision care. For example, over 150 million people (60% of the entire U.S. population) wear eyeglasses and contact lenses. In 1990, this group of people spent over $11 billion on eyeglasses and contact lenses, another $3 billion on eye examinations and $2 billion on non-prescription sunglasses. (Comparable expenditures for 1985 were $7.5 billion, $2 billion and $ .9 billion.) These figures do not even include surgical procedures such as cataract removal, intraocular lens implantation, or other eye pathologies which are typically covered under medical insurance or the benefit plan design of self-funded arrangements. Due to the explosive growth trend in this category, the Bureau of Labor Statistics added “eye care” to its Medical Care Consumer Price Index for the first time in 1986.
Success in the managed vision care arena has prompted requests from satisfied clients for additional ancillary benefits programs. A study of the successful companies in niche markets reveals that they are successful because they stick to their area of expertise.
Although there may be certain internal operational similarities, vision is not dental is not pharmacy is not hearing is not employee assistance. And so on.
The successful companies make a commitment to excellence in all facets of their operation, i.e. network development and maintenance, internal operating systems and procedures, marketing and fulfillment materials, and customer service. They work diligently to see that the integrity, the quality, the value of the service they offer measures up to the expectations of their client and their clients’ clients. Because they are specialists, these companies can be more creative and more responsive to their clients’ needs than some company that attempts to be “all things to all people.” This can be done, typically, within an administrative structure that was designed specifically for this niche purpose, thus conserving economic integrity for both the host company and the sponsoring company.
Simplicity, integrity, quality, economy. That is what employers say they are looking for in their benefit plans. It is for these reasons that we believe employers are not “slashing” benefits. They are slashing waste, duplication, inefficient, and ineffective plan design and administration. Employees want/need benefits. Employers want/need value for the benefits dollars spent. Those companies that can see eye-to-eye on these issues will surely do business together.
Awareness and market demand for PPO services is expanding beyond basic hospital/physician care. Specialty, or niche market PPOs represent an emerging growth trend.
In a number of instances, larger hospital/physician PPOs and other health care organizations have contracted with specialty PPOs because it was more efficient and economical for the larger organization to do so than to develop and fund the specialty internally. Also, because of their structure and flexibility, specialty PPOs are more adaptable to geographic expansion. In many instances. the specialty PPO is already set up to accommodate business on a national scale, and is actually forming strategic alliances with local or regional PPOs, HMOs and insurance companies to achieve greater local market penetration.
The strategic alliance approach has proven successful and profitable for all parties involved. Nonetheless, in any relationship of this type there are certain major considerations that should be addressed contractually.
Duties and obligations of each party.
This may sound obvious, but it should be determined early whose dance it is, who is bringing the punch and cookies, and who is bringing the fiddle and horns. Goals, objectives, and administrative details outlining the attainment of such should be agreed to and set down in writing so there is no confusion after the fact as to who is responsible for each element of the program.
It should be understood that the specialty PPO is the expert in its field and that it has established selection parameters to assure quality, cost effective care and service while adhering to local, regional and/or national regulatory considerations. Attempts by the other party to influence the specialty PPO in its network contracting process will only hinder the effectiveness of the specialty arrangement. Local friendships and political relationships need to be addressed on the same businesslike basis as all other prospects. Although generally regarded as pro-competitive, PPOs are receiving more scrutiny than in the past by the Federal Trade Commission (FTC) to assure that networking arrangements are handled on an arms length basis.
Fees and payment.
Access fees and payment schedules need to be established and communicated to the appropriate personnel in accounting to assure timely and accurate reporting. Payment schedules and methodologies also need to be communicated to the provider network so it knows who to collect from or who to bill and at what rate structure.
Due to the necessity of computer interfacing and exchange of other sensitive, technical, and proprietary data, sufficient protection for each party needs to be addressed.
This clause further defines the fact that each party to the Agreement is competent in its own area of expertise, and that each is willing to indemnify the other for any problems, real or imagined, that may occur in its area that reflects or impacts on the other.
There are certainly other areas of consideration in contracting for specialty PPO services; however, the above items cover some of the more basic. For a working relationship between organizations to be successful, the specialty PPO must recognize that it is an “appendage” to the other party’s core package of benefits or services. As such, the specialty PPO must be able to blend or meld with the other party in such a way as to become almost transparent to the other party’s members. This requires a degree of flexibility and subjugation of the “corporate ego” that is difficult for many organizations to achieve. For those that are successful the rewards have proven to be mutually beneficial.
Specific Ancillary Benefits
The balance of this article will address specific ancillary benefits I have asked colleagues who specialize in prescription, dental, and employee assistance programs to discuss their area of specialty. Let’s begin this section on vision programs, which is my specialty area.
Paul J. Disser, Chairman and CEO. Spectrum Vision Systems
In 1986, fewer than 20 percent of employers offered any kind of formal vision program. By 1990, this figure had grown to 34 percent according to a recent survey by Hewitt Associates. The majority of this growth has come through the efforts of marketing PPO’s, specializing in the vision care niche of health care. In that four year time frame, over 30,000 employers representing more than 4 million employees have been enrolled into the vision PPO concept. In addition, over 50 large, national associations and more than 1,000 financial institutions representing another five million people have also included the vision PPO network as part of their members’ benefits. These particular vision PPOs have been so successful, not only in the enrollment process, but even more so in the cost management aspect of their plan design, that the rate of increase in the CPI for optical goods, and services has remained flat over the last four years in spite of the fact that purchases of optical goods and services has expanded by almost 100 percent.
Vision Benefits Make Good Sense
Employees/dependents have strong need for vision care. There are 150 million eyeglass/contact lens wearers in the U.S. The Department of Health and Human Services (HHS) says “64 percent of the work force over the age of 17 wears some form of corrective lenses.” Aging of the baby boom generation will add to this percentage.
Eye health as part of sponsored wellness programs. Eye examination by a qualified professional is good preventive medicine. Some diseases detected at early stages by an eye exam include glaucoma, high blood pressure and diabetes. A growing number of employees in the U.S. spend a large part of the work day in front of a VDT screen. A qualified eye professional can provide helpful hints to minimize eyestrain and other concerns associated with VDT exposure.
Trade off high cost/low utility benefits for low cost/high utility vision plan. It is a proven fact that less than 20 percent of medical claims are responsible for 80 percent of total claims expense in most companies. However, when medical rates are increased, everyone in the plan receives the increase. Companies attempting to hold rates down are increasing deductibles and raising coinsurance factors thus increasing employee cost or contributions to their coverage. With the addition of a low cost vision benefit that most (75 percent-plus) employees can use immediately, some of the sting is taken out of the other plan adjustments.
The benefit formula is important. A sound vision benefit formula will be based on a cost-plus formula versus a retail discount formula. Simply stated, wholesale costs can be verified whereas retail prices are whatever the retailer determines they need to be even allowing for PPO discounts.
A vision PPO network must be able to support large volume over a broad geographic expanse. Successful vision PPOs have developed a critical mass of providers capable of servicing the needs of large, nationally dispersed groups. These provider networks are set up in such a way that 90 percent of the entire U.S. population is no more than a 20 minute drive from a contract provider.