The Upbringing
of a Billion Dollar Stepchild

By Paul J. Disser

What do Pizza Hut, North American Van Lines, Cunard Ship Lines, Coca Cola, Warner Lambert, Hershey Foods, International House of Pancakes and the Government Employees Hospital Association have in common? These companies have all added vision care plans or enhanced existing vision plans in their employee benefits plan over the past two years.

Although garnering much interest, this highly affordable and much appreciated benefit is not new. For over thirty years vision care has been available to the labor force and general public in one form or another, i.e., prepaid plans, safety-glass plans, traditional indemnity insurance plans, and as part of medical reimbursement plans.

Due to the relatively low-risk exposure represented by individual or group vision care, employers paid little attention to providing a formal benefit plan to address this employee/ family need. Only after covering all of the higher priority issues (medical, life, disability, dental, pharmaceutical, pension/profit sharing, vacation, etc.) was vision care taken seriously at the benefits bargaining table. Once seated, however, vision care was still a nervous and uncomfortable participant relegated to the “last in-first out” position at the table.

Factors Influencing the Practice of Vision Care

Vision care coverage grew through the 1960s and 1970s, primarily through Taft-Hartley group trusts and other union-sponsored, collective bargaining arrangements. These programs tended to benefit employees working for larger, Fortune 500-type companies. Later, the enactment of Medicare and Medicaid in 1965 included some vision benefits for individuals over 65 years of age and in certain economically- distressed categories. Even in the early 1980s less than 18 percent of the work force received vision care benefits. ¹

^{However, in the mid-1980s, the way health care – and more specifically, vision care – would be practiced was dramatically altered by the onset of a convergence of three powerful forces. Those forces were:}

• ^{The 1980-1982 recession;}
• ^{The health insurance profit/loss cycle, wherein insurance carriers rate coverages aggressively when profits are running, but issue adjustments at the first sign of loss; and}
• ^{The first wave of the baby boom generation reached an age of 40 years with a rise in the overall prevalence of presbyopia. (Presbyopia refers to the development of farsightedness due to the loss of elasticity in the lens of the eye and therefore the loss of the eye’s ability to bulge to accommodate for near vision. As individuals grow older, they are more prone to developing presbyopia.2)}

^{When examined individually, none of these three factors are particularly noteworthy; however, combined they create a revolutionary change in the way vision care is practiced in the United States.}

^{Managing the Cost}

^{Health insurance rates have risen consistently ever since the introduction of the first hospital service association plan, the Baylor University Hospital Plan, in 1929.3}

^{As the cost of health care continued to rise in the 1978-1981 insurance underwriting cycle, many insurance companies opted to withdraw from the marketplace. Those that remained were challenged to retain their policyholders while passing on 30 percent to 100 percent annual rate increases. Many employers “rode out” the rate increases while ultimately passing increased costs to the consumer in the form of higher prices for goods and services. Some employers migrated to the newer, lower- cost health maintenance organization (HMO) programs being developed. Other employers simply dropped their carriers and began “self- insuring” employees. As a result, the cost of employee benefits was calculated into the cost of goods/services sold. In a strong economy, where supply and demand are in equilibrium, this cost transference mechanism is sustainable. However, during the recession of 1980 – 1982, this system failed. Costs could not be transferred or absorbed because product demand had virtually dried up.}

^{One interesting development during this recession period was the increased attention devoted by human resources managers to the cost of the total benefits package relative to payroll and other benchmark financial ratios. As companies began the downsizing and/or reorganization process, it became clear that the employee benefits cost factor had quietly become one of the largest cost factors in the entire budget. In fact, a United States Chamber of Commerce study4 in 1991 reported that the cost of employee benefits constituted greater than 40 percent of corporate payroll in America.}

^{However, instead of continually passing these costs on to customers through higher prices, corporate America was forced to begin “managing” these costs. Various hybrids of managed cost (evolving into managed care) have included, but are not limited to HMOs, preferred provider organizations (PPOs), deductibles on medical plans, increased deductibles, co-pays, employee cost-sharing of premiums, scheduled benefits, utilization management, quality assurance, cafeteria plans, minimum premium, full or partial self- insurance and elimination of benefits altogether.}

^{“Glasses in an Hour”}

^{Ironically, the 1980 – 1982 recession and the subsequent focus on downsizing and managing benefits were occurring concurrently with the greatest increase in demand for ophthalmic goods and services in history due to the first wave attack of presbyopic baby boomers born in 1945 – 1946. In fact, it is predicted that as the baby boom generation ages, there will be one million new entrants into this presbyopic category every year from now until the year 2011. 5 This “aging” phenomenon had been anticipated through demographic trends studied by the U.S. Shoe Corporation of Cincinnati. Ohio, a consumer goods company. In 1983 the U.S. Shoe Corporation invested in a young, innovative company, Precision LensCrafters, to serve this growing market.}

^{With the financial support of its parent company, the LensCrafters concept, “glasses in an hour,” resounded through the staid, professional and independent ophthalmic community. The U.S. Shoe Corporation and LensCrafters brought proven retailing strategies and techniques into a market that had previously dealt in the quiet, professional setting of physicians’ offices. In 1989, with approximately 320 stores in operation throughout the entire United States, LensCrafters spent over $50 million on its advertising and promotional campaign.6 This averaged out to roughly $156,000 per store which was more than one half of what the average Doctor of Optometry would generate in gross revenue. 6 Additional perspective on the growth of this market can be gained by comparing sales figures of corrective vision eyewear (frames, lenses, contact lenses) between 1983 and 1992: $4 billion versus $11.9 billion, respectively. 7 During this time frame, market share shifted between professional optometry and commercial optometry from approximately a 95:5 percent ratio to approximately 65:35 percent ratio, respectively.6 Thus, even though the professional optometry sector still controlled the dominant share of the “eyeglass market” at 65 percent, there was a concern that between 1983 and 1992 there was a loss of 30 percent of an $11.9 billion and growing market.7 In fact, in his editorial column in Optometric Management in 1987,8 Jack Runninger, OD, used the term “…[P]anicky OD’s, or POD’S…” to describe the mood of the professional community.}

^{Legislative Changes}

^{Rather than panicking, a number of progressive doctors recognized the opportunity that existed. Like attorneys and MDs, the professional optometric community had historically relied on internships, referrals and tasteful, subdued “yellow page” advertisements to promote and expand its practices. State optometric societies and the American Optometric Association (AOA) at the national level, worked diligently to maintain high standards and stress qualifications that distinguish professional optometry from those who wanted to relegate it to the level of a commodity. These efforts were strengthened by the failure of the Federal Trade Commission (FTC) in 1991 to gain additional support of its earlier ruling on the Eyes I regulations through the passage of Eyes II, formally known as the Ophthalmic Practice Rules.”}

^{The crux of Eyes I was to allow an individual to obtain a prescription for eyewear from the primary caregiver, typically an optometrist or an ophthalmologist, and then take the prescription somewhere else to be filled, usually to one of the commercial optical groups whose high impact advertising campaign had attracted the patient’s attention. This enabling legislation had been vigorously lobbied for by the commercial optometric groups in an attempt to break the stranglehold of the state and national professional societies. Prior to the passage of Eyes I, patients were captive to the primary caregiver who performed the examination, authorized the prescription for correction of visual defects and dispensed the eyewear to correct the problem. The FTC ultimately agreed with the commercial optometric interests that this process represented a restraint of trade and was potentially a cause of higher consumer prices. (In fact, independent professional optometric practices generally price products 10 percent to 15 percent less than commercial optometric groups for the identical or comparable product. In certain managed care or PPO arrangements, this pricing differential can be as great as 40 percent to 60 percent for identical or comparable products.) Eyes II was intended to remove certain state restrictions on commercial optometric practices including:}

• ^{Limitations on the number of branch offices that optometrists may own or operate;}
• ^{Prohibitions on practice of optometry in commercial locations, such as those located in shopping malls;}
• ^{Prohibitions on optometrists’ use of trade names; and}
• ^{Prohibitions on employer/employee affiliations between optometrists and others, thereby preventing optometrists from working for pharmacies, department stores or optical chains.}

^{Although the FTC was unsuccessful in its attempt to dilute the strength of state and national professional societies, commercial optometric groups had gained significant ground during the debate.}

^{While commercial optometric groups were infringing on the heretofore exclusive turf of the professional “OD,” the latter were successful in lobbying for rights which allowed them to cross over into territory which had been the exclusive domain of the “MD.” Enabling legislation authorizing ODs to handle diagnostic and therapeutic drugs has extended the reach of the OD in 36 states. Use of these pharmaceuticals allow the OD greater latitude in dilating the pupil for internal ocular examinations and for anesthetizing the cornea while testing for glaucoma. Similar lobbying for legislation authorizing ODs to perform minimal, noninvasive surgical procedures through the use of laser technology continues at this writing.}

^{Managing Cost and Care}

^{Thus, on one hand, the lines of demarcation between commercial optometry, independent professional ODs and MDs have become less obvious; on the other hand, the demand for services in this sector is increasing dramatically. In fact, the increased number of presbyopic baby boomers coupled with the extended life expectancies of their parents (98.6 percent of whom require visual correction aids) have created one of the true growth industries for the balance of the 1990s. This situation is ripe with opportunity to prove that a managed care system can work to control escalating costs in an area where the natural economic forces of increasing demand would, theoretically, drive up prices. There is much empirical data available on this already. Certain managed vision care organizations and specialty vision PPOs have proven adept at keeping client costs below the general inflationary trends and substantially below the health care inflationary trends over the last five years.”‘ These plans utilize a broad spectrum of benefit designs engineered to meet the objectives of a diverse clientele.}

^{Discount card access plans have grown dramatically in the last few years. These plans typically enable an employee/member to access a provider network to realize savings on frames and lenses, including contact lenses. Because there is no insurance or risk transfer element in this design the cost is exceptionally low, ranging from $6 to $12 per year per employee. Easy to install and convenient to administer, this type of plan is very popular with employers interested in a “first generation” vision plan for their employees.}

^{Variations on this basic theme allow for routine eye examinations along with “optical discounts.” These plans can be designed within the budget constraints of the employer by managing the frequency within which employees are allowed to use their benefits, i.e., once every 12 months or 24 months, and by scheduling the level of reimbursement for exams, frames and lenses, e.g., $40 for exams; $30 for frames; $30 for lenses, etc. The plans are also quite affordable, usually ranging in cost from $2 to $12 per month per employee. However, while these “discount card access plans” are very effective in terms of managing costs, in order to truly manage costs and care an organized provider panel must exist. Since 1985, a number of provider panels have been established, some operating on a national scale, others on a regional or statewide scale. There are provider panels comprised of independent professionals as well as those comprised of commercial optometric groups. In addition, several panels have combined independents with commercial practices. How does an employer know which type of provider panel is the right one?}

^{Choosing the Right Provider Panel}

^{Each employer must determine the type of vision care provider panel to work with based upon its own needs, budget constraints and administrative objectives. The following questions should be considered:}

• ^{Does the panel have adequate geographic representation? Does it operate nationally, regionally or locally?}
• ^{Does the panel use quantifiable cost-control formularies? Is the formulary discounted fee-for-service? Cost plus? Retail discounts?}
• ^{Are there valid quality control and quality assurance mechanisms in place? This applies to both pre-selection (credentialing) and post-selection (monitoring and sanctioning) of providers.}
• ^{Is member satisfaction guaranteed? Is there an easily understood grievance/audit procedure to follow?}
• ^{Are customer service and administrative support mechanisms easily accessible and user friendly?}
• ^{Are all marketing materials, brochures, ID cards and provider directories concise, easy to understand and professionally prepared?}
• ^{Are management information systems (MIS) compatible so as to support seamless data transmission and reporting requirements?}
• ^{Has the panel consistently delivered what it has promised? Is there a substantial referral base of satisfied clients in a SIC (Standard Industrial Classification) category similar to the prospective employer client?}

^{These are just a few guidelines that may help in the analysis of vision care panels. In addition, customer satisfaction surveys have uncovered other guidelines such as simplicity, integrity, quality and economy. If these factors exist, employers are not eliminating benefits such as vision care, but are in fact increasing the use of such plans. What is being eliminated is waste, duplication, inefficient and ineffective plan design and administration. Employees want and need vision benefits. Employers want and need value for the benefits dollars spent. Those companies that can see “eye-to-eye” on these issues are doing business together and will continue to do so.}

1. Naas R. Looking for more from vision care.   Business Health.  December 1992:43-44.