Segal: Plan Design Holds the Key to State Health-Care Costs

The Segal Company’s third release of data from the 2003 Segal State Health Benefits Survey found states, like private employers, are facing a rise in the costs of health-care benefits. However, states can take steps to correct future increases without necessarily passing cost increases on to participants.

Across all state plans, the most prevalent health benefit option cited was a preferred provider organization (PPO), in which 33% of all state employees were enrolled. This was followed by health maintenance organizations (HMO), with 32% enrolled, indemnity plans (19% enrolled) and point-of-service (POS), with a 16% enrollment rate. For state retirees the enrollment rates shifted, with the more traditional indemnity plans enrolling half of all state retirees, followed by PPO plans (29%), HMO plans (15%) and POS plans (6%).

Going Forward

As with other health-care plans across the nation, state plans can expect to see double-digit increases going forward with the average medical cost trend rate showing a 14.5% increase in 2003. Similar to Segal’s Health Plan Cost Trend Survey (See Segal Sees Continued Double-Digit Health-Care Increase in 2004 ), the largest increases will be in state indemnity plans (15.0%), followed by:

• PPO plans – 13.5%
• HMO plans – 12.5%.

Even though the increases are not as high as noted in 2003, Segal says at these double-digit rates of increases, the costs of medical services will double in six years.

To help combat future increases, Segal offers some pointers for state plans through “effective plan design that is regularly reviewed and updated in response to trends and changes in the marketplace.” Those design management steps include:

• establishing appropriate cost sharing provisions;
• implementing plan features to mitigate the impact of catastrophic claims;
• considering plans that offer first-dollar health reimbursement arrangements attached to high-deductible plans.

Mirroring trends in evidence in the private sector, states are looking to shift more of the cost burden onto plan participants. Forty-five percent of states are very likely to consider raising member copayements, while 9% are seriously considering implementing a consumer-driven health plan (CDHP).

The third report of results from The Segal Company’s 2003 Segal State Health Benefits Survey is available at: http://www.segalco.com/publications/surveysandstudies/2003statesurvey_medicalplandesign.pdf.