Imagine you are the VP of Human Resources for a large health system. One ofyour biggest responsibilities is to oversee the provision of health care benets for the system's employees and their families. In fact, behind employee salaries, 'health benets' is the biggest line item in the system's budget. Your CFO is worried about next year's budget and has approached you with a need to reduce spending on health benefits or at least cut down on the increase in spending as much as possible. Your group is self-insured and currently uses your local BC/ BS provider as a third party administrator (TPA). Your group of 10,000 employees has 20,000 covered lives (or members) and currently uses only the BC/BS PPO plan. Your current utilization prole looks like this: units/ Cost Cat. Measure year $/s Ad m/ 1000/yr 00 Outpatient Svcs/1000/yr 4,000 3 Professional Vis/ 1000/yr Ancillary svcs f1000/yr Pharmacy Scriptfmember BC/BS has given you guidance about next year's likely trends. They expect both unit prices ($/svc) and utilization (units per year) to increase by 5% per year. They have suggested two alternate delivery models for your employees that could save you money: Narrownetwork HMO Using your own system as the basis for a narrower network option, you could continue to offer essentially the same benet structure as you currently do. The limited choice of providers would deliver your benets with no rise in utilization (you would still incur the 5% rise in unit price) High Deductible Health Plan (HDHP) In this choice, you would continue to use the BC/BS large network, but your employees would be given a $5,000 deductible. The size of the deductible means that your employees would decrease their utilization of services by 5% (and as before, plan for a 5% rise in unit costs). Neither alternative is especially attractive to your employees. Therefore, you'll need to plan to put incentives in place in the form of greater premium contribution and/or HSA funding. Naturally, employees have different preferences and pain points, and they'll have different subsidy levels that attract them. For the HMO, it will cost $30 per year to convince the first 500 employees to switch, $60 to convince 1,000, $90 to convince 1,500 etc. For the HDHP, you'll need to do better (people really don't like high-deductible plans). For this plan, it will cost $60 to convince 500 employees to switch, $120 to convince 1,000, $180 to convince 1,500, etc. So, as an example, if you wanted 5,000 employees (10,000 members) to take the HDHP plan, you'd need to budget a $3,000,000 subsidy into your projected costs. Your iob from the available facts, calculate the current year's spending by category and in total. Then, calculate the expected spending next year assuming m changes are made to the plan. Finally, show the optimal mix of PFC, HMO and HDHP members in order to minimize total expense to the health system. Keep in mind, the incentives given to employees to choose a lower cost option should be considered a cost
