MSA Case Studies
Valley Surgical Group of Phoenix, Arizona
Coverage: Small Group MSA/Catastrophic Health Plan
Underwriter and Administrator: Golden Rule Insurance
Number of employees: 14
Year of origin: 1994
Summary effect: Annual employer costs reduced by $400 per employeeFrom 1988 to August of 1994 Jeff Singer's Valley Surgical Group used a standard Preferred Provider Health Benefit for its surgeons and clinic employees. This plan included payment for prescriptions. Medical services had to be purchased from a defined network. The deductible was $250 per individual with a maximum of $500 per family. Coinsurance above the deductible required a 20 percent payment up to $5,000 or $1,000 per individual. The maximum out-of-pocket limitations were $1,250 per individual and $2,500 for families. The employer paid 90 percent of the premium. When the plan was terminated in 1994, the premium for a family was $290 per month.
To improve employee satisfaction, increase cash compensation, provide incentives for preventive care and make a transition from prepaid comprehensive health benefits to employee managed, incentive-based health benefits, Singer's surgical group in Phoenix installed a Medical Savings Account plan.
Forbes, Inc.
Coverage: Traditional indemnity plan coupled with incentive plan
Underwriter and Administrator: MSA started in the company, company is underwriter
Number of employees: 500
Year of Origin: 1992
Summary effect: 27 percent overall reduction in premiums for 1992 and 1993; 40 percent of employees received incentive bonuses; cost of coverage was 8 percent of payroll in 1993Forbes, Inc. established a plan designed by Malcolm S. "Steve" Forbes Jr.: "Give employees an incentive to look at costs the way management does—an incentive to make health care decisions as if it were their own money at stake. We (Forbes) set aside a yearly account of $1,000 for each employee and simultaneously established a health plan deductible for health expenses equal to 1 percent of salary. The plan called for every $1 of health claims filed by a plan subscriber to cost $2 from the $1,000 set aside account." Thus Steve Forbes set in motion a health benefits incentive program for all Forbes employees. The plan calls for an explicit reward paid as a cash bonus to employees and families who file few or no health insurance claims and/or use their own funds first.
Forbes reports a 25 percent reduction in dollars paid to reimburse overall health claims. Furthermore, 40 percent of employees reap annual bonuses by following the incentives under the two-for-one formula. With incentives to live healthier lives and spend fewer of the company's dollars, health insurance premiums are lower. According to an NBC news report (November 1994, Irving R. Levine), Forbes spent $460,000 less than anticipated on medical claims. In addition, 150 employees shared bonuses amounting to $350,000. One hundred employees received the full amount of the bonus while the remaining 50 received lower amounts.
Forbes employees acknowledge they are making more cost-efficient health care choices by looking for the best value for their health care dollar. Without these incentives, employees who use the company's dollars to pay for care perceive they have greater benefits or even "free care."
The Forbes bonus plan succeeds precisely because it acts as an incentive-based form of demand management. This places the employee once again in the role of principal actor and beneficiary of personal health decision making. The Forbes plan has taken pains to make sure the incentive (possible cash bonus) keeps pace with inflation. In 1994 the maximum sum an employee could receive was $1,300 if no claims were filed in the year.
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