Jack A. Meyer
Elliot K. Wicks
Lise S. Rybowski
Michael J. Perry

As the major purchasers of health coverage for working people and their families, employers have had a major influence on the evolution of health plan structure and objectives. During the period of rapid health care cost escalation, employers concentrated on finding ways to contain costs, and health plans responded, primarily by moving to managed care structures. But employers recognized that it was not enough to choose the least expensive plans. They wanted to find a way to purchase high-value coverage—that is, plans that offered a balance of efficiency and high-quality care. As a result of this emphasis on value, the mid-1990s has seen a spurt of activity around strategies to incorporate quality information into purchasing decisions and to provide incentives for employees, providers, and health plans to be sensitive to quality issues. The objective is for employees to select health plans based on value and for health plans and providers to improve quality of care while controlling costs.

This report by the Economic and Social Research Institute (ESRI) focuses on initiatives of public and private purchasers to report on health plan and provider performance and to offer financial incentives to better manage costs and to improve quality of care. The state of the art in employing these strategies is not advanced, so many of the initiatives are in still the early stages, while a few are well underway. The study examined five sites where such strategies are being tried.

• The California Public Employees Retirement System (CalPERS), serving about one million public employees and dependents, has produced three annual rounds of attractive, user-friendly report cards assessing the performance of health plans. CalPERS uses feedback from consumers to improve their report cards each year. They also offer financial incentives to participating health plans, tying a portion of premium revenue and, in one instance, executive compensation to the plans’ ability to meet performance targets.
• In Colorado, The Alliance has successfully developed a purchasing coalition which is serving employees of small and medium-sized firms. Four health plans were chosen under a process of selective contracting. Employers receive report cards to be passed on to employees that assess designated features of the plans, and financial incentives are in place to motivate the health plans to meet quality targets.
• General Motors provides report cards to salaried employees and combines that information strategy with a premium contribution policy that creates financial incentives to choose health plans with high performance scores, with these scores being based on an amalgamation of cost and quality. This combination of strategies has led to a modest migration of salaried employees toward plans with the best performance scores.
• In Missouri, the Missouri Consolidated Health Care Plan, representing state government and 400 local units of government, is working with Gateway Purchasers for Health Initiatives, representing private employers, to use report cards on health plans. The effect of report cards is yet to be seen, since the first report cards were provided at only the most recent open enrollment period. But the state’s effort to install financial incentives to encourage cost-sensitivity for its own employees has apparently had a major impact. After gearing contributions to the lowest-cost health maintenance organization (HMO) in each region of the state, the proportion of employees enrolled in HMOs jumped from 24 percent to more than 90 percent over a four-year period. At this point, the incentives are not linked to health quality.
• In Cleveland, report cards on hospital quality are in their fifth year under the Cleveland Health Quality Choice Program. With limited exceptions, the report cards are widely accepted as valid and useful by key players in the health care system. An employer coalition has used the information to designate "centers of excellence," with five area hospitals named as "best-in-class" for various high-cost services.

Our research raises important questions and poses challenges for those who wish to pursue these strategies. Focus groups with employees revealed the following opinions and attitudes regarding the usefulness of consumer report cards.

• Most employees are probably not currently using the report cards in their health plan decisions. Many employees had no familiarity with the report cards. Those who were familiar with the reports often thought that the information was not very helpful.
• The idea of report cards is appealing to most employees even if they did not use them "on the first round."
• Many employees found the information they received confusing (despite the best efforts of employers to communicate the data in a simple manner).
• Some employees distrusted any information given to them by employers.

Thus, despite good-faith efforts, purchasers run the risk of not "connecting" with consumers. In fairness to purchasers, consumers are not always clear or consistent in what they want. Yet employees did have ideas about ways to improve report cards so that they better suits their needs:

• Most employees say that the deciding factors in choosing a plan—and those which should receive more emphasis in the report card—are cost, coverage, and keeping the relationship with their doctors.
• Most favor more charts and tables and less text, and they ask for toll-free lines or business-reply postcards to request more information.
• Employees say that they want information on the amounts employees must contribute to costs (premiums and copayments), covered services, consumer satisfaction with doctors, consumer evaluation of quality of care, convenience and accessibility, customer service-related measures, number of complaints, doctors’ qualifications, some condition-specific and outcomes-based information, ease of referrals, and number of specialists.
• Many employees say that information on physicians’ performance is more important than assessments of health plans.

The findings suggest that for report cards to become useful to consumers, consumers need more experience with performance-related information, more of the kind of information they want, data presented in a digestible, user-friendly way, and education from their employers about how to use the information.

Simply informing consumers (that is, making information available to them) is not the same as informed consumerism, whereby consumers understand and use the information provided to choose health plans and providers and to demand accountability. To foster the latter, employers face:

• technical challenges—developing reliable, affordable quality measurement tools;
• educational challenges—helping consumers understand the information, its importance and limitations, and how to use it; and
• socio-psychological challenges—motivating consumers to approach the purchase of health care as they would in purchasing other important and expensive items, with caution and attention to value and cost.

Finally, it is too early in the evolution of report cards and financial incentives to come to definitive conclusions about their long-term prospects. At least in theory, the kinds of initiatives described in this report have the potential to be much more constructive than alternative cost "saving" and consumer protection strategies based on shifting costs to employees, erecting barriers to access, or relying on minimum standards of quality.

A more promising strategy is one that promotes informed consumerism—with active, educated consumers making rational choices—and includes financial incentives that encourage health plans and providers to improve their performance.