Center for Studying Health System Change

PUBLIC POLICY

Indianapolis is relatively conservative with respect to health care policy. Because it is the state capital, health care policy in Indianapolis is initiated at the state and county levels. At the state level, legislative attention during the past few years has focused on small-group insurance market reform, managed care and care for the uninsured. Legislative efforts to enact small-group health insurance reforms have been relatively modest. In 1994, insurer blacklisting of specific employed groups was banned. The legislature has been more active recently in the managed care arena. Indiana has a relatively weak "any willing provider" law that applies to PPOs but not to unlicensed provider networks or to HMOs. The state also enacted a law mandating 48-hour hospital stays for vaginal births and 96-hour stays for cesarean sections, prior to federal action on this same issue. A proposal mandating direct patient access to any physician within a managed care organization failed. This flurry of legislative activity directed at managed care led to the formation of a two-year, 12-member legislative committee to study managed care, which planned to gather information during the 1997 legislative session.

The Marion County Health and Hospital Corporation (HHC), which includes Wishard Hospital and the Marion County Health Department, is viewed as an attractive and efficient safety net provider, and has been a focal point for local health care policy. State efforts to develop new financing approaches for indigent care carry important local implications, because Wishard Hospital is a major provider for the indigent population. In 1992, the legislature formed a committee to study the costs of universal insurance coverage, but there was little support for state-financed expansions in coverage. Wishard’s revenue base was reduced in 1994, when Indiana’s Medicaid program implemented substantial cuts in payments for physicians and hospitals, making it more difficult for Wishard to provide indigent care. In 1996, a state commission on health care for the working poor was formed to explore options to finance and provide health care for the indigent, indicating that this issue remains on the state’s policy agenda.

The proposed merger announced in 1996 between University Medical Center and the Methodist Health Group became another high-profile local health care issue and sparked intense public debate. The governor established a nine-person task force, which included local business leaders, legislators and the state attorney general. The task force addressed a range of issues, including:

• the implications of converting a publicly funded institution to private status;

• the relationship between the merged entity and Wishard Hospital, including the likely impact of the merger on the volume of indigent care provided at Wishard;

• the merger’s effect on indigent patient access to James Whitcomb Riley Memorial Hospital, a nationally renowned children’s care facility that would become part of the new entity; and

• the overall market power of the merged entity.

The merger proceeded in early 1997 after proponents supplied the task force with the information it sought, thereby relieving its concerns.

PURCHASING

The largest employers in the Indianapolis MSA are local governments, including nine counties that employ a total work force of 62,700 but purchase health insurance individually; the state, with 28,800 employees in the MSA; and various community health care systems. The bulk of private sector employment is in firms with fewer than 1,000 employees. Notable exceptions include Eli Lilly and Co., which is based in Indianapolis and employs about 7,500 workers, and various subsidiaries of or suppliers to General Motors, with a combined employment of more than 20,000 workers.⁸

Employers believe that health care costs in Indianapolis are reasonable compared with those of other cities of similar size. They have not aggressively sought to contain costs, as reflected in their limited demand for tightly managed, highly integrated health benefits options.

HMOs must offer broad provider networks to attract employer interest, especially when they have to compete with PPO and indemnity insurance products. Because of a generally tight local job market and only modest increases in health benefits costs in recent years, most employers are reluctant to try to steer employees into lower-cost, more restrictive health plans. Unions exert considerable influence in the design of health benefits plans for state and county employees and for General Motors suppliers and subsidiaries, and they tend to support relatively comprehensive benefit coverage and provider networks. Furthermore, a substantial number of Indianapolis employers are units of national or regional firms headquartered elsewhere, and decisions regarding health benefit offerings typically are not made locally.

All of these factors combine to dilute pressures on larger employers to adopt aggressive and coordinated purchasing policies. Even the state, one of the largest employers in Indianapolis, has not used its purchasing power to vigorously pursue cost containment strategies, particularly those that promote enrollment in managed care plans. In contrast, nearly all employees of Indianapolis city and county government agencies are enrolled in HMOs. In addition, the local school district union contract mandates that at least one HMO be offered to all employees.

A considerably different picture emerges for small employers, which are perceived as highly sensitive to small differences in premium levels when choosing health plans for their employees. In the small-group market, respondents said that employers readily switch plans in exchange for lower premiums. PPOs are attractive to small employers that want to offer only one benefit package to their employees because they include a broad range of physicians and their premiums are competitive. Small employers in Indianapolis commonly use brokers to help them select health plans and structure benefit choices.

Quality of care generally is not a major factor in purchasers’ health benefit decisions, in part because of the general perception that Indianapolis providers deliver high-quality care and in part because health plans offer broad physician networks. In addition, little information about health plan quality throughout the market is available, although a few large employers collect their own data on various aspects of health plan performance, including employee satisfaction. Eli Lilly, for instance, distributes information to its employees during open enrollment that compares health plans on certain quality-related measures and enrollee satisfaction. Health plans and provider systems are beginning to produce and distribute their own report card information for marketing purposes, but employers expressed skepticism about the usefulness of these data.

There has been relatively little cooperative health care purchasing activity among employers, although interest in this area appears to be growing. The Indiana Employers Health Care Coalition, which consists of 14 firms with more than 1,000 employees each, has attempted to collect data on hospital costs from the major provider systems in Indianapolis. In the small-employer market, a subsidiary of the Indiana Manufacturers Association plans to form a health insurance purchasing cooperative that will offer a range of HMO products to small employers.