MEMBERS, BENEFITS, AND PREMIUMS

59

1. The basic characteristics of the Kaiser-Permanente system-its staff, facilities, equipment, 24-hour availability of services-result in substantial fixed and semifixed expenses. Maximum stability of membership and financing is therefore essential to long-range planning. Community rating reflects the broadest spreading of risks and offers the soundest assurance of stability.

2. Group experience rating would tend to shift the emphasis from per-memberper-month to fee-for-service processing.

3. Experience rating would involve substantial risks associated with losses. And, there would be no assurance that the aggregate total revenue needed to support the program would be provided.

4. The administration of group experience rating would in itself entail an added cost. That added cost would produce no gain in quality or quantity of services rendered.

TABLE V-3

Kaiser Foundation Health Plan, Southern California

Region, Monthly Premium Rates-Nongroup Coverages 1971

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THE HEALTH PLAN-BUSINESS ASPECTS

Just as each region follows the community rating principle and develops its own scope of benefits, so does each region establish its own rates for each coverage and for special benefits on a three-party rate structure (subscriber, subscriber + 1, subscriber + 2 or more). At the end of each calendar year, the current rate structure is applied to the membership forecast for the coming year, and the derived revenue figure plus revenue from all other sources is related to projected expenses for that year.

If there is a deficiency in revenue, after the regional plans have been reviewed by management and expenses trimmed where appropriate, the rate structure for the coming year must be increased. There is no effort to maximize revenue; the rate increase is designed to produce the amount needed to balance expenses. All coverages are raised by a percentage which, in the aggregate, produces the requisite amount of revenue. Rate increases must meet the test of the marketplace. The health plan has ultimate responsibility within our system for evaluating the competitiveness of our rates and for marketing the rate and benefit changes.

Table V-2 shows the 1971 monthly premium rates for the three group coverages-AA, BC, and M-in the Southern California Region; Table V-3 for the two nongroup coverages. The monthly charge for a family under group coverage varies from about $40 to $47. A couple with nongroup coverage pays about $28 a month.

CONCLUSIONS

As already noted, the Kaiser-Permanente concept of dual choice puts the health plan in the remarkable position of basing its continuance on an annual, and in some instances a monthly, decision by each subscriber to remain in the program. Further, we do not advertise to attract new members. Member satisfaction, then, must be high if the program is to maintain itself, and even more so if it is to grow. The plan must be responsive to consumer needs, and to changes in the pattern of medical care in the community.

Our growth has been steady and rapid by any standard (Appendix Table 1). In recent years, the apparent consumer demand for enrollment has exceeded our ability to accumulate and organize resources in some regions, suggesting that there is reasonably good member satisfaction.

Still, we are acutely aware of problems and deficiencies. In order to gain some insight into specific improvements that should be made, and to determine the attitudes of our members, the plan has engaged independent professional survey companies to study these factors. In Southern California such a study was completed in 1970 and the results compared with those of a previous survey. The results, shown in Table V-4, indicated that 80 percent of the membership reported that professional contacts were "satisfactory" or better; 87 percent said they would renew their membership; and 95 percent felt that the K-P plan represented a "good" or "excellent" value.

Other regions are pursuing a similar course of sampling consumer attitudes to establish benchmarks for future comparison.

VI

Utilization Data and the Planning Process

JOHN J. BOARDMAN, JR.*

IN AN ARTICLE evaluating prepaid group practice, Donabedian concludes that this method of organizing health care has the capability to achieve more rational use of medical resources, more effective cost controls, and greater protection against the unpredictable financial ravages of illness.1

These achievements did not happen spontaneously. The existence of an organizational structure that appears to have the essential elements of a health care delivery system-Money, Management, Medicine, and Members—is no guarantee of ultimate success, defined as the ability to provide a comprehensive program of high quality at a price the membership can afford. This requires the commitment and expertise of all participants with constant recognition of the delicate interplay between managerial and professional interests.

We serve a defined population. Utilization of health services by a known population is essentially predictable. These two factors permit us to plan jointly in an organized manner to meet the needs of that population. It carries the commensurate responsibility of insuring that those needs are met. This necessitates predicting the demand for services, identifying the resources required to meet that demand, ascertaining the availability of those resources, and assuming responsibility for organizing those resources in a meaningful economic way.

OVERALL RESPONSIBILITIES

These include:

1. Organizing staffs of physicians with the necessary support personnel to provide a program of comprehensive health care services.

2. Providing hospitals, medical office buildings, and other facilities essential for modern medical care.

* Vice-President and Assistant Regional Manager, Kaiser Foundation Health Plan and Kaiser Foundation Hospitals, Southern California Region.

1. A. Donabedian, “An Evaluation of Prepaid Group Practice," Inquiry VI:3 (September 1969): pp. 3-27.

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THE HEALTH PLAN-BUSINESS ASPECTS

3. Relating people and facilities to the present and future health plan membership. This calls for a delicate balance since too few resources or inordinate delays in providing such resources would constitute a serious threat to the integrity of our program. Concomitantly, the availability of too many resources, or their availability too early, would produce a serious drain in the form of unnecessary, burdensome operating expenses.

4. Relating these organized health care services to the prepayment industry, through responsive, dual, and multiple choice programs--a relationship that must constantly tie health care services as conceived by medical care professionals to the needs for these services as perceived by the organized bulk purchasers of health care. 5. Delivering a high quality of care to those enrolled in the Kaiser Foundation Medical Care Program.

In describing our experience in meeting these responsibilities, I will restrict my comments to the Southern California Region where we are presently serving 910,000 members. I will use several indices that we have developed, and will again employ those denominators that are becoming increasingly familiar to you; namely, per member or per 1,000 members.

The health plan coverages were described in Chapter V and illustrative contracts summarized in Appendix Table 17. Our contracts neither specify nor limit where that service will be provided. Our goal has been to integrate health care resources so as to maximize the effective options available to the physician in his selection of the appropriate care needed by a member.

It should be noted that integration of health care facilities means more than physical integration of hospital and medical office structure. Physicians both in the hospital and attached outpatient centers are organized on departmental lines and the same professional staff covers both inpatient and outpatient care. Thus, at any medical center, the chief of any service is responsible for both outpatient and inpatient services.

As has been stated previously, this integration is also carried forward in our coverages. Laboratory and xray services are treated exactly the same for inpatients as for outpatients. In all instances the physician can make decisions based solely on medical grounds, free from economic constraints dictated by coverage or member pressure.

UTILIZATION DATA

The physician may decide to see the patient in his office. This is referred to as a doctor office visit, or D.O.V., defined as medical treatment or examination provided by a staff physician. Excluded are optometry, allergy visits for treatments or tests, psychological visits, or visits to any other nondoctor, professional, or technical employee.

The number of doctor office visits per member per year has remained remarkably constant at about 3.6 over the past decade (Figure VI−1).

The physician may decide to hospitalize the patient. Southern California's experience in admissions evidences a downward trend from 1961 to 1967 with a flattening-out at about 82 per 1,000 members in recent years (Figure VI-2). With the advent of Medicare in 1966, 4 percent of the membership or approximately 24,000

UTILIZATION DATA AND THE PLANNING PROCESS

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FIGURE VI-1 Kaiser Foundation Health Plan, Southern California Region, Trend of Doctor Office Visits per Member, 1961 to 1970

FIGURE VI-2

Kaiser Foundation Health Plan, Southern California Region, Trend of Health Plan Admissions per 1,000 Members, 1961 to 1970

older members opted to stay with us. Contrary to national experience, the Medicare legislation had no apparent effect on our admission rate.

Hospital days per 1,000 members has shown a gentle decline in the past ten years and appears to have stabilized at about 490 to 510 (Figure VI-3). An interesting sidelight is the Oregon Region's experience with extended care beds in 1967–68. A portion of the hospital's beds was allocated for extended care during this period, and the utilization of acute days dropped to approximately 440 days per 1,000 mem