From his position as Chairman of the Board of Directors of the Union Labor Life Insurance Company (ULLICO), LIUNA General President Terence M. O’Sullivan surveys the nation’s health care cost crisis with enhanced perspective.

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LIUNA General President Terry O’Sullivan

“Rising health care costs are a serious obstacle in our battle to build market share for Laborers and union contractors,” he reported at LIUNA’s Leadership Conference last September. “Currently, 80 percent of the raises we negotiate are going to cover increases in the cost of health care. Unfortunately, this leaves next to nothing for our members’ take-home pay.”

“I’m 58 years old,” explained LHSFNA Executive Director Joe Fowler, lending perspective to O’Sullivan’s remark at a follow-up workshop. “At my age, I care about health care. But tell a 20 year-old Laborer that he would have had a good raise except that it all had to go for his health insurance, and he might start thinking about another line of work.”

Final results for 2003 are not yet tabulated, but all signs indicate that medical coverage for LIUNA members and retirees under age 65 increased by more than 15 percent. Prescription drug coverage increased by about 20 percent.

“In five years,” says LHSFNA Health Promotion Division Director Mary Jane MacArthur, “the average cost of health care nationwide will just about double. That means, if we don’t do something, it’s going to cost our local health and welfare funds twice as much, too. Our funds can’t do anything about the big picture so our best option is to enhance our position as buyers of health care services. And the best way to do that is to get bigger by creating and joining health care coalitions.”

In the United States, health care services – anything from managed care to prescriptions to major medical and hospitalization to dental and vision to long-term disability and life insurance – are provided by a variety of vendors. The trustees of LIUNA’s local health and welfare funds, knowing the resources available from collective bargaining agreements, negotiate with vendors and purchase these services for use by LIUNA members, retirees and their families.

“Our funds are little guys in the health care marketplace,” said O’Sullivan. “When we combine with other purchasers to negotiate prices, we get bigger and we get better results.”

The outright merger of LIUNA health and welfare funds is one possibility (see NJ Funds Merger Saves Money, Improves Service), but, as O’Sullivan noted, “Mergers are politically sensitive and difficult to achieve. Coalitions – in which each fund retains its autonomy – are easier.” LIUNA funds in a given region might form a coalition among themselves, or a local LIUNA fund could join with the funds of other AFL-CIO unions or with any other health care purchasers in its area.

At a workshop organized and presented by the LHSFNA at the Leadership Conference, Edward M. Geisler reported on one of the more successful coalition efforts, the Health Care Payers Coalition of New Jersey (NCPCNJ) which he serves as Executive Director.

“Exclusive Provider Networks offer an opportunity to significantly reduce major medical expenditures while also improving the overall quality of care,” he said. By amassing a huge number of potential hospital users in one coalition and offering hospitals the chance to bid to become the exclusive provider of service to the entire group, the NCPCNJ accomplished three things. First, it negotiated a substantially lower price for major medical services for all its members. Second, by surveying its members regarding the quality of service provided, it was (is) able to make detailed assessments and demand improvement from the hospital. Third, it is able to greatly increase the legislative influence of the coalition’s participants and, thus, enhance legislatively-mandated services and regulation.

Mano Frey – a former business manager recently appointed LIUNA Vice President and Northwest Regional Manger and a new member of the LHSFNA Board of Trustees – reported on a similar effort in Alaska. The Health Care Cost Management Corporation of Alaska, which he helped establish in 1994, now has 16 members that cover 58,000 Alaskans, approximately nine percent of the total state population. Most members are union-related health care buyers; others include union-friendly companies and corporations. “The whole purpose of the corporation,” says Frey, “is to negotiate service agreements with area hospitals, physician groups, vision care providers and prescription drug providers.” In addition, “the corporation continuously monitors these providers to guarantee the best possible service.”

According to Frey, fee negotiations with the Alaska Regional Hospital resulted in actual medical cost savings for 2002 of over $14 million (compared to usual charges of the hospital for the same services). For the first six months of 2003, savings were over $9 million and are projected at $20 million for the year.

“Existing health care coalitions are a significant step in the right direction,” says ULLICO Regional Vice President Matthew Emm, “but their full potential remains largely untapped.” To make his point, he summarized that 85 cents of every health care dollar goes to pay claims while 15 cents goes to administrative expense. “If a coalition could unify its plan design among all participants and establish one claims process facility, administrative expense could be reduced to ten cents, a savings of 33 percent. Still bigger savings are possible within the claims area – specifically, on pharmacy and medical claims.”

In the pharmaceutical market, according to Emm, drug manufacturers are at the top, and local health and welfare funds are at the bottom. In between are several layers of intermediaries. Wholesalers buy from the manufactures and sell to pharmacies, mail order houses and medical facilities. Some local payers buy directly from pharmacies or mail order houses but, due to their small purchasing size, pay top dollar. Other funds join together and purchase drugs through a pharmacy benefits manager (PBM) which negotiates better prices from the pharmacies and mail order houses. LaboreRx is such a buyer for participating LIUNA funds, and it purchases from the Express Scripts PBM.

According to Emm, pharmacy claims are about 25 cents (and rising) of each health care dollar. “If local funds join a buying coalition, they can save six to eight percent on drug purchases,” he says. “However, if several coalitions band together, an additional six to ten percent savings is possible. If Labor formed its own mail order house and bought directly from the manufacturers, it could save another 10 to 20 percent, and if it formed its own PBM, it could add an additional 15 to 25 percent on top of that.

“ULLICO is an insurance company, and, certainly, we’d like to get as much of Labor’s business as possible,” Emm added. “But ULLICO needs to take on more responsibility to organize unions to cost save in this crisis. With General President O’Sullivan now leading our board, perhaps, our company can get all the key labor leaders in one room to talk about the possibility of an AFL-CIO sponsored, national health coalition. That’s the kind of purchasing power that could protect union workers against the worst of the cost crisis.”

[Steve Clark]