Health Costs Fall With Big Push to Managed Care : Benefits: Businesses realized savings in 1994 as coverage for thousands of employees was shifted, survey finds.

By shifting workers by the thousands into managed care, businesses reduced their spending on employee health benefits by 1.1% in 1994, a nationwide survey of nearly 2,100 firms showed.

The average firm with 10 or more workers spent $3,741 per employee on health benefits, down from $3,781 in 1993, the benefit consulting firm Foster Higgins reported Monday. It was the first time since 1986, when the firm first began conducting the survey, that these costs have actually fallen.

Many California employers, particularly large corporations, have reported that their health premiums for 1995 were down significantly from the prior year. Health maintenance organizations in the state, which are in fierce competition with each other, have been willing to lower prices in order to maintain market share.

HMO giant Health Net, for example, said Monday that it had agreed to a 7% rate reduction in 1995-96 for its largest customers, the California Public Employees Retirement System, the state pension fund that negotiates for health care for nearly a million government employees and their families.

In the Foster Higgins survey, big companies, those with more than 500 employees, had the most success in reducing costs. Their health bills fell by 1.9%, to $4,040 per employee.

Companies with fewer than 500 employees, which generally offer less generous coverage, saw their costs climb by 6.5%, to $3,452.

But small or large, businesses are rapidly shifting their workers into managed-care plans that seek to lower costs by emphasizing primary care and imposing some restraints on which physicians and hospitals their workers use.

Foster Higgins surveyed 2,097 firms and found 63% of covered employees were in managed-care plans--health maintenance organizations, preferred provider organizations and point-of-service plans. That was up from 52% in 1993.

For years, health costs have been rising at twice and three times the rate of inflation. But that spiral slowed dramatically in 1994 while Congress debated, and eventually discarded, President Clinton’s proposal to make all employers and employees buy health insurance.

Another private firm, KPMG Peat Marwick, has estimated that overall private health insurance premiums rose 4.8% in 1994.

The Clinton Administration last week sharply lowered its estimate of the future costs of Medicare and Medicaid, but said health costs were still rising too rapidly.

While health cost inflation has abated, 41 million Americans, or 16.1% of the population, are uninsured, and the number is rising.

John Welch, a principal with Foster Higgins’ Washington office, said, “Employers that have embraced and moved to managed care have been rewarded. . . . They really saw the results come through for them for the first time.”

Employer health costs rose 8% in 1993.

Employers can lower costs by slashing benefits or forcing workers themselves to pay more.

But Welch said, “We didn’t see much evidence of cost-shifting to employees.”

Most of the growth in managed care was in point-of-service plans, which encourage patients to choose from a network of doctors and hospitals, with the option to go outside the network and pay more.

Fifteen percent of employers offered a point-of-service option in 1994, up from 4% in 1993.

Employers for the first time induced a significant number of retirees to join HMOs, particularly in the West.

“Retirees have traditionally been very reluctant to leave their own doctors and join HMOs,” said Dave Rahill, also a Foster Higgins principal. “Getting this high-cost population into low-cost plans will have a big impact on employers’ health care liability over the long term.”

A sample of all firms with 10 or more employees was surveyed by ICR Survey Research Group for Foster Higgins. The company said the results are valid for more than 550,000 employers with 68 million employees.