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One of the most significant challenges facing the nation during the last decade has been finding solutions to address the alarming rise in health care costs. With the exception of an attempt — with catastrophic results — by the Clinton administration in the early 1990s, little has been done on the federal level to address the crisis.
How bad is it? A January 2002 Business Week article quoted a study by Towers Perrin projecting health-plan costs to rise an average of 14 percent in 2002 — the largest annual hike since this survey began over a decade ago and the third consecutive year of double-digit increases. (Towers Perrin Monitor reported health care plan costs rose 12 percent in 2000 and 13 percent in 2001.) A Segal Health Plan cost survey projected a 14 percent rise in 2003 and reported that the cumulative effect of prescription drug increases since 1999 represented an increase of almost 100 percent over five years.
Numerous articles in the press detail that health plans are not only becoming more expensive but that health care coverage is becoming more threadbare as employers across-the-board attempt to minimize these radical health care cost increases.
The DGA-Producer Health Care Plan has not been immune to the crisis and has experienced the same double-digit cost increases as other plans over the last few years. SAG, the WGA and most recently IATSE have all reported to their members that they are facing significant challenges to providing health care coverage in the face of seemingly out-of-control health care costs.
The DGA-Producer Health Care Plan is a collectively bargained, self-funded Plan. Because the Plan is self-funded, it is crucial that it remain financially stable, to ensure it can provide quality health care coverage to members now and in the future.
The Plan itself is a separate organization from the DGA and is administered by a Board of Trustees, half of which come from the Guild (Directors, ADs, Associate Directors, UPMs, Stage Managers and DGA executives). The other half comes from the management side of the table. In addition, the Plan has an administrator, staff and complement of outside consultants to monitor the state of the Plan as well as its relation to health care costs in general.
Benefits are paid from monies generated by two sources: contributions coming from a percentage of compensation and earnings generated when contributions are invested in short-term, fixed-income investments.
It is this combination of contributions and earnings that funds the plan.
How We Got Here
Until recently, the DGA-Producer Plan consistently maintained a year-end surplus. By the end of 2001, consecutive years of double-digit increases had eaten away the surpluses and projections for future years warranted a major rethinking of the structure of the Plan.
"We went into contract negotiations in 2001 with our Health Plan in good shape," DGA National Executive Director Jay D. Roth explained. "Our September 30, 2001, report indicated that our Plan was still running slightly positive. But we realized that more needed to be done to protect and fund future benefits.
"As part of the agreement for the 2002-2005 negotiations, we successfully negotiated a provision which results in an approximately $3 million in additional producer contributions in the third year of the contract. We had the foresight to see we were going to need additional money, but believed it could be applied to future retiree costs.
"However, when we got the year-end report for 2001, we had a deficit of $3,242,000. In other words, in the last quarter, we had run a deficit of $3 million due to increased Plan costs."
Benefits Committee Chairman and UPM Burt Bluestein added that, "we went from a $5 million surplus at the end of 2000 to a $3 million loss at the end of 2001. That's an $8 million swing — almost entirely attributable to increased costs for coverage. We had to look at something to stop the hemorrhage or we would be putting all of our members' short- and long-term health care coverage at risk."
Fortunately, the Plan's Benefits Committee and Plan Trustees, working with previously analyzed data, had already begun implementing changes to take effect in 2002. These included reductions in self-pay coverage and increases in prescription drug co-pays.
However, even those changes failed to stem a deficit for 2002 of $7.8 million, and initial projections of a $10 million deficit in 2003 seemed inevitable.
"The cause of the deficit is simple math," Roth said. "If you have a $50 million budget and you break even based on contributions and earnings from investments — as we have been — but costs go up 15 percent, your costs are now $57.5 million. And if costs go up 15 percent again the next year, you're at $66 million. So it is these double-digit cost increases that drive this deficit."
Call to Action
In the spring of 2002, the Plan's Benefits Committee appointed a special Subcommittee made up of Bluestein, Roth and two representatives from management.
They were charged with exploring further alternatives to reduce the deficit. In the process, they had numerous meetings with the noted health care consultancy firm Watson Wyatt. Bluestein and several other representatives also flew to St. Louis to meet with the pharmacy benefit manager to find ways to cut costs on the prescription side. More importantly, Roth, Bluestein and Plan Administrator Gavin Gervis conducted DGA general membership meetings — two in Los Angeles and one in New York — to explain the current crisis and to gather members' input into what the future of the Plan should be.
"We also did presentations at the various Council meetings on both coasts and the National Board, and from those and the general membership meetings we got a sense of what would best serve the members and acted upon that feedback," Bluestein said.
The culmination of the yearlong analysis of data, meetings — which also included a special National Board videoconference — and sometimes heated discussions, resulted in the Subcommittee presenting its recommendations to the DGA-Producer Benefits Committee. Like the Plan's Trustees, this Committee is comprised of members representing every DGA category as well as management.
The challenge in restructuring the Plan became how to address current and future cost concerns, yet build in a structure with the flexibility to anticipate future changes. According to Roth, "The three primary objectives we sought to maintain going into Plan restructuring were: to ensure the highest level of benefits for catastrophic and major illnesses, to continue to provide full health coverage for members at past income levels and maintain existing retiree coverage. I am proud to say that we accomplished those goals and were able to restructure the Plan to be able to ensure its future financial viability."
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Change of PPO Network
Among the primary changes was a switch of PPO in California from PHCS to Blue Cross. (The PPO network outside of California continues to be PHCS). In making this change, the Trustees examined the list of doctors who are in the current PHCS and new Blue Cross networks. Blue Cross was found to have significantly more doctors and laboratories than the PHCS network, and the vast majority of doctors who participate in the PHCS network also participate in Blue Cross. This change will almost triple the number of California providers participating in the network. In addition, and perhaps more importantly, Blue Cross, through its large provider networks, has been able to keep doctor and specialist fees reasonable, offering significant savings to both individual members as well as to the Plan as a whole.
A Two-Tier Approach
A significant discovery while analyzing the data was that in order to provide the current level of coverage, contributions and earnings of $170,000 were needed for a family of four. However, in order for that same family to qualify for DGA health coverage, the Plan only required a participant's covered earnings to be $27,900.
To address this, the Subcommittee began looking at the possibility of a two-tier approach featuring a Choice Plan and adding a Premier Choice Plan. Still, questions arose about the amount of earnings that would be required to be able to enter the Premier Choice Plan.
By discussing the various options — raising required covered earnings and/or reducing level of benefit coverage — in general membership meetings, with the Councils and National Board, the Subcommittee members learned that the general consensus was to try to have a higher covered earnings amount requirement for entrance into the Premier Choice Plan so that more members contributing to the Choice Plan would provide for higher benefits for that Plan.
"The covered earnings eligibility starting in January 2004 will be $28,700," Bluestein explained. "One of the things we could have said was, 'Forget that; we have to raise it to $40,000.' We would have immediately eliminated 600 to 700 participants from receiving any health care coverage. Or we could have completely eliminated the dental coverage. But we didn't want to go in and cherry pick by taking this or that away. We looked for structural things. In other words, we worked on the doughnut and not the hole."
In the tier system adopted by the Plan's Trustees, which takes effect July 1, participants with covered earnings less than $90,000 enter the Choice Plan. Participants earning $90,000 and above are participants in the Premier Choice Plan. What is particularly remarkable is that the only major difference between the Choice and Premier Choice Plans is the question of out-of-network, or non-PPO coverage. Approximately half of the membership falls into each of the two tiers, with members representing all job classifications in each.
In addition, Roth said, "For those concerned about quality of care, the vast majority of premier health care facilities are in the PPO network."
PPO vs. Non-PPO Providers
While enjoying a broad range of hospitals, doctors and health care providers, participants who stay in-network will also be able to greatly control their, and the Plan's, health care costs. That's because PPO providers have negotiated to charge lower fees than those out-of-network. If the participant stays in-network by using a PPO provider, the out-of-pocket maximum (after deductible) is only $1,000 for either Plan. Using non-PPO providers, DGA Choice Plan participants will pay 40 percent of the costs, with a maximum of $7,500 (after deductible) for out-of-pocket expenses per year. DGA Premier Choice participants will pay 30 percent of the costs, with an annual maximum of $3,000.
In the following example (which assumes that the annual deductible has been satisfied), if a Choice Plan participant in Los Angeles elected to undergo a surgical procedure in a non-PPO hospital, he would be responsible for 40 percent or $7,500 of the total cost, whichever was less. If the cost was $20,000, 40 percent of the cost would be $8,000 which is above the $7,500 cap; therefore the participant's total out-of-pocket costs would be only $7,500. However, if the participant stayed in the PPO, he would only be responsible for a maximum of $1,000. The non-PPO using participant would pay $6,500 more even though such world-class, state-of-the-art facilities as Beth Israel, Mount Sinai, New York Presbyterian, Cedars Sinai, UCLA or St. John's Hospital Health Center are available in-network.
"The great magic of the two-tiers that we created is that if you stay inside the PPO there is virtually no difference between the Plans," Bluestein said. "The only significant difference between the Plans is the amount the participant pays — when using non-PPO providers — before insurance picks up 100 percent of the cost."
Dependent Premium
The Subcommittee discovered that on an annual basis, approximately half of the medical benefits paid by the Plan are for coverage of participants' spouses, domestic partners and dependent children. However, in the past, all participants have contributed at the same level and have not paid a premium — whether they have one or 10 dependents covered by the plan.
With input from Plan participants, the Trustees determined that a relatively small premium seemed a fair and equitable way to begin to cover some of the costs.
Effective October 1, there will be an annual dependent premium of $600 regardless of whether you have one or more dependents covered by the Plan. The premium will be payable semi-annually (or annually, on request) in advance.
This relatively small premium, spread over the thousands of participants, raises millions of dollars that can maintain current Plan benefits and avoid potentially deep benefit cuts.
Retiree Benefits
The Subcommittee overwhelmingly heard in the meetings, from both active members and retirees alike, about the importance of the Plan's maintaining retiree benefits. Because of this, for Certified Retirees over 65 there is no change in the current $60 monthly premium.
However, one of the greatest expenses for the Plan was for coverage for Retirees under age 65. This is due to Medicare being unavailable to offset costs of the Plan. The Subcommittee learned that retiree coverage for those participants under 65 accounted for approximately $1.7 million annually, a cost of approximately $17,000 per retiree under age 65 compared to approximately $5,000 per retiree over the age of 65.
To address this, the Plan increased premiums of Certified Retirees under age 65 from $60 a month to $100 a month ($90 medical/$10 dental) and the same additional premium for spouses.
For further details on these and additional plan changes refer to the "Changes to DGA-Producer Health Plan At-A-Glance" chart here.
The New Plan
Even with these changes, the DGA Health Plan is considered to be among the most comprehensive and generous plans in the country.
Mark Straus, consultant for Watson Wyatt said, "By and large, the changes have not reduced the level of coverage for those participants who use the PPO network. It's a minor reduction for them — no matter which tier they are in — as long as they choose physicians, labs and hospitals that are part of the network. If they choose to go out of the network, then their out-of-pocket costs will go up."
"The best news is the Trustees were able to achieve a remarkable $6 million in annual savings with only minor changes in coverage for most people," Bluestein agreed. "The bottom line is that it's the structure of the Plan that has changed to create incentives for participants to stay in the PPO network."
What You Can Do as a Participant
All agree that the health care crisis is not going to go away. The best advice is to become an educated consumer. "You have to ask your PPO provider doctor the question, 'Is this place you're sending me to for a test also a PPO provider?' " Bluestein said. "You have to ask the question. It's a simple question and you can usually find out pretty quickly."
"There are many decisions where you can use PPO providers for testing or outpatient surgery to save yourself and the Plan money," Roth added."There's no reason we should be paying so much more for a non-PPO MRI or non-PPO surgery center when the best in the world is available at places like Beth Israel, Mount Sinai, New York Presbyterian, Cedars Sinai, UCLA and St. John's, often at significantly reduced cost. So if you're going to make the decision to act without regard to cost, it's going to cost you more. The key to effectively using the Health Plan is for everyone to become more knowledgeable consumers."
Looking Ahead
Most of the changes in the Plan will begin to be implemented on July 1, approximately 60 days from now. By now, all participants should have received additional information and details on the changes. The Health Plan staff will be available to answer your questions and provide suggestions on how to maximize the use of the PPO network. In addition, the Plan website, found at www.dga.org, will soon have a "frequently asked questions" page to address new issues. And, all Plan participants are invited to participate in special DGA Health Care meetings from 7 to 9 p.m. on May 19 at the DGA in Los Angeles and from 7 to 9 p.m. on May 28 at the DGA in New York.
