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Shared-risk arrangement between employers and insurers
1Allied-Signal, Incorporated, Morristown, NJ 07962.
American Journal of Hospital Pharmacy
|September 1, 1990
Summary
Allied-Signal and CIGNA Corporation implemented a successful shared-risk health plan. This innovative employee health benefit arrangement controlled costs effectively, showing better results than traditional fee-for-service models.
Area of Science:
- Health Economics
- Corporate Health Benefits
- Insurance Risk Management
Background:
- Rising healthcare costs prompted Allied-Signal to re-evaluate its employee health plan in 1987.
- Projections indicated continued significant cost increases in the following three years.
Purpose of the Study:
- To discuss the development and initial experience of a shared-risk arrangement between Allied-Signal and CIGNA Corporation.
- To evaluate the success of a novel employer-insurer contract in managing healthcare expenditures.
Main Methods:
- Negotiated a three-year shared-risk contract with CIGNA, a dual-option insurer, capping premium price increases.
- Implemented a point-of-service delivery model offering employee choice in healthcare providers.
- CIGNA assumed financial risk for costs exceeding premium revenue, retaining surplus if costs were lower.
Main Results:
- Actual costs for the first 18 months were below projections.
- Cost increases were significantly lower compared to fee-for-service plans during the same period.
- 75% of beneficiaries utilized network providers 95-100% of the time in the first year.
Conclusions:
- The shared-risk contract between Allied-Signal and CIGNA Corporation has proven successful in its initial phase.
- The arrangement effectively managed healthcare costs and demonstrated a favorable alternative to traditional plans.