Every day American Telephone & Telegraph Co. spends $3 million to provide health care coverage for its employees. And every year the bill goes up an average of 10 percent.
That's not bad by general industry standards, which recently have seen health care costs soar an average of 20 percent a year, but it's not good, either -- by the standards of AT&T and its two unions, the Communications Workers of America and the International Brotherhood of Electrical Workers.
So starting in October, the company and its unions are beginning an experiment in the rationing of medical care that, if it succeeds, could affect many other company medical plans.
The two sides are embarking on the largest program of managed health care yet undertaken by an American corporation. When fully in place next July, AT&T's 100,000 non-management employees will have a choice: Receive their medical treatment from doctors and hospitals selected by the company or go to the doctors of their choice and pay more for their health care.
The concept -- administered by what is known as a preferred provider organization -- is not unique to AT&T. Companies such as Allied-Signal Inc., Sears, Roebuck & Co. and Marriott Corp. are all experimenting with variations of the managed care approach. But the AT&T experiment is the first one of major size negotiated as part of a union contract.
Companies that turn to managed health care as a way to curb medical costs also hope it will blunt the growing political pressures for some form of national health insurance.
Earlier this month, after nearly a year of study, AT&T awarded contracts to three major health insurance companies to administer the programs. The three companies -- Empire Blue Cross/Blue Shield, Prudential and Travelers -- will now go out and negotiate contracts in metropolitan areas with doctors and hospitals to provide health care to AT&T workers for predetermined prices.
The goal of the plan is to reduce annual increases in the company's health care costs to single-digit levels by 1993.
The key to success will be AT&T's ability to convince its non-management employees to leave their own doctors for the ones selected by the insurance companies. Unlike some of the plans being offered by nonunion companies, AT&T's union employees will have a choice with each illness of the preferred provider organization or a doctor outside the new system. If enough employees fail to use the preferred provider organization, it will not be economically feasible for the company.
Therefore, the three insurance companies are under pressure to make sure enough mainstream doctors and medical treatment facilities are included in the program to attract employees to the plan. If the doctors signed up by the companies are viewed by employees as inferior to their own doctors or otherwise undesirable, then they will not make the switch.
For medical professionals, the incentive to sign up with AT&T, or any other managed health care plan, is extra business -- which they hope will be enough to offset the reduction in their prices. Like a supermarket, their price structure will be based on volume.
Under the AT&T plan, non-management employees who use the managed health care system will pay a $150 deductible and up to 10 percent of most other medical charges. They will pay nothing for hospital care under the plan. If employees choose to use their own doctor or hospital, they must pay a $200 deductible and 20 percent of all other medical costs including hospital charges.
The decision by the unions last year to go with the new form of economic rationing was the only way to fend off a company demand for employees to pay more of their medical costs. The company had insisted that there would be no new contract unless the unions agreed to deal with the health cost issue.
Under current plans, the new program will start in October in Atlanta, Minneapolis-St. Paul, Columbia and Charleston, S.C., and Oklahoma City. By next July, the company plans to have the program operational in the 23 metropolitan areas across the nation where its employees are concentrated.
The CWA, in the meantime, is hedging its bets on the success of the new program. While cooperating with AT&T on the managed care, the union is at the forefront of a labor effort to bring about national health insurance.