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Special Report Consumer-Driven Health Care—If You Fix It, They Will Come

Like any high-deductible insurance plan, a consumer-driven one lowers employer costs by only a modest amount. If employers want more, they’ll have to overhaul plan design to win workers over—and force providers to live up to their promises.

April 10, 2008
When T. Rowe Price installed its consumer-driven health plan in 2004, it was in an optimal position to make the plan work. With almost 5,000 financially savvy U.S. employees and a sophisticated benefits program in place, enrollment in the plan hit a predictable 8 percent in the first year.

    Then enrollment remained utterly flat for three years until 2008, when it ticked up a negligible amount to 9 percent. And there it sits, with enrollments too low to produce substantial savings, no real incentives or deterrents to boost participation and no meaningful tools for consumerism.

    In other words, the T. Rowe Price plan looks just like thousands of other consumer-driven plans at companies across the country.

    Consumer-driven health plans have stalled out. Adoption has slowed, enrollment rates are low and flat, and the tools needed to drive behaviors have never materialized, most recent studies of the plans have found. The most common plan designs are a setup for failure. For example, when Towers Perrin wanted to quantify potential cost savings from consumer-driven plans in a recent study, it found that the universe of well-designed plans was too small to do a credible survey.

    T. Rowe Price strives for a cutting-edge rewards program. "We wanted to be ready if CDHP really took off and succeeded in changing the whole cost equation and the whole structure of employer-based health care," says Randall Singer, global benefits manager. "Our objective was to get the platform up and running in case the market shifted, but the market has not moved in any significant way. Like us, most employers are just dabbling in this."

    But dabbling is all employers can do unless they move to a full forced replacement of all their medical plans with a consumer-driven plan, or create a design that will coax employees into the plan. Consumer-driven health plans carry the potential for meaningful long-term cost savings, but only when employers provide the right mix of incentives and deterrents and providers offer some level of price transparency.

No stick, no carrot
    T. Rowe Price has no plans to shift to full forced replacement or to provide more incentives for consumer-driven plan enrollment. "The plan will continue as an option and we are always watching the market for competitive reasons and for costs," Singer says. "If I saw real movement toward these plans and they became a more common option at large employers, we would look at it again."

    The percentage of employees enrolled in a consumer-driven health plan with a health savings account or a health reimbursement account rose from 3 percent of all covered employees in 2006 to 5 percent in 2007, according to a Mercer survey. The survey also showed, however, that employer adoption of consumer-driven plans slowed in 2007 and will moderate again in 2008.

    The Kaiser Family Foundation’s 2007 survey found that among employers with more than 1,000 employees, 18 percent offer a consumer-driven health plan. Of those without consumer-driven plans, only 3 percent reported that they are likely to add a health reimbursement account in 2008, and only 2 percent said they are likely to add an HSA plan. Clearly, employers have put the plans on hold.

    "The seminal objective for CDHPs is cost savings," says Blaine Bos, a partner at Mercer. "Employers are waiting for irrefutable proof that these plans reduce costs apart from just cost shifting."

    Successful cost shifting continues with or without consumer-driven health plans. Average in-network PPO deductibles rose 11 percent in 2007 to $473 for individuals and $1,134 for families, according to Mercer. Bos calculates that an increase in deductibles of that size can shave one point off total employer health care cost increases.

    Like any high-deductible insurance plan, consumer-driven plans use the deductible to reduce utilization. If enrollments are negligible, however, the impact is limited. More than half of the employers offering consumer-driven health plans have enrollments of 10 percent or less, according to a 2008 Towers Perrin survey.

    The plans saved employers an average of $1,382 per employee in 2007 compared with a standard PPO, according to Mercer. For PPOs with a deductible of $1,000 or more, however, the consumer-driven plan’s cost advantage dropped to $674 per employee. Whether consumer-driven plans are the best method for cost reduction remains unclear. "We’ve been desperately searching for the best way—the permanent solution to health care costs—but no one is ready to say that these plans are the silver bullet," Bos says.

    Few employers have well-designed plans. "The majority have used it as a cost-shifting mechanism or have installed it as a ‘me too’ move to show that they are doing what everyone else is doing," says Jay Savan, a principal at Towers Perrin. "If you use it as a cost-shifting device, enrollment will be low, and that’s why we see enrollments of less than 10 percent."

    Insurers commonly use low pricing on new plans to promote adoption, and lower utilization certainly reduces premiums. "In some cases, CDHP premiums are lower because employers have gutted the plans and shifted costs, which gives immediate relief to the employer, but it’s fleeting," Savan notes. "Only a well-
designed plan will change costs over time."

    Many companies may be exhausting their ability to reduce costs through additional benefit cuts and cost shifting.

    "There are not many places left to go," Savan notes. "You can increase cost sharing or reduce eligibility. At the end of the day, utilization is not affected. You’re just rearranging deck chairs on the Titanic. Utilization only accounts for a certain portion of the cost increases, but you can’t boil the ocean."

    Few employers are offering employees only a consumer-driven plan, even after years of experience with them. "Employee preparedness to deal with the shift to these plans is minimal," Savan says. "With a forced change, employees will get defensive and angry and they are grieving, so they can’t even hear the message."


"One problem with consumer-driven plans is complexity. ... It's' hard for employees to understand.
It's all about communication, communication, communication.
We'll hold 20 employee meeting
this week alone."
—David Pritchett, division director of human resources,
Satilla Health Services

    Rearranging deck chairs or installing unsuccessful consumer-driven health plans aren’t the only options. Some employers are achieving substantial savings with aggressive health management programs, for example. But for those who want to work within the consumer-driven plan framework, the key is finding the right combination of substantial sticks and carrots to drive up enrollments. Here are three scenarios:

No stick, big carrot
    The new HSA-based consumer-driven health plan at Idaho Power reached enrollment of 24 percent for the first year and is expected to see a significant increase in the second year. Even after the company contributes $1,000 to the HSAs for individuals and $2,000 for families, it still saves $816 a year in premium costs for individual employees and $3,556 for families. The company’s HSA contribution is not front-loaded, but moves into the accounts each pay cycle.

    Idaho Power’s objective in installing the consumer-driven plan is not immediate cost savings for the company but to provide a vehicle for retiree health savings for its 2,100 employees, according to Cindy Anderson, manager of health and disability benefits. The power industry has traditionally provided retiree medical benefits, but Idaho Power started scaling back its plan in 1999. "We still feel an obligation to provide some kind of retiree health benefit," Anderson says.

    In January, the company shifted from three indemnity options to one indemnity plan and its "health investment" option, a name that Anderson and her colleagues created to emphasize the investment aspect of the consumer-driven health plan. For the health investment plan, the deductibles range from $2,000 for individuals to $4,000 for families, with an out-of-pocket maximum of $4,000 to $8,000. The standard indemnity option carries deductibles of $300 to $750 and out-of-pocket maximums of $2,250 to $5,500.

    Premium contributions for employees in both plans follow a five-tier structure. Employees in the health investment plan save from $416 to $1,248 in comparison with the cost of the indemnity plan. By keeping the out-of-pocket maximums relatively close in the two plans and offering lower premiums in the consumer-driven plan, Idaho Power encourages enrollment. The deal-maker, however, is the HSA contribution, which the company clearly presents as an opportunity to save for health care costs in retirement.

    Idaho Power informed employees several years ahead that it was considering a consumer-driven plan and distributed educational materials. The company launched extensive communications about the plan in May 2007 in preparation for face-to-face enrollment meetings beginning in September 2007. Idaho Power is now bearing down on its provider for price transparency and additional consumer tools.

Small stick, big carrot
    The TriZetto Group replaced its old consumer-driven plan with a new plan design in January and saw enrollment jump from 3 percent to 41 percent, even though it still offers PPO and HMO options. "We don’t believe that employees will select a consumer-driven plan unless the employer seeds the accounts," says Alan Heikkala, vice president of human capital management. "We put money in employee accounts on January 2, ranging from $650 for an individual to $1,500 for a family. And then we promoted it as a long-term savings plan for future expenses." TriZetto’s 2,000 employees provide technology and services for health plans.

    Under the company’s four-tier system, consumer-driven health plan deductibles range from $1,100 to $2,200, with out-of-pocket maximums of $2,500 per person and $5,000 per family. The employee’s contribution for plan premiums ranges from $1,188 to $3,850 per year. Preventive care, diagnostic tests and prescriptions related to prevention are covered at 100 percent before the deductible.

    In the PPO, the deductible range is from $350 per individual to $700 for a family. The out-of-pocket maximum ranges from $2,500 to $5,000, and the employee’s premium contribution ranges from $1,445 to $5,056.

HEALTH PLAN COSTS AND DESIGN
Average annual costs and health plan design features, 2007

 PTOHSAHRA
Cost per employee$7,429$5,479$6,110
Employee premium contribution1,104828780
In-network deductible4731,7691,457
Source:Mercer   

    In the HMO, the deductible range is $100 to $300; the out-of-pocket maximum ranges from $2,000 to $4,000. The employee premium contribution ranges from $1,506 to $5,271.

    Feedback from employees indicates the premium pricing makes the consumer-driven plan attractive and the account seeding relieves anxiety about expenses that might arise before employees have time to build up their accounts. TriZetto also added two features to the consumer-driven plan that drew a positive response. If an employee completes an online health assessment before March 31, the company will waive the employee’s premium contribution for December. In addition, the company provides conci­erge-like services to help participants navigate the health care system, locate doctors and understand their bills.

    With the plan, TriZetto will reduce its trend in health care cost increases to 15 percent from the 18 percent year-over-year average it saw from 2005 to 2007. "Our goal for the second-year trend is also 15 percent, but then we will begin to see compounding," Heikkala notes. TriZetto has hired a number of new employees since January, and 60 percent of them have selected the consumer-driven plan.

    "We hope this is a leading indicator for the overall workforce," Heikkala says. "We would be happy if we achieve 50 percent enrollment in the second year. We were scared to death about adverse selection, but we got an exact demographic subset of the employees in the consumer-driven plan."

Big stick, big carrot
    Satilla Health Services, a regional medical center with 1,300 employees in Waycross, Georgia, switched to a three-tier account-based plan in 2006 but encountered a series of problems with providers. Satilla went back to the market for a new consumer-driven plan for 2008. The company now offers an HRA-based consumer-driven plan with all services provided at Satilla facilities, plus a PPO network and an out-of-network option. "Our objective is to keep the claims experience in-house," says David Pritchett, division director of human resources.

    In the consumer-driven plan, coverage is 90 percent/10 percent, deductibles range from $750 to $1,500, and the out-of-pocket maximum ranges from $2,250 per individual to $4,500 for a family. Satilla provides HRA funding at levels that mirror the deductible. The HRA rolls over every year up to the amount of the out-of-pocket maximum.

    The deterrent for using the other plans is severe. No HRA is offered. In the PPO network, employees pay an annual premium of $962 for individual coverage and $3,042 for the full family. Coverage is 70/30. The deductible ranges from $2,000 to $4,000. The out-of-pocket maximum ranges from a hefty $5,000 for an individual to $10,000 for a family. For out-of-network services, coverage drops to 50 percent with a $5,000 to $10,000 deductible and no out-of-pocket maximum—a sufficiently large stick to keep health care in-house. About 80 percent of claims are now covered under the consumer-driven plan.

    Satilla’s plan, like all well-designed consumer-driven plans, covers preventive services before the deductible and triggers lower utilization only after wellness and health management programs have been satisfied.

    "One problem with consumer-driven plans is complexity," Pritchett notes. He cites the "steerage components"—the incentives and disincentives that companies use to nudge employees toward consumer-driven plans—and the matter of explaining to employees what a health reimbursement account is and how it works.

    "It’s hard for employees to understand. It’s all about communication, communication, communication. We’ll hold 20 employee meetings this week alone."

    Idaho Power, TriZetto and Satilla provide three different sets of incentives and deterrents to push employees out of their traditional plans and into consumer-driven ones. Simply adding a consumer-driven plan without changing the traditional options to create more pain can’t drive enrollment. The consumer-driven plan must be sweet, and it must make some attempt to push beyond reduced utilization if long-term savings are a goal.

    Deeper savings from real consumerism cannot materialize without price transparency. This last requirement, however, means that companies will have to demand far more from their providers than they have in the past.