Driving Savings with Consumer-Driven Health Care

    McCallister instructed Bonnie Hathcock, chief human resources officer, to find a solution. Hathcock launched a collaborative internal effort that included the company's product-development, communications, and actuarial staffs. The team turned to the consumer-driven model, the newest approach to providing health-care benefits. Hathcock presented the new plan design to McCallister, who asked for minor modifications and then gave his approval.

    Humana, the Louisville, Kentucky-based health-care giant, introduced two consumer-driven plans and modified its existing health-care benefits in 2002 with three objectives in mind: reducing costs, modifying employee utilization behavior, and maintaining employee satisfaction. Results from the first year indicate that the company has achieved all three goals. Cost increases dropped from double digits to 4.9 percent, and the company saved $2.1 million on medical claims for the initial test group of 5,000 employees. "We found that 60 percent of these savings came from behavior modification," says Debbie Triplett, director of benefits.

    Managed care, as a cost-control strategy, has been dead and cold for three years. Some corporate executives are still kicking the body, desperately looking for signs of life in what was once thought to be a lasting solution to the soaring cost of health-care benefits. But like McCallister and Hathcock, executives with a better grip on reality are moving on to the most promising solution on the horizon: consumer-driven health care. Such plans include a variety of models designed to compel employees to take a more aggressive role in their health-care purchasing decisions and, ultimately, to modify their utilization behavior.

    Consumer-driven plans commonly combine an employer-funded, tax-free personal account or allowance with a high-deductible medical plan. Account balances carry over from year to year. Because employees hit the high deductible when their account is exhausted, these plans create a compelling incentive for employees to become better informed and make careful decisions about their medical spending. Employers can use the plans to drive changes in utilization that produce immediate savings and create a more competitive environment among health-care providers.

    "The long-term objective is to change the market, so that buying health care is more like buying a car," says Mark R. White, senior health-care consultant for Watson Wyatt Worldwide. "Employers need to make information available to the health-care consumers--their employees--to stimulate competition among providers, which will improve quality and lower costs. Information is the key to market dynamics. In health care, this is a huge, long-term change."

    Whether consumer-driven plans can create this change is an open question. But the proliferation of vendors pushing these plans and companies willing to test them is breathtaking. And the Herculean task of making them work clearly lies with human resources executives. Meanwhile, some companies are achieving good results from them.

Humana heals itself
    If any company has the knowledge and experience to force a radical reversal in cost escalation, it's Humana, an industry leader in cost-control methods. As savings from managed-care plans disappeared in 2000, Humana faced double-digit health-benefit cost increases for its own 14,000 employees. "As an employer, we were experiencing the same cost increases as other companies," Hathcock says.

    Humana's new consumer-driven plan offers two options. The first provides a $500 allowance, with a $1,000 deductible for expenses beyond the first $500, followed by 80 percent insurance coverage and a $2,000 maximum out-of-pocket limit. The second option provides the same $500 allowance, with a $2,000 deductible, followed by 100 percent coverage. Employees may select one of the two consumer-driven options, or continue to use modified versions of Humana's traditional HMO or PPO offerings, but with much higher employee premiums attached to the traditional plans.

    When Humana rolled out the two consumer-driven options for its Louisville employees, only 6 percent selected the new plan. "We weren't disappointed because the new options represented a completely different benefit model," Triplett says. "We learned that we needed to provide better tools for employees to calculate their savings." The human resources team modified the tools, revised the communication package, and then rolled out the new plan to Humana employees across the country. Enrollment jumped to 18 percent, triple the original rate in Louisville.

    "We never intended to drive employees out of the rich plans," Triplett says. "Some employees need rich plans and pay more for them. The idea was to offer employees real choice." Humana helps employees choose the right plan with a package of online education and information tools, including an interactive program that asks enrollees questions about their health-care and budget needs, and then ranks the plan offerings according to the responses.

    Humana's HMO participants have high utilization rates and continue to do so, but across the three PPOs and the two new consumer-driven options, the company saw changes in behavior that helped reduce overall costs. For example, more employees opt for outpatient care and fewer see specialists. "We've learned that you can change behavior," Triplett says. Employee surveys conducted after the first year indicate high levels of satisfaction with the health-care options.

Companies go beyond dabbling
    White believes that enrollments in consumer-driven plans will more than double in 2003, as enrollments in existing plans rise and as more companies adopt the plans. "Most employers with these plans are dabbling in them and seeing 5 to 10 percent of their employees select them," he says. "But many of these employers are leaving the door open for these plans to become total replacements. If the consumer-driven concept plays out successfully, it could become a common plan design."

    Xerox Corporation, based in Stamford, Connecticut, is not dabbling. The company launched a consumer-driven plan in 2002 as an option for all of its 40,900 U.S. employees. The plan uses company-funded health-care accounts with a high-deductible PPO. "The idea for consumer-driven health care had been discussed for several years," says Larry Becker, director of benefits. "It originated within the human resources department. We had many discussions with senior management as both the cost and complexity of health care increased." Discussions were held among human resources, tax, and legal experts to craft a plan.

    Xerox will continue to provide traditional plans while it monitors the performance of its new consumer-driven option. "Much needs to be learned about these plans before, and if, they are to become the primary health insurance option," Becker says. "As experience with the consumer-driven plan develops, we will look at election patterns, the cost of the plan, and the use of the health-care account."

    At CompuCom Systems, Inc., an IT services provider based in Dallas, 27 percent of the 3,800 employees have selected the company's new consumer-driven health plan. "The HR department looked for a way to slow down double-digit health-benefit cost increases through new plans that address the issue," says Cyndie Ewert, human resources director. "In presenting this to executive management, we addressed issues of great concern, such as operating expenses, head count, and associates' concerns about receiving more information and choices when making health-care decisions."

    CompuCom contributes $1,000 to accounts for employee-only coverage, $1,400 for employees with one dependent, and $2,000 for employees with more than one dependent. Out-of-pocket maximums protect employees from the financial consequences of catastrophic events. The company continues to offer PPO and POS plans. "We have eliminated most HMO plans, as they were the most costly and projected the biggest increases," Ewert says.

    CompuCom is actively monitoring the effectiveness of the consumer-driven plan. "HR will keep a close eye on employee behavior changes," Ewert says. "As associates become more aware of the costs of health care, do they modify their behavior, such as purchasing generic medications instead of regular brands? Do they wait to see a doctor, as opposed to visiting an emergency room when it is not truly necessary? Also, we will measure our associates' level of satisfaction and the plan's ability to meet their needs."

Long-term prognosis
    Whether these consumer-driven plans are successful, White says, hinges on three key elements: introducing additional financial tension to encourage employees to think about treatments and costs; providing education to change behaviors; and issuing timely information that helps employees understand costs and treatments. "This final element is the most important of the three, but also the hardest to do," he says. "HR must emphasize the information component to make the plans work."

    Human resources executives must also "work through the laundry list typically used in any bid process," White says. This includes looking at the cost of the specific program under consideration, addressing access issues, and investigating the experience of vendors with respect to quality and information issues. "Because these plans are in the early stages of development, the HR executive needs to ask vendors how they see their information flows and Web sites evolving in the coming years," he says. "Vendors should have substantial plans in place for improving the information flows and investing in those improvements."

    Initial savings may come from plan design, but long-term savings come from improved information flows, which drive changes in behavior. "The changes in information flows and behaviors tend to be cumulative, so the real payoff from these plans may be down the road," White says. Employers with a relatively stable workforce may be in the best position to make the investment in plan changes and to reap the rewards.

    "Changing behaviors and the way the market works is a very exciting idea, but it is not clear that the personal account type of consumer-driven plan is the right one," White says. "We won't know until the experience of the initial adopters is clear. These plans may not be the panacea; the more general principles may have a longer shelf life." This year, employers that are testing these plans will be able to determine whether their employees are beginning to behave like true consumers. If more employees are comparing treatments, providers, and prices, employers will know they're headed in the right direction.