State of the Sector: Health Care Benefits

    Large employers, previously content to watch an adventurous few wade into the uncertainties of the high-deductible plans, are rapidly creating their own prototypes. In 2004, just 4 percent of companies with at least 500 employees offered a consumer-driven plan, according to Mercer Human Resource Consulting’s annual benefits survey of 3,020 employers. But one-fourth planned to implement the approach by 2006.

    With employers facing ever-increasing health costs, consumerism was this summer’s buzz as companies prepared for 2006 enrollment, says Paul Mango, practice leader for the North American payor provider practice at McKinsey & Co. "We think in the next 24 months you will see a dramatic uptick" in plans, he says. "Virtually every (insurance) payor we talk to now says employer interest is far beyond their expectations."

    The plans, which typically pair a high-deductible policy with some form of personal employee spending account, are designed to persuade employees, via their wallets, to become less cavalier about treatment decisions--from doctors’ visits to toe fungus prescriptions. This insurance approach "makes people more aware that doctor’s office visits don’t just cost $10 or $15," says Janice Pushaw, director of global benefits strategy at Whirlpool, which added a consumer-driven plan in 2004.

    But it’s still too early to know how counting pennies will influence long-term employee health, and thus the final bill. Early cost savings have been promising, but employees may be deferring treatment until they build sufficient funds in their personal accounts, Mango says. Gail Shearer, a health policy analyst at Consumers Union, calls the overall insurance concept a double-edged sword.

    "It may well deter some spending," she says. "It also may deter needed care. It may end up backfiring."

    Meanwhile, employers face a difficult task: boosting enrollment. Sign-up rates, with the exception of standouts like Owens Corning or Whirlpool, have been on the anemic side. In Mercer’s survey, just 16 percent of employees in 2004 chose a consumer-driven plan when provided another option. Fear of the unknown likely contributes to those decisions. A 2005 survey by Towers Perrin that explores the health purchasing decisions of 1,400 employees found that 55 percent preferred higher premiums over the possibility of reduced health benefits. "There tends to be a desire (among employees) to over-insure because of the fear factor," says Ron Fontanetta, a principal with the health and welfare practice at Towers Perrin.

    But employers can create a softer landing, Fontanetta and others say. Health advocates can steer employees to specialized treatment centers and suggest prevention strategies. Financial modeling tools can spit out cost estimates, helping employees decide whether the newer high-deductible plan is beneficial. Above all, company leaders must view the shift to consumerism as a fundamental change in corporate philosophy, Whirlpool’s Pushaw says.

    "If all you are looking at is a cost savings number, it’s not going to work," she says. "We put a stake in the ground and said, ‘We’ve got to do something about rising health costs, and we have to change (employee) behavior.’ "

Changing behavior
    The new high-deductible plans, also dubbed "consumer-directed,’’ can influence health spending--at least in the short term.

    Whirlpool, where 55 percent of employees are enrolled in consumer-driven plans, reports that as of early August the company had spent 15 percent less on that group this year than it had on employees in the company’s managed care plan. Mark Snyder, director of benefits for Toledo, Ohio-based Owens Corning, says his company’s health costs increased less than 5 percent in 2004--compared with previous annual increases of 12 percent--after the introduction of two consumer-driven plans. Employee use of generic drugs has increased about 3 percent, and emergency room visits are down 5 percent to 10 percent, he says.

    The high-deductible plans, which include health reimbursement accounts and health savings accounts, are far from cookie cutter in their approach.

    The company’s contribution to the employee account can vary, as can the size of the deductible. Some employers also pay for annual physicals and preventive tests, such as mammograms. In July, Aetna took the dramatic step of offering coverage, effective next year, for diabetes, blood pressure and other preventive medications. The option was introduced in response to employer interest, says Robin Downey, head of Aetna’s product development.

    "There are some employers that are concerned that as these plans become more mainstream, maybe some employees won’t get the drugs," Downey says.

    To some degree, the plans contain a carrot and a stick. The sticker shock of a higher deductible is usually accompanied by the promise of an employee health account that can accrue if employees limit their health spending.

    But don’t assume that employees shortchange their own preventive care, proponents of consumer-driven plans say.

    Aetna reports that adult preventive exams have increased 23 percent among its consumer-driven membership, compared with 8 percent for those enrolled in other insurance plans. And a recent McKinsey & Co. analysis, which focused on the experience of five companies that have switched exclusively to a consumer-driven model, found that participants were at least 20 percent more likely to adhere to treatment plans for chronic conditions.

    Whether health savings can be sustained is the question that makes everyone nervous.

    Skeptics of consumerism point out that managed care was once considered the remedy for skyrocketing health care costs. In a report released in August, California Insurance Commissioner John Garamendi blasted the high-deductible plans, saying they would further destabilize the health insurance system by eroding benefits and cherry-picking younger, healthier employees. Others concerned about the plans’ long-term effects point to a study published last year that provided a snapshot of one unidentified employer: By the second year, hospital costs for employees in the consumer-driven plan had ballooned, running more than double what they were prior to enrollment.

Boosting employee uptake
    Amid this shifting landscape, can employees be encouraged to make the leap into consumerism, or do they require a bit of a nudge?

    McKinsey & Co.’s Mango argues that companies must shift all of their employees to a consumer-driven plan to reap the full benefit. "We don’t think companies who go at this on a slice basis will be successful," he says. Otherwise, Mango says, employees with more chronic conditions will inevitably remain with the more traditional managed care coverage.

    But there are ways to catch employees’ attention without eliminating their options, says Snyder at Owens Corning, which has achieved a 71 percent enrollment rate. When the company introduced two health reimbursement accounts for 2004, it also redesigned the PPO option, forcing employees to give all of their health options a fresh look, Snyder says.

    Snyder says he has been looking closely for signs that employees might be skimping on vital care. Owens Corning, he says, benefits from nurses based at the work sites who can intervene if they hear, for example, that an employee is not filling a prescription for a cholesterol-lowering medication. "Any time you have cost-sharing, you are always going to have employees who may make short-term financial decisions that affect their long-term health."

    Still, Snyder’s voice carries a lilt as he describes his employees’ take-charge attitude toward their newly acquired personal health accounts. Like others on the leading edge of consumerism, Snyder hopes that confidence will translate to more impact on employee treadmills and less on the bottom line.