Twists in the Road to True Consumer-Driven Health Care

    A senior manager at American Express, on the other hand, whose income is more than $100,000, had an illness early last year that forced her to spend all of her health savings by midyear.

    And the director of a substance abuse program for Lutheran Social Services of Illinois, who makes slightly more than $50,000 a year, says he’s saved $2,400 in premiums in the 18 months since his employer switched to a high-deductible health plan. His savings on premiums, though, have not translated into much for his HSA. A diabetic, he tends to burn through his $2,200 deductible and has banked $600 in his HSA.

    Three different employees from three large employers; each has a unique story of what it’s like to be a health care consumer, how health care has changed in recent years, and how far the industry has to go before it is truly consumer-driven.

    They also are health care consumers who spend at least $1,100 of their own money before being covered by health insurance provided by their employers. Each employer has made a high-deductible health plan with an HSA a central feature of its benefits.

    The three employees are among the first of the estimated 4.5 million people who have high-deductible health plans that are eligible to open HSAs, according to a recent study by the American Association of Preferred Provider Organizations. The association estimates that about 5.5 million people have plans tied to health reimbursement arrangements, another kind of vehicle for health care saving.

    Congress and President Bush created HSAs in 2003 for people with high-deductible health plans, when health care costs were increasing 13 percent annually. The goal was to turn health care patients into health care consumers. Since then, consumerism has become a buzzword whose definition, like the plans themselves, has evolved to meet the changing demands of the health care marketplace and the shifting understanding of how people manage their health.

    At its inception, consumerism was a vision based on the belief that people faced with the choice of spending their own money or saving it in an interest-earning account would purchase health care more wisely. The result would be a health care market where consumers make rational decisions based on cost, quality and an incentive to save money. This would bring overall health costs down.

    The theory of consumerism, however, is coming up against the realities of a marketplace that has just started changing to meet the demands of health care consumers. Cost and quality information about medical providers exists piecemeal, but it is often based on estimates, not actual costs. Frustrated with the strictures of the federal law governing HSAs, some health benefits managers are designing their own health plans that combine elements of consumerism with coverage for services like prescription drugs and doctor visits.

   "Two years ago, most people were selling the theory of consumerism," says Chris Calvert, vice president and senior health consultant at Sib¬son Consulting. "Now people are willing to say, ‘This is a process and it’s hard for employees and hard for patients, but we’re evolving and learning together.’ "

'I felt empowered'
    The process of moving from theory to reality began for employees at Wendy’s International in 2005, when the Dublin, Ohio-based company switched 9,000 of its workers to high-deductible health plans with HSAs. Since then, Wendy’s premiums have been flat, says Jeff Cava, the company’s head of human resources. Nationally, health care premium increases are around 8.5 percent, more than twice the rate of inflation.

    But it wasn’t until last year that Cava had an opportunity to be a health care consumer and get a sense of what his employees were experiencing. Cava, 55, was vacationing at his second home in Winter Park, Colorado, bucking logs for firewood, when he ripped ligaments in his left shoulder while trying to lift a felled tree. Back home in Ohio he saw two specialists and, with the aid of a simple doctor ratings chart on UnitedHealth Group’s Web site, chose a doctor in his network. The company picked up 90 percent of the cost after he met the $2,700 deductible and until he reached a $4,000 out-of-pocket limit.

    Several weeks after the surgery, he received a bill explaining his benefits and what he owed.

    "I chose to pay out of my bank account rather than use my health savings account," he says. "I have a lot of discretionary income, and at my age I’d rather let my HSA build up tax free and use it for retirement."

    He sent his health insurer a check and that was the end of it.

    "I felt empowered [making health care decisions] because it was my money; I was writing the check," Cava says.

    While acknowledging that cost was less of an issue because of his income, he says the company contributes to HSAs up to 60 percent of the deductible and that by the end of the year, most employees have saved money.

What's the bill?
    Being a health care consumer was much more difficult for the American Express manager. She became sick early last year just after her company switched to a high-deductible health plan with an HSA. The marketing manager, who requested anonymity because she is not authorized to speak to the media, faced a number of health issues that forced her to visit several doctors and hospitals, as well as a blood lab.

    Among her unanticipated ailments was a pulmonary embolism that formed as a blood clot in her calf and migrated to her lung. In May 2006 she spent several days in the hospital, and by midyear she had exhausted her HSA for the year. Since she makes more than $100,000, dipping into her personal savings account would not have been a problem. What frustrated her, though, was the difficulty she had paying her bills from her HSA.

    "I have an American Express card that I use to make payments out of the account," she says. "The challenge is, a lot of providers don’t take American Express right now."

    Figuring out how much to pay for health care has never been easy. But since most doctors do nothing more than charge for co-pays, they are not equipped to tell patients exactly how much they owe at the time of a visit. Nearly all claims must first be adjudicated by a health insurer, which in turn dictates how much a consumer must pay. This makes it harder for people to pay with a health savings debit card at the point of service.

    "Real-time adjudication is quite a ways off," Calvert says. Current systems, like those created by American Express and used by some doctors, can estimate the owed cost and then automatically deduct it when the claim gets adjudicated. Most doctors periodically settle their claims in large batches.

    "We’re working with an industry that is gradually evolving," says Mark Keck, a vice president for new product development, health care, at American Express.

    The American Express manager eventually paid with the checks that came as part of her HSA. But it took about 10 hours on the phone—at one point she had to use a day off—to figure out exactly how much she owed and to whom. She often received bills that did not differentiate between what her costs totaled and how much she owed. She eventually received a letter saying an unpaid bill was going to a collection agency, which worried her.

    "Because it was my credit in my name, it became my issue," she says. "If I hadn’t monitored those kinds of bills, I would have ended up getting a hit on my credit report, which would have been awful."

    Turning patients into health care consumers inevitably forces them to think more about the cost of health care, especially since they are responsible for paying for it. But David Cochran, senior vice president of strategic development for Harvard Pilgrim Health Care, an insurer in Wellesley, Massachusetts, says navigating an insurer’s bureaucracy may leave consumers with no time to manage their health.

    "To make them more concerned because they are getting more forms they don’t know what to do with is not helping them make better [health care] choices," he says. "It’s just confusing them."

    Cochran, a doctor trained in internal medicine, uses the example of a diabetic to make his point. It’s vital, he says, that a diabetic understand how important it is to have low cholesterol, manage blood sugar levels and see a doctor regularly.

    "If a patient has 30 minutes to manage their care, I think we want them to think about how to best manage their diabetes, not whether their health claim will get paid," he says.

    The financial worry that accompanies high-deductible plans is compounded when employees run out of money in their HSA. American Express, like other financial institutions, provides a credit line that turns health savings debit cards into credit cards. (Interest accrues after a claim is settled.) The credit line is intended to allow people to pay for medical services before they have a chance to build up savings in their accounts.

    "Offering credit is a way to ease that transition, especially in the early days when there is not a lot of money in the accounts," Keck says.

    The American Express employee, however, is less enthusiastic.

    "I don’t really believe in paying interest on my health care," she says.

Hybrid approach
    What some employers have begun to realize is that they can design health plans that encourage people to make cost-effective health care decisions by blending elements of consumerism—high deductibles and financial accounts—with aspects of coverage that employees have used in the past. The transition can be easier, benefits managers say, and employees may be more enthusiastic about the change.

    For example, CNH Case New Holland and New York Life Insurance Co., with the help of human resources consulting firm Towers Perrin, redesigned their health benefit plans to include two deductibles: a low deductible followed by an employer-funded health reimbursement account that was then followed by a higher deductible. The goal is to expose employers to consumerism while also covering most of the first $1,000 of health care.

    For the past four years, Harvard Pilgrim Health Care has been offering employees a high-deductible plan that covers doctor visits and prescription drugs. The idea is that superfluous charges are often incurred through unnecessary or redundant tests—MRIs, blood tests—whereas the most necessary and useful expenditures are on preventive medicine and regular visits to a doctor, Cochran says. Employees prefer this plan, and 45 percent have signed up for it, he says.

    The upshot of tailoring a plan to the needs of a particular employee population is that the plan might not meet the guidelines that make it eligible for an HSA. This may be one reason why the number of people who are eligible to open HSAs has not grown as quickly as some projected.

    Some health care experts argue that the federal law governing HSAs should be flexible enough so that treatment that is considered preventive is based on an individual’s personal health needs.

    Current law does allow certain types of preventive medicine to be covered before the deductible. For example, insurance can cover such drugs as cholesterol-lowering statins or ACE inhibitors, which are used to prevent the reoccurrence of a heart attack, before the deductible is met. These drugs, however, are not covered pre-deductible to treat an existing illness, injury or condition. (Employers and health insurers are allowed to cover preventive medicine under laws set up for HSAs, but are not required to do so.)

    Insurance companies and employers who fund their health insurance themselves are left to interpret Internal Revenue Service rulings to determine what they will cover. Some health plans for large employers—Aetna and Cigna, for example—cover diabetes medicines pre-deductible. Premera Blue Cross, which is based near Seattle, has determined, like other plans, that diabetes management medicines are not covered because they treat an existing illness.

    The result is that in many cases people do not have pre-deductible coverage for medicine they have been identified as needing, says Lonny Reisman, CEO of ActiveHealth Management, a disease management company owned by Aetna.

    "We have the capacity to identify what is essential at the individual member level, and those essential therapies ought to be offered by bypassing the deductible," he says.

    Making such a change universal would go a long way toward countering the criticism that high-deductible plans with HSAs help the healthy and rich save for retirement, but not the sick and poor, who are more likely to use the money for current health care needs.

Struggling to save
    If the therapies and doctor visits that are required to manage diabetes were covered pre-deductible, Al Meginniss, the director of a substance abuse program with Lutheran Social Services of Illinois, would save about $1,100 every year. That’s about half his $2,200 family deductible. The social service organization, which employs about 2,000 people, switched to a high-deductible plan with an HSA in July 2005. Meginniss prefers having a deductible and saving on the premiums that get deducted from his paycheck.

    Even if Meginniss saved all he could under the current law, it still might not be enough to retire comfortably. If he saved the maximum amount annually—$2,850—and earned, for example, 7 percent interest, he would still save only $155,000 in 20 years.

    Estimates of how much employees will need to pay for retiree health care costs vary and depend largely on circumstance. Fidelity Investments estimates that a couple retiring today would need $215,000 to pay for health care not covered by Medicare. The Employee Benefits Research Institute puts that number higher, at $295,000. In twenty years, however, that number is likely to be much higher if health care costs continue to grow at twice the rate of inflation.

    Meginniss, 56, stoically accepts the fact that he will probably not be able to build up a big nest egg for retiree health care. "I think at this point in my life it’s more of a break-even proposition," he says.

    Without the high-deductible health plan, Meginniss’ employer probably wouldn’t have been able to offer health benefits, he says. The switch has taught him to be a better health care consumer.

    Not long ago, he went to see a doctor for an ache in his knee. After spending thousands of dollars on doctor visits, tests and specialized injections, he got tired of wasting his money. When his doctor suggested physical therapy, Meginniss got a second opinion from a doctor who told him to try an over-the-counter pain medication. Ever since, he’s been taking Aleve, the nonprescription anti-
inflammatory pain medication.

    "Before I might have gone along with the ride and not even question it," he says. "But since this is my money, it made me look at it and say, ‘What am I going to do here?’ "

Workforce Management, April 9, 2007, p. 26-30 -- Subscribe Now!