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HR Magazine, December 2002 - Employee Communication: Meet Your New Health Plan Option

By Kathryn Tyler  12/1/2002
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HR Magazine, December 2002

Vol. 47, No. 12 

To effectively unveil defined construction health plans to employees, HR professionals must be part teacher and part marketer.

Defined contribution health care plans—the latest tool for holding down spiraling health care costs—are expected to become increasingly popular, especially since a ruling this summer makes the plans potentially more palatable to employees from a tax perspective. (For more information, see How Defined Contribution Health Plans Work.)

Even so, defined contribution health plans may not be an easy pill for workers to swallow. The plans place new burdens on employees, making them responsible for managing their health care dollars. For these plans to realize their cost-savings potential, employees must not only buy into them, they also must use them to buy health care services more judiciously.

For that to happen, HR professionals will likely need to pave the way with thorough and comprehensive education and implementation programs.

The core of such efforts involves helping employees understand the true costs of their health care and persuading them to buy into the idea that they have an important role in managing those costs. At some companies the education begins long before a defined contribution plan is made available to employees so they can acquire a sense of their own health costs and learn about the options available to them.

A Prescription for Business?
Defined contribution plans now account for about 2 percent of all health care coverage in the United States, experts say, but their slice of the pie is expected to grow rapidly in the next five years as employers turn to such plans in their efforts to help slow the pace of health care cost increases.

The need to rein in cost hikes is clear: In 2001, for example, employer-sponsored health insurance premiums increased 11 percent, according to the Kaiser Family Foundation. Projected rates of increase for the subsequent five years are even higher.

Some signs of cost savings attributable to defined contribution plans are already emerging. For example, Budget Group Inc., the car and truck rental company headquartered in Lisle, Ill., introduced its defined contribution option in January 2002, and about 13 percent of eligible employees enrolled. Jan Cohen, managing director of benefits for Budget, says: “We have seen a cultural shift among those employees [who signed up]. They ask more questions. They think more about the costs associated with health care as they are being treated, which may serve to mitigate costs in the long run.”

Positive results have been documented at Humana Inc., a health benefits company based in Louisville, Ky. Before Humana introduced its defined contribution plan, says spokeswoman Mary Sellers, “we were experiencing 19 percent increases in premiums [per year]. Now they’re down to 10 percent.” The plan was made available first to a pilot group of 4,800 employees in 2001, and 6 percent of those eligible signed up. This year, the company introduced it to the rest of its 14,000 employees, and 18 percent signed up.

“The HR group needs to put a lot of time and effort into communicating” facts and choices when a defined contribution program is about to be introduced, says Sellers. “Planning is very important. We tried to give people as much information [as possible] ahead of time and also through open enrollment. We wanted to educate our employees on the costs of health care.” Many people, she adds, “don’t realize that a prescription isn’t $5 or $10, a visit to the doctor isn’t $15 to $20.”

A Tale of Two Approaches
The value of advance preparation and education is well illustrated by Novartis AG, a Switzerland-based pharmaceutical giant that realized both stunning success and disappointment in two different roll-out efforts.

In its first effort, in August 2001, Novartis introduced a defined contribution health care program for its pre-65 retirees in the United States. An impressive 17 percent of those eligible enrolled in the program.

But when Novartis rolled out the defined contribution plan to U.S. employees the following January, enrollment fell short of expectations: Only about 3 percent to 4 percent of employees in the company’s three business units signed up.

What happened?

It was a matter of approach, says William A. Flannery, director of compensation and benefits for Novartis’ U.S. operations. In unveiling the plan for retirees, he says, “we had a longer period of time to put together communications and education. It was presented clearly, effectively and in a timely manner.”

But most important, he says, the plan provider, Alexandria, Va.-based Lumenos Inc., joined Novartis in sponsoring lunch seminars in places where company retirees were clustered, such as Florida and the Carolinas. “Turnouts were exceptional in those areas, and a significant number of retirees signed up,” says Flannery, noting that 21 percent of the enrollees had attended a Lumenos seminar.

But the company had a relatively short period of time—from August 2001 to January 2002—to communicate the defined contribution plan to current employees, Flannery says. And part of that time had to be devoted to explaining changes in the company’s other plans as well.

Flannery also thinks the amount of employees’ face-to-face time with the providers was insufficient for explaining the new offering. At two sessions, representatives of health plan providers had little opportunity to spell out the details of their plans, Flannery says. They “sat outside the lunchroom and tried to get people to stop on their way to lunch to explain what is unique about their plan compared to plans A, B and C,” he says.

In contrast, at a session in Georgia, defined contribution providers had sufficient time for quality communication with employees, he says, and as a result, according to surveys, those employees understood it better, and larger percentages of them signed up for it.

Flannery’s advice? “Allow the provider to come in and present to the employees as soon and as often as possible,” he says. Indeed, it’s crucial for employees to have access to providers, experts say, and HR should make defined contribution provider seminars a priority.

Looking in the Mirror, Using the Tools
In educating employees about a defined contribution plan, it’s important to help them understand how often they use health providers, plan their preventive care and make the best use of their health reimbursement accounts (HRAs).

An HRA is an employer-provided sum that each participating employee draws on tax-free for health expenses. After the HRA is exhausted, further health costs are the employee’s responsibility, although generally traditional health insurance coverage takes effect after the employee’s expenses exceed a certain amount.

Employees with defined contribution plans have to understand their own health conditions, understand the products and procedures related to their conditions and ask questions such as “What information will I gain from this lab test and how will I use this information?”

For employees to learn to manage their health care, experts say, it’s essential that they have access to web-based tools—and have the skills to use them—so they can learn about their conditions and illnesses and research the options and costs for treatment.

Although fees and costs generally have not been part of the patient-provider dialog in advance of services, that has started to change. Many providers of defined contribution plans are now putting cost information on web sites. And while it may be hard for an employee to imagine asking a doctor about fees and costs—like a car owner getting a repair estimate—HR professionals need to teach employees to do just that.

“What you have to do is educate them and help them develop the [consumer] skills they don’t currently have. That will give them the confidence and skills to try” a defined contribution plan, says Cathy Cather, senior vice president, client relationship management, at HealthAllies. The Glendale, Calif., firm offers networks of health providers at discounted rates to employers in New York and Southern California and also offers health education for employees.

Some companies, anticipating the introduction of a defined contribution plan in a year or so, have made HealthAllies available to employees far ahead of time to help them learn about medical procedures and how to shop around for the best care at the lowest price. Kimberly Salzbrunn, a training specialist for Budget Group, says her defined contribution provider’s web site “is invaluable. I was able to research the plan and look up my doctors and all of my son’s prescriptions. I have constant access to my health care information.”

Such electronic tools are essential, agrees Jeff Bauer, senior vice president of Superior Consultant Co. Inc., a Southfield, Mich.-based firm specializing in information technology and health care. “Don’t get into any sort of plan that doesn’t extensively support every aspect of customer services on the Internet,” he advises.

Fostering a New Mind-set
In helping employees make better health care choices, HR also needs to make them aware of money-saving options such as calling nurse help lines instead of visiting doctors’ offices; using nurse-midwives instead of obstetricians for low-risk pregnancies; and asking for generic substitutions for name-brand prescription medications.

Budget Group’s benefits director Cohen cites the example of an employee who “takes a few different prescriptions for a thyroid condition. When he looked over how much those prescriptions cost and how they factored into his [HRA], he asked his doctor for generic replacements.”

Indeed, a defined contribution plan should give employees more control over their medical expenditures and enable them to obtain products and services rarely covered by traditional insurance, such as hearing aids, weight-loss programs and mental health treatment.

It also can be more convenient for employees. Says Elona DeGooyer, a senior HR consultant for Humana: “My monthly prescriptions come out of my [HRA] automatically—no paperwork.” She also has started paying more attention to her health care spending: “I ask about the purpose and frequency of lab tests.”

Looking Ahead
Defined contribution health care plans are still in their infancy, but more and more carriers will get into the game, says Bauer, and the plans’ features will evolve.

By the end of the decade, he says, it will be the norm for companies to include a defined contribution plan in their health coverage offerings to employees. In turn, employees will have to become more proactive regarding their health care, and it will be crucial for HR to help them do that.

Kathryn Tyler is a freelance writer and a former HR generalist and trainer in Wixom, Mich. 

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