Cost Transparency Tools Turn Health Care Users into Consumers

By Scot Warpool, Thompson Machinery Corp., and Christopher Parks, change:healthcare inc. January 14, 2010

With American health care expenses continuing to rise, U.S. businesses of all sizes are expected to pass on more of the financial burden to employees. Nationally, Aon Hewitt estimates that employees will be expected to contribute 22.5 percent of their total health care premium in 2011, or $2,209 per employee—up from 21.8 percent, or $1,966, in 2010.

Companies are no longer willing to pay for virtually unlimited services based on a $30 co-pay. Even in preferred provider organization (PPO) plans, companies are increasing deductibles to increase employees’ share of the cost burden.

A major part of the solution to these challenges lies in health care consumerism and consumer-driven health care plans (CDHPs). For example, by providing employees with health savings accounts (HSAs) and high-deductible plans in exchange for lower premiums, price sensitivity is heightened for frequent health care purchases.

However, engaging employees to help manage their health care has created the need for a better understanding of the cost of care.

Smart Shopping Barriers

Health care users lack basic tools—such as price tags—necessary to determine the real value of one service compared to another. There is no surprise that inefficiencies occur when convenience is the primary consideration regarding health care purchases.


There is no surprise that inefficiencies occur

when convenience is the primary consideration

regarding health care purchases.


Moreover, pricing in health care is confusing, thanks to myriad prices. For example, there are charges related to hospital charge masters (a listing of procedures that hospitals provide to patients), negotiated rates for providers, Medicare reimbursement information and national average prices. When consumers purchase health care from a provider, a Kelley Blue Book can’t help because there are so many different prices for the same product or service.

A key missing link in all of the current changes in the health care system is cost transparency. Real transparency is one of the best ways to reveal what was paid, not what was posted or negotiated. It allows employees to know what peers in the same network were charged for the same services.

With this intelligence, employees have a better opportunity to determine the right balance of convenience, cost and perceived quality acceptable for them and their families for each type of purchase—whether dental, medical or pharmacy-based. Without this information, employees are asked to manage their budgets with little to guide them.

In short, cost transparency turns health care users into health care consumers.

Case Study: Thompson Machinery

Thompson Machinery Corp., headquartered in LaVergne, Tenn., is an example of a mid-size company that is combining cost transparency tools with a consumer-driven plan to benefit its employees.

The CDHP plan.In 2003, Thompson Machinery transitioned its 450 employees to a CDHP in order to gain control over health insurance costs that had been rising at double-digit rates. The company uses an HSA-like medical insurance account (MIA) funded by the company. The MIA provides employees with money to use toward out-of-pocket health care expenses during the fiscal year. Unused MIA funds are given back to employees as a bonus at the end of the year. This key consumerism feature is viewed as a plus by employees.

However, the company increasingly became aware of the frustration experienced by workers who were asked to take greater responsibility for their health spending but had few tools to help them manage that responsibility.

Adding transparency tools. In April 2010, Thompson began offering employees access to a voluntary cost transparency program along with its CDHP. The service:

  • Mines the company’s claims data for savings opportunities that change frequently based on utilization, health plan contract rates and provider pricing strategies.

  • Deploys “ways to save” alerts that push relevant cost information to participating employees based on their purchases for prescription, dental and medical services.

The transfer and analysis of employee data by the service provider complies with all Health Insurance Portability and Accountability Act (HIPAA) requirements.

By adding cost transparency tools to plan design, Thompson can help its employees see cost information before they make a purchase and receive comparative cost information for services they use. Thompson views cost transparency as a way to incentivize employees to make better, more-informed decisions.

Immediately, the company began to reap savings from employee health care purchasing decisions. In the first year, participating Thompson employees were presented with an average of $200 in annual health care savings opportunities. Several employees were shown how to save more than $1,000 on frequently purchased items such as medication, dental services and outpatient medical services.

In addition, the transparency program is posting employee use numbers that are nearly twice that of its wellness and disease management programs.

Use of Cost Information Leads to Higher Account Balances in HSAs and HRAs

Use of cost or quality information meant higher balances in health savings accounts (HSAs) and health reimbursement arrangements (HRAs), according to a January 2011 report from the nonprofit Employee Benefit Research Institute, Health Savings Accounts and Health Reimbursement Arrangements: Assets, Account Balances, and Rollovers, 2006–2010.

For individuals enrolled in a consumer-directed health plan linked to an HSA or HRA, the average account balance was $1,536 among those who used cost and quality information to choose a doctor, and $1,348 among those who did not use cost and quality information.

Lessons Learned

What Thompson and other companies have learned is that when employees have a stake in the game through a higher deductible plan or full CDHP, they become engaged in the process of managing care and cost. By supporting plan design changes with cost transparency tools, employees can:

  • Transition from health care user to health care consumer.
  • Reduce their employer’s health care costs, thus keeping premiums down.
  • Pocket more money at the end of the year via an HSA or other CDHP account.

Additionally, early results show that with cost information at their fingertips, consumers are able to make more-insightful decisions about their health care and the care for their families. They are learning to balance cost, convenience and quality in a manner that meets their budgets. That process can lower the overall cost of health care for everyone.

Scot Warpool, corporate training and recruitment administrator at Thompson Machinery Corp. in LaVergne, Tenn., developed and administers over 11,000 training hours annually and supports various aspects of HR and payroll functions.

Christopher Parks, founder and CEO of change: healthcare inc., has 18 years of experience in executive roles in various areas of health care. He is on a mission to change the health care market by improving information flow and cost transparency to empower consumers and make consumer-driven health care work.


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