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Consumer-directed health coverage requires employees to make wise decisions on care and spending. But will it improve health and cut costs?
Hailed by some as the last best hope for harnessing employers’ health costs, but criticized by others as the last step before all health costs are shifted to employees, consumer-directed health has been at the center of controversy—and news coverage—for several years.
Yet a fundamental question remains: Do consumer-directed health plans (CDHPs) actually alter employee health spending habits, as advocates maintain?
A preliminary answer emerges from the experiences of early adopters of the consumer-directed approach. Though far from definitive, the anecdotal evidence from these companies can provide important guidance for any employer considering adopting a CDHP. Such evidence not only can show the early returns on whether CDHPs work but also can show whether the concerns expressed by critics are valid and can be overcome.
Facts (and Assumptions) About CDHPs
The rationale behind CDHPs is that when employees must spend their own money for health care, they will be more judicious in making health care decisions. In turn, advocates say, careful spending will help hold down increases in health costs.
CDHPs aim to achieve this in the following way: The plans generally have high deductibles and are connected with tax-favored health spending accounts, such as health savings accounts (HSAs) or health reimbursement accounts (HRAs). HRAs are funded solely by employers; HSAs can be funded by the employer, the employee or both, and they have to be connected with a high-deductible plan. At the start of the calendar year, for example, an employee pays health care costs from such an account; if it becomes exhausted, the employee pays subsequent costs out-of-pocket until a deductible is met, which then triggers insurance coverage.
Critics maintain that when employers offer both high-deductible CDHPs and low-deductible traditional health plans, healthier members of the workforce will be attracted to the high-deductible plans. The concern is that those healthier workers might avoid spending for preventive or routine health care so they can roll over the unspent amounts in their HSA or HRA. This could cause reduced early care, leading to more-significant health care problems—and costs—down the road.
Another concern is that if healthy workers migrate toward CDHPs, they will leave traditional health plans with a preponderance of less-healthy workers, thereby putting upward pressure on premiums for traditional plans.
Reason for Concern?
At least some of the concerns about consumer-directed health appear to be valid, based on recent studies of employee attitudes and reactions to CDHPs.
“We know people are going to reduce their use of health care under these plans,” says economist Melinda Beeuwkes Buntin, lead author of a RAND Corp. study, released in October, on consumer-directed plans. “But what we don’t know is how this will affect overall health care quality and patients’ health.”
A 2005 Employee Benefit Research Institute (EBRI)/ Commonwealth Fund survey asked participants if they avoided or delayed seeking health care because of costs. Those in high-deductible plans—including those with HSAs—were significantly more likely than those in comprehensive health plans to say they had done so. What’s more, people with health problems or with incomes under $50,000 reported high rates of avoiding care, the report showed.
The study also revealed that few people who have a CDHP or a high-deductible health plan are satisfied with their coverage. Moreover, one-third of those with such plans said they would change to a more comprehensive health plan if they could, and no more than one-third would recommend a CDHP to a friend or a co-worker.
Another study, released this past August by the federal Government Accountability Office (GAO), reported on enrollees’ experiences with CDHPs, particularly HSA-eligible plans. While HSA enrollees generally said they had positive experiences and would recommend such plans to healthy people, most said they would not recommend the plans to those who have chronic conditions, use maintenance medication, have children or may not have the funds to meet the high deductible.
GAO focus group participants whose employers offer CDHPs suggested they would consider leaving if a CDHP became their only option.
The Early Experiences
Can employers overcome employee concerns about CDHPs and run them in a way that will have a positive influence on employees’ health behaviors and spending?
From a few employers who adopted CDHPs early, there is anecdotal evidence that such plans can focus employees’ attention on health decisions and reduce employers’ costs—all apparently without endangering the quality of care.
One early adopter of CDHPs was Textron Inc., a global, $10 billion company in Providence, R.I., with 37,000 employees in aviation, defense and other industries. In 2002, Textron launched an HRA pilot plan for about one-third of its workforce.
“It was a huge change for our employees,” says George Metzger, vice president of human resources and benefits. “It isn’t something you commit to tepidly.”
The change required a large-scale communication and education campaign that centered on making employees more aware of the partnership between the company and its workers regarding how to continue to pay for quality health care. “The message that resonates isn’t the one about the money you’re saving the company,” Metzger says, “but what you’re doing to preserve health.”
Early results show that Textron’s consumer-directed approach has had a positive impact on both medical costs and employee health, Metzger says. From January 2003 to December 2005, overall medical utilization decreased 16.8 percent while preventive care visits actually increased by 21.9 percent. “That tells me that employees are addressing and managing their health care conditions before they have a chance to worsen,” he says. “And that’s a nice difference.”
Employee satisfaction tends to be greater at both extremes of the spectrum, Metzger says. “Those with very high costs love it, because of the flexibility and capped costs; those with very low costs overall also love it, because it ends up being essentially a no-cost plan for them.”
Employees in the middle—those whose health expenses are neither high nor low in a typical year—aren’t collectively viewing the arrangement negatively, according to Metzger. They recognize that “the plan design gives them far more control over their health care expenditures than they have historically had,” he says. They also know that their maximum health outlays are capped, he adds, “and that they have the potential to accumulate savings if they don’t spend their entire HSA or HRA balance.”
After the initial plan met expectations, the company followed up in 2003 with a full-replacement CDHP for all employees. It took the place of about 138 health plans spread among the company’s various businesses and locations. An HSA option was added in 2005.
Next year, the company plans to offer two plans with HSAs (participation in a high-deductible health plan is a requirement for having an HSA) and one HRA plan. In addition to what Metzger sees as recruiting advantages with HSAs—portability, tax-free growth of contributions, tax-free distributions for qualified medical expenses—he also feels the plan design is another way to reinforce employees’ responsibility for managing assets available for health care.
An Expanding CDHP
Another early adopter of consumer-directed health is Logan Aluminum Inc., a Russellville, Ky., manufacturer with 1,100 employees. Three years ago, the company switched from a traditional preferred provider organization (PPO) to a CDHP to try to stem annual health care cost increases of 20-plus percent. That year—2003—the company’s total medical costs fell 18.7 percent below costs in 2002, HR Manager Howard Leach says.
What’s more, while the number of emergency room visits and hospital inpatient days declined, overall health care utilization and the number of doctor office visits did not decline. “To me,” says Leach, “that says employees aren’t skimping on necessary health care.”
Leach acknowledges that employees initially thought the change could “cost them more. But if you fast-forward to today, there’s much more acceptance and better understanding of the plan.” (For one Logan employee’s take, see sidebar “As One Worker Sees It”.)
Part of the reason that employees’ concerns have subsided, Leach says, is the strong wellness and health-improvement program that the company integrates with its CDHP. More than 90 percent of employees complete a health-risk appraisal and receive incentives for doing so, he says. In 2007, the company will ask spouses of employees to complete an assessment.
Moreover, Logan plans to add 100 percent coverage of preventive services to its HRA and HSA options, Leach says, and the cost of preventive medications will be covered at 100 percent. “It’s a big step to take, but we’ve made believers out of our board of directors with the cost savings and improved health we’ve experienced.”
Maintaining those results takes considerable effort, investment and manpower. Leach says consumer-directed health “is more complex from both the employer and employee aspect.” This past September, the company created an HR and benefits position—a health and wellness leader who will help employees adapt to the consumer-directed approach and health promotion goals, Leach says.
The company also continues to support a 20-member employee committee that discusses health care issues and costs several times a year.
Filling the Information Gap
Providing health care information to workers, as Logan does, is vital. Some experts say that an obstacle to greater acceptance of CDHPs is a lack of information on the cost and quality of care—information that’s necessary for consumers to make health spending decisions.
The EBRI report, for example, found that only one person in seven said their health plan—regardless of the type—supplies information on the cost or quality of doctors, hospitals and other medical providers.
Some insurers and third-party administrators are trying to close that information gap. Aetna Inc., for example, in August gave its members online access to physician-specific costs, clinical quality and efficiency information in several states.
Definity Health, a unit of UnitedHealth Group and among the largest CDHP managers, is expanding the availability of physician-quality ratings to 87 markets by the end of the year, up from 55 markets, says Meredith Baratz, director of market solutions in New York. The company has 1.8 million people and more than 14,000 employers enrolled in CDHPs tied to either HRAs or HSAs.
Definity also has replaced “explanation of benefits” statements with monthly health statements that resemble a credit card bill. The new statements provide summaries of employees’ health claims and health care account balances in addition to personally customized health messages based on individual health histories, age or gender, Baratz says. “These strategies are connected to really trying to make health care easier to navigate in ways that are consumer-friendly—and that encourage action.”
Among Definity members who read these personal health messages, for instance, the company has seen a 240 percent higher rate of mammography for women over age 50 and a decline in medical costs of $52 per person per year.
Some employers also are taking steps to fill the data void. In April, computer manufacturer Dell Inc. became the largest U.S. employer to offer employees online access to personal health records that regularly track and update medical claims and pharmacy information.
The voluntary tool, developed with technology from WebMD, a New York-based health information company, lets employees track and manage their own data on procedures, conditions and medications from multiple sources, including doctors, hospitals, pharmacies and other health providers.
So far, half of Dell’s 26,000 employees have signed up for the new “Well at Dell” effort, says Kathleen Angel, director of global benefits in Round Rock, Texas. It is part of Dell’s growing consumerism strategy, which includes health improvement programs and incentives for taking actions to stay healthy.
To help employees learn more about health care costs and outcomes, Logan Aluminum earlier this year created its own pricing database, drawn from its own anonymous medical claims data. Employees can enter specific conditions to get a list of claims by diagnostic code. The rundown gives them provider and physician names, the retail fee, and the rate Logan’s third-party provider negotiated.
In addition, Logan Aluminum offers employees using the database a voluntary survey for expressing their own ratings opinions, which co-workers also can view. “It’s our attempt to generate our own database of useful information,” Leach says.
The company also invests heavily in continuing consumer health education. For example, eight to 10 times a year the company offers employees a two-hour class taught by a member of the benefits department, titled “How to Establish a Relationship with Your Doctor.” The instruction is aimed at making employees better health care consumers, Leach says. Participants learn of ways to, among other things, build a collaborative and interactive relationship with physicians, ask about treatment options and discuss prescription drug alternatives.
But providing such tools without training, education and support—such as the kind Logan provides—may reduce their effectiveness. Several studies show that in the absence of any help, employees are unlikely to use such data.
A 2006 study of more than 18,000 employees by HR consulting firm Hewitt Associates in Lincolnshire, Ill., found that while the majority of employees believe their companies provide sufficient tools and information to choose and use their health plans, only half say they have used those tools.
Consumers spend twice as much time researching car and computer purchases as they spend selecting a doctor, and six in 10 probably wouldn’t change their ways even if price and quality information on health care providers were readily available. Those were among the findings of a national survey last August of 1,000 adults sponsored by Destiny Health, a CDHP provider, and conducted by Opinion Research Corp. Less than 40 percent of respondents were likely to shop around for health care.
Reluctance to delve deeply into consumer health tools may be linked to the makeup of the workforce—and with how HR and benefits managers design and tailor the content and delivery of data.
At American Financial Group Inc., a 5,000-employee property and casualty insurance company headquartered in Cincinnati, information tools that included a claims database with modeling and projections were of limited help to employees. “They said, ‘Yes, that’s great, but I’m not going to spend an hour doing that,’ ” says Scott Beeken, director of human resources. “Instead, they told us, ‘Give me a quick cut—the last couple months’ worth of data—and tell me where I would do best.’ ”
When American Financial Group’s employees consider switching plans, they look first at fixed costs and then at out-of-pocket maximums, Beeken says. “So we pay attention to how we present all costs and risk trade-offs. Employees will decide how they value the plans and the spending.” The company offers two CDHP options and a traditional PPO plan; 52 percent of employees are enrolled in the CDHPs.
Looking to the Future
In the end, the prospects for consumer-directed health will depend on how well employers, employees, insurers and health providers overcome the challenges in dealing with health care as a consumer good, experts say. While the trend is likely not a passing fad, it may prove to be something less than a wholesale shift.
“Employers don’t have to offer a ‘pure’ CDHP to encourage behavioral change,” says Chris Calvert, vice president and senior consultant with the corporate health care practice of Segal Co. in New York. Elements of consumerism can be inserted into existing plans by, for example, offering access to health-data web sites or inviting employees to complete and act on health-risk appraisals.
In any case, Calvert says, change is in the wind, and probably no one can say what the final result will be. “The consensus is that [consumer-directed health] is likely here to stay. But it’s not going to look like it does now.”
Susan J. Wells, a business journalist in the Washington, D.C., area and a contributing editor of HR Magazine
, has more than 20 years of experience covering business news and workforce issues.
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