Consumer-Directed Health Plans: CEOs' Perspectives on Success

By Stephen Miller Feb 22, 2005

Top executives in the health care industry believe employers' growing use of consumer-directed health (CDH) plans and vastly improved medical information databases are the keys to containing costs and improving the quality of U.S. health care, according to CEOs addressing the second annual World Health Care Congress held in Washington, D.C., Jan. 30-Feb. 1, 2005.

CDH plans give employees more financial control over and responsibility for their medical spending. The thinking is that consumers will try to stay healthier and seek medical care more judiciously when the money they spend is their own.

In a keynote CEO panel discussion, John W. Rowe, M.D., chairman and CEO of insurance giant Aetna Inc., drew lessons from the CDH plans Aetna offers its employees, particularly the introduction of health reimbursement arrangement (HRAs) several years ago, and the more recent introduction of health savings accounts (HSAs). (To read about the differences between HRAs, HSAs and related approaches, see Health Savings Accounts: How They Differ from HRAs and FSAs.)

Looking at the experience of 1,450 Aetna employees in the firm's HRA with a $1,000 individual deductible, "we see a reduction in overall costs that is very substantial compared to a PPO [preferred provider organization] population; there is a very significant, several percent reduction in overall costs."

Comparing a one-year period, Rowe said that preventive services by employees in the HRA increased 23 percent vs. 8 percent in the PPO control group. Emergency room visits, one of the most expensive ways to receive medical care, fell 2.6 percent vs. a 4 percent increase in the control group.

Reductions in prescription drug costs were not as dramatic. In the HRA group, prescriptions overall were down 13 percent compared to a 3 percent increase in the control group an indication that some are foregoing their prescriptions but use of lower-cost generic drug prescriptions was up 23 percent in the HRA plan compared to a 10 percent increase in the control group.

"When we look at different classes of drugs, we see the major reductions in utilization in [prescription] pain medicines, ulcer and heartburn medicines, cough and cold medicines and hormone replacement therapy," Rowe said.

George C. Halvorson, chairman and CEO of the Kaiser Foundation Health Plans and Hospitals, said that the tendency not to refill prescriptions for those in high-deductible plans was disturbing. "It's so dangerous to have people not taking their drugs," he said. "It's so important that people take their cholesterol-reduction drug, because if they don't, they migrate into the [more intensive care] side of this continuum and they become very, very expensive." This is one reason some urge high-deductible plans to carve out generic prescription medications, which can then be covered on a traditional co-pay basis.

Needed: Better-Informed Health Consumers

But simply providing more financial responsibility doesn't make employees smarter purchasers of health care services, said Aetna's Rowe. "While we see some predicable things like a decrease in emergency room visits and symptomatic cold remedies, the real tough decisions require more information," he said. "We provide information on hospital comparisons, drug price comparisons, physician procedure comparisons on our web site for plan members. We find the people in the [HRA] access this information twice as much as people not in the plan."

Added Jack O. Bovender Jr., chairman and CEO of the hospital-management company HCA Inc., "The question is if and how we are going to quantify outcomes and create objectivity in decision-making, either at the patient level or for those who represent the consumer. And we're just beginning to touch the boundaries of this."

Kaiser's Halvorson agreed information and decision-making support tools were critical to patients. "Can consumers really make accurate, value-based decisions about caregivers, about care itself and about health?" he asked. "It's extremely hard for consumers to find meaningful information about the actual relative performance of caregivers. The database isn't there. And that's a real shame because there are significant differences in caregiver performance.

"Consumers need performance data," he added. "They need to know heart attack survival rates, knee-surgery recovery rates, breast cancer detection rates -- that's the kind of database that will truly create a consumer-directed, consumer-focused care delivery system. Until we have that data, though, we're only working with very crude surrogates and the system is going to be much less efficient."

Added David Brennan, president and CEO of the pharmaceutical firm AstraZeneca US, "We need to build that database. It's equivalent to the interstate highway system. We need an interstate database system as a matter of public policy."

"Only computers can provide that data," Halvorson said. "A system that relies on paper medical records is inherently incapable of providing sufficient data for consumers to make meaningful choices about their health care. This information is often inaccessible, sometimes illegible. The database that comes from the paper record undermines the potential to create a value-based marketplace. The information has to be accessible, and it has to follow the patient."

High Satisfaction

Overall, Aetna found that satisfaction with its HRA was very high. "Renewals in the HRA plan were at 89 percent, and 50 percent of employees in the plan had money at the end of the year to roll over.

Said Rowe, "We started at 3-4 percent in the first year and then doubled that the second year, [now] well over 60-70 percent of our employees are in these products. If we look at the HRA, we see that 68 percent of people with a salary less than $30,000 enrolled in this product. So this is very high penetration even at the lowest salary level."

This year, Aetna began to offer its employees an HSA option, and 15 percent of its workers have chosen that option. "If we look at the people who signed up for the HSA, 30 percent have incomes under $45,000; 30 percent have incomes over $90,000, and 40 percent are in the middle. So we see distribution across the salary levels," Rowe said.

And he added, "When we look at the data from the American Association of Health Insurance Plans, we see 30 percent of the people signing up [for HSAs] were not previously insured. And half of those are people working for companies that were previously not offering insurance. That's encouraging, because what we'd like to do is swell the ranks of the insured."

But Not for Everyone?

Because CDH plans don't benefit everyone, Halvorson said the best approach for employers to adopt is to make such plans optional, not mandatory. "When mandated, that's when low-income people who cannot afford to have a $1,000, $2,000 or $3,000 family deductible are forced to decide whether to make the car payment or pay for health care. "

He added, "Less healthy people who know they're going to incur a lot of cost, who do the math, tend not to pick those plans. For some, [a consumer-driven approach] makes a lot of sense; for others, I think, it makes very little sense."

However, in another presentation at the Congress, Whole Foods CEO John Mackey argued that a CDH plan with employer-funded spending accounts and employer-paid premiums can address the problem of lower-income employees lacking funds to pay for basic health care under high-deductible plans, yet still provide incentives to make cost-efficient spending decisions, since unused funds in an employee's account roll over, tax free, at year end (see sidebar, below).

Finally, Aetna's Rowe noted there's another consumer-directed model that may be appropriate for some employees tiered networks.

"In the tiered network of physicians, you're not asking the man on the street to make caregiver decisions; you've made the analysis of who are the more...cost-effective, higher-quality doctors, and the employee can choose that network and go to those doctors and be comfortable. And that model also seems to be gaining some traction," he said.

Whole Foods: A Consumer-Directed Success Story

In another session at the World Health Care Congress, John Mackey, CEO of Whole Foods Market, called his company's adoption of a consumer-directed health plan a major success story. "In 2002, our claim in our self-insured health insurance plans exceeded our premiums collected by $7 million," Mackey said. At that time, his firm offered a cafeteria plan with three health plan choices and, Mackey said, "no incentives to economize."

To keep his existing plans solvent, "we were going to have to raise premiums 30-35 percent," said Mackey. The companies switched to an HRA plan in January 2003, eliminating the cafeteria plan "to minimize adverse selection." Whole Foods now pays:

100 percent of premiums for full-time employees.

An increasing portion of family premiums based on service hours, and 100 percent of family premiums after 10,000 service hours.

The plan's deductible is $1,000 per year for medical and $500 for prescription drugs, with $3,500 maximum out-of-pocket expense per year for deductibles and co-payments for individuals and families.

In addition, the company deposits $300 to $1,800 into each employee's personal wellness account (PWA), depending on length of service. Any money not spent in one year can roll over, tax free, to be used in the future.

In the plan's first year, reports Mackey, medical cost per employee fell 42.8 percent from $2,795 to $1,599. Including PWA dollars, the new plan resulted in a 25.53 percent total decrease (to $2,082) in annual dollars spent per employee.

Stephen Miller is manager of SHRM's Compensation & Benefits Forum.​

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