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A Considered Approach

Although more organizations are turning to consumer-directed health plans to keep healthcare costs low, selling employees on the plans can be a challenge. An expert offers some successful strategies.

Saturday, May 2, 2009
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Despite rumors of their imminent demise in pre-recession days, consumer-directed health plans may prove to be a refuge for employers and employees challenged by the current economic decline amidst the relentless rise of healthcare costs.

If anything, CDHPs offer a unique combination of cost and care advantages. But the key to success lies in implementing them strategically as part of a total health- management effort focused on improving employee well-being, and offering guidance to employees through long-term communication initiatives, education and access to healthcare resources.

Indeed, predictions of CDHP falloff are not borne out by research. According to the 2008 National Survey of Employer-Sponsored Health Plans, conducted annually by New York-based Mercer (surveying nearly 2,900 private and public employer health-plan sponsors with 10 or more employees), there was a sharp increase in the number of large employers offering CDHPs, defined as a health plan coupled with either a health-savings account or a health-reimbursement arrangement. CDHP offerings rose from 14 percent to 20 percent of employers with 500 or more employees last year.

The plans are most common among the very largest employers (20,000 or more employees), where they are offered by 45 percent, up from 41 percent in 2007. Growth has been slower among small employers: Just 9 percent of employers with 10 to 499 employees offer them a CDHP, up from 7 percent in 2007.

Still, enrollment in such plans reached 7 percent of all covered employees in 2008, up from 5 percent the prior year -- not an insignificant margin. After all, as employees shift from more expensive plans into more cost-effective ones, employers' overall cost-per-employee drops; the migration into lower-cost CDHPs is one factor helping to hold down benefit cost increases.

Cost Factors

It's certainly worth dissecting the cost factors in play here, since these difficult economic times may speed both the adoption of CDHPs by employers and higher enrollment rates wherever employees have a choice of plans. Importantly, the median deductible required by employers for individual coverage in PPO health plans -- the most popular option, chosen by 69 percent of all covered employees -- jumped to $1,000 in 2008, up from $500 in 2007, according to the survey.

So now it's not such a big step for companies to offer an HSA with a $1,100 deductible (the minimum deductible required by the IRS in 2009 in order to deposit tax-deferred money in an HSA account) and use the savings to help fund the accounts, thus improving overall value to employees.

In fact, the introduction of the HSA may have changed employers' thinking on just how high a deductible can go when balancing the benefits and cost equation, since raising the deductible is the easiest way to reduce costs without taking more out of every employee's paycheck.

More to the point, the survey showed that CDHPs delivered substantially lower cost-per-employee than either PPOs or HMOs in 2008. The CDHP cost averaged $6,207 per employee, compared to $7,815 for PPOs and $7,768 for HMOs.

Of the two types of CDHPs, HSA-based plans were less expensive than HRA-based plans ($6,027 compared to $6,420).

The most obvious explanation for the difference in cost between CDHPs and other medical-plan types is the higher deductible. But even compared to the average cost of PPOs with deductibles of $1,000 or higher ($6,661 per employee), CDHPs still cost less -- by more than $400, even when any CDHP account contribution by the employer is included.

Another consideration in the cost difference is the tendency of healthier employees to opt for CDHPs, even though enrollees are not significantly younger than enrollees in PPOs with high deductibles and are more likely to elect dependent coverage (which drives up cost per employee).

Of significant importance to employers is the year-over-year cost trend and sustainability of the plans -- the 2008 cost increase for CDHPs was only 4 percent, compared to 6.3 percent for PPOs and 9.1 percent for HMOs.

Making CDHPs Work

That said, making the most of CDHPs comes down to implementing them strategically and communicating their value to employees effectively. If there is a classic case study in making the consumer-driven option work, it is probably that of a global restaurant chain, with more than 6,000 locations and some 40,000 employees, that implemented what it called "Consumer Choice" health plans for its U.S. employees in 2005, offering an array of HSA-based CDHPs (with significant company contribution) as the only medical-plan options for all managerial and shift workers.

Like most large companies, the chain was experiencing sharp rises in healthcare costs and looking at unsustainable employee cost-sharing. But it chose to go the consumer-driven route not casually, but strategically, considering that this would be the first major change in the company's health benefits since it introduced managed care in 1994.

There were also several key challenges to overcome: Employee understanding of healthcare costs and delivery was, largely, limited; employees were widely dispersed geographically; there was a lack of Internet access at the store level, and a lack of the tools available to enable participants to take better control of their healthcare and become informed consumers.

Indeed, only by grasping these challenges could the CDHP strategy make sense, despite the fact that the company offered up to five plan choices for its workforce, assuring affordability at each employee level. Beyond that was the need to implement the new program with a focus on communication, education and ongoing behavior change, with the aim of improving overall employee health as a key means of ensuring cost-savings in the long term.

Thus, the Consumer Choice plans offered 100-percent coverage for preventive care, and created a foundation of incentives for consumerism and health improvement going forward. Rewards were incorporated into the program over time to encourage people to understand their own health issues and opportunities by completing a health assessment; there was also a financial payback for engaging in healthy activities such as walking programs.

Focusing on the key messages -- employees must take more ownership of their health-dollar spend, cultivate healthier lifestyles and make use of more direct access to information and resources -- the plan provided health plan participants with multilingual and multisource access through Web sites and a national call center. Monthly newsletters were mailed to employees' homes, while the details and benefits of the Consumer Choice plans were regularly communicated within the organization.

As reported by the company in 2008, the results have been trending favorably, with medical and dental claims and claims cost (including employer HSA contributions) down nearly 10 percent in 2007 as compared to 2004.

Based on such examples, a 2007 McKinsey study ("What Employers Think About Consumer-Directed Health Plans," McKinsey Quarterly Web, July 2007) identified four components of a successful CDHP program:

* A benefits structure that can provide increased cost accountability;

* Information and tools for decision support and advisory services;

* Account funding, through HSA, HRA and FSA accounts; and

* Health-incentive programs to influence healthy consumer behavior.

Value Proposition

Clearly, such success affirms the very real value proposition of CDHPs -- when they are implemented properly, that is. That proposition begins with an increased employee sensitivity to the real cost of health services, as well as increased employee motivation and demand for information about what they are receiving for their money.

In addition, there's a heightened employee incentive to consider care options and the "true" need for services -- factors that weigh in self-care decisions and discretionary healthcare spending.

Then there's the advantage of accumulating unused funds for future health needs in a portable HSA account, which shifts participant perspective from short- to long-term. This shift can be likened to moving from a "renter" mentality when maintaining a house to that of an "owner" who is diligent about upkeep and has an eye on the long-term value of the property.

Ultimately, the consumer-driven approach serves to uniquely "monetize" health benefits via employer-defined contributions to the account, increasing employees' perceived value of the benefits.

Other organizations that have succeeded with a CDHP strategy in recent years include -- not surprisingly -- a technology-management company in the healthcare sector with some 1,500 benefit-eligible employees.

This company has been evolving toward CDHP, first by moving from a fully insured HMO/PPO offering to self-funded EPO/PPO/CDHP options in 2007; then, in 2008, the firm positioned the CDHP as the "core" medical plan, heavily communicating its advantages, while providing basic information about the non-CDHP options. Enrollment in the CDHP rose from 45 employees in 2007 to nearly 600 in 2008 and continued to grow to more than half of the enrolled population, with 765 in 2009.

What were the incentives? The CDHP required the lowest employee premium contributions, with no cost increase over the previous year. The plan deductibles fell toward the lower end of those allowed by the IRS, with a one-month "premium holiday" in December for employees who had completed a personal health assessment by March 31.

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In addition, a Health Advocacy Program and access to telephonic physician consultations were offered only to CDHP participants, and a generous employer contribution seeded the plan's HSA accounts ($650 per employee, up to $1,500 for family coverage).

Communication efforts within the company included a pre-announcement to management, open-enrollment announcements, e-mail blasts, and special materials such as benefits guides, open enrollment checklists, Q&As and live Web meetings.

For employee dependents, all materials were posted on the company intranet to share with family members, and the use of a "benefit cost modeler" tool was encouraged. In addition to the many "on-demand" resources and learning opportunities, a critical education component was the widespread availability of interactive face-to-face meetings and discussions about the benefits program.

Employee feedback was telling. Among those who changed to the CDHP, some said, "Looks like a good time to make the leap," while others said, "You are forcing me to make this change now -- because you have made the plan so compelling."

Those who stayed with the traditional plans indicated they were "not ready to leave the security of what I know." Going forward, the company expects word-of-mouth to drive new enrollments in the plan, while communication materials will emphasize the sources of plan satisfaction -- such as company contributions, opportunity for HSA savings and lower premiums.

Future components of the CDHP program include data warehousing to collect historic and ongoing claims information to allow for better analysis/monitoring of the plan, along with enrollment advocacy; a phone-based support to guide people through plan choices; and a broad expansion of wellness initiatives and incentives. As the program grows in acceptance and success over time, there is strong consideration being given to making HSA-based plans the only medical options.

Saving for the Future

Another example involves a company half the size of the above organization: the American division of a leading technology product manufacturer, with 750 benefit-eligible employees. In 2005, the firm went from offering self-funded traditional PPO and HMO plans to adding a CDHP with an HSA.

Enrollment into the consumer-driven plan increased from 45 in 2005 to 260 (35 percent of the workforce) in 2008, when the CDHP was heavily communicated and positioned as the "saving for the future" medical plan. Incentives included the lowest employee premium contributions, deductibles near the IRS minimum, a $500 preventive allowance, free health-risk assessments and employer seeding of HSA accounts from $300 to $500.

Of significant importance was the incentive commitment from HR to program education -- HR generalists were told up front that their performance ratings and bonuses were tied not to how many people enrolled in the new plan, but to how positively employees indicated that they understood the new HSA option.

Communication efforts were similar to those of the health-technology company cited previously, with teams of facilitators from HR and the plan's healthcare-management provider holding 16 open-enrollment meetings in three cities over a 10-day period.

Feedback included observations that the CDHP plan "seems too good to be true. I can't understand why I would not switch -- what am I missing?" Those who stayed on the traditional plan mostly wanted to ensure that "I have a low deductible if something bad happens."

Word-of-mouth from early adopters of the plan greatly contributed to the rate of new enrollments -- from 21-percent participation in 2006 to 29 percent in 2007, to 35 percent last year. Claim costs in the CDHP plan have decreased since 2005, but the company acknowledges that its employees are still in the learning stage when it comes to maximizing the potential of consumer-driven plans, and there is always a hunger for more benchmarking and quality information.

What these examples underscore is that succeeding with CDHPs requires more than just offering the plans; it requires commitment to a comprehensive, multi-year, multi-channel communication campaign that can motivate employees to be proactive in their healthcare needs.

Obviously, it takes time to build employee understanding and appreciation of CDHP options. But in these times of economic uncertainty, and as the rising deductibles of traditional healthcare plans begin to approximate the deductibles of CDHPs, we may be approaching a tipping point toward healthcare consumerism -- as a key element of total health management -- that can fulfill its long-awaited promise.

The coming years will help companies further refine programs and avoid pitfalls. And, as they build on their collective experience with these programs, they should be able to quantify, to an even greater extent, the advantages of an idea whose time has come.

Alexander "Sander" Domaszewicz is a principal and senior consultant with Mercer's Health & Benefits Services business, based in Newport Beach, Calif., office. As Mercer's national practice leader for consumerism, his specialties include healthcare strategy, consumer-directed healthcare, HR portals and online benefits.

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