Consumerism Appraisal

In its early stages, consumer-driven health is getting lots of attention and high marks, but employers and insurers differ in their experiences so far.

Wednesday, February 1, 2006
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Making choices about their own health-care spending is hard work, but employees at Fujitsu America Inc. in Sunnyvale, Calif., have taken to the task with gusto, says Kathy Bartow, director of health programs.

More than 60 percent of the company's 5,500 domestic employees participate in a 4-year-old consumer-driven health plan, giving them direct control over many health-care purchases.

As a result, the company is moderating its health-care-cost increases, which at less than 6 percent per year, fall well below national averages, Bartow says.

The CDHP, which gives health-reimbursement accounts of $1,000 for single employees and $2,000 for families, and catastrophic health-care coverage for costs that exceed the accounts, is part of a long-term corporate benefits strategy, according to Bartow. The plan is underwritten and administered by Alexandria, Va.-based Lumenos, one of the first specialty insurers to offer the new plan design five years ago.

"Four years ago, we could see that our health-care costs were rising with no end in sight," Bartow says, "and we went looking around for some other strategy or technique that would give us more control."

The company's existing health-care options at the time, a preferred-provider organization and point-of-service plan, underwritten by United Healthcare, seemed to have tapped out in their abilities to control costs, she says. In fact, the POS, which was one of the more recent managed-care additions, was now posting higher increases than the preferred-provider organization.

The company decided to begin a phase-out of the POS plan and make some consumer-oriented changes to the PPO by replacing co-pays of established dollar amounts with percentages -- to force employees to recognize the full cost of their care.

"We didn't know very much about consumer-driven health plans at the time, but as we looked at the idea of consumerism and employee choice, they seemed to make sense," says Bartow.

The company's first effort, supported by Lumenos's communication and health-care education programs, yielded 20 percent enrollment--which has increased steadily each year to its present levels.

What the company did right, Bartow says, was engage employees about the plan every way it could, from print mailings and e-mail to vocal support from top management, employee meetings and person-to-person meetings with human resource staff.

Fujitsu also spent a little to save more, pricing the employee cost of the new plan well below its PPO to stimulate enrollment and agreeing to pay all preventive-care costs to encourage health screening and early treatment.

The company plans to increase its CDHP options in 2006 by offering a new health-savings-account model that became available in 2003 as part of the Medicare legislation. The new accounts provide more portability to employees and should attract even better participation, Bartow adds.

"We've been very, very happy with the way everything is working and our employees continue to be enthusiastic," she says.

Doug Kronenberg, Lumenos' chief strategy officer, says there is a lot to be learned from Fujitsu's success. He points to the company's "reasonable" HRA account levels -- not too little to be taken seriously by employees and not too high to have a chilling effect on pursuing needed health care.

Also, he says, Fujitsu "bridged" access to the catastrophic care with a $500 deductible that produced a graduated payment by employees. They couldn't just exhaust their accounts and then stop being health-care consumers.

The employer's success is also linked to its focus on health-care support, including comparative health-care information, wellness programs such as smoking cessation and weight-loss, and preventive care, says Kronenberg.

"Without these support programs and lifestyle changes, consumer-directed plans are not likely to be successful," he says. But with the comprehensive package, employers are seeing health-care-cost increases fall to as low as 3 percent annual -- a dramatic improvement over other forms of managed care.

Employers and the insurance industry are taking notice of results like these. CDHPs have gained rapid acceptance by the insurance industry and have quickly become one of the most studied and tracked health-plan designs ever. Virtually every major employee-benefits consultant, health-insurance industry organization and advocacy group is conducting research on CDHP.

Gaining Momentum

According to the 14th annual Group Health Insurance Survey, conducted by Milliman in Seattle, consumer-driven health plans are taking the health-insurance industry by storm.

The consulting company's analysis of its survey results indicate that 93 percent of health plans expect to offer an HRA or HSA and a high-deductible component this year.

The survey was sent to both health maintenance organizations and preferred provider organizations. About 40 percent responded.

Most of the insurers have already taken steps to prepare for consumer-driven health, says Steve Cigich, consulting actuary and author of the survey, but they're still concerned about whether employers and employees will buy into the consumerism model.

"Health-care costs have been rising for a very long time and the industry has cycled through several plan designs with limited success. CDHPs are the next best step to shift the responsibility for rising costs away from the employers. It's only a matter of time before they are widely accepted," he says.

Although CDHPs have been widely touted as a resource for small businesses, Cigich says large employers are more likely to choose the plans. "Large employers may be more suited to the wellness components of CDHP. Large employers will be more likely to provide wellness resources to employees."

Health plans, however, vary in their experience with CDHP. The early plan providers included three small insurers--Definity, Destiny Health and Lumenos--that began offering HRA-model CDHP about five years ago.

The HRA accounts were funded by employers and could not be carried over from year-to-year by employers, requiring employees to use or lose the funds.

The accounts were also not portable from employer to employer.

The new HSAs, however, are funded by employees with pre-tax dollars and may be carried over from year to year and employer to employer.

This change prompted wide interest among insurers and led to acquisitions by two of the nation's largest insurers, United Healthcare, which acquired Definity, and Wellpoint, which acquired Lumenos.

Since 2003, the largest CDHP underwriters, United Healthcare and Aetna, have reported a dramatic increase in interest in CDHP, primarily from large employers, which typically plan to offer it as one of several options in their employee benefits programs. They also report relatively low employee participation rates of 10 percent or less in the first year.

A separate survey conducted by the Council of Insurance Agents and Brokers, which represents the largest firms in this field, confirms the insurance industry's interest. Its Fall 2005 trends survey revealed that 71 percent of members said they sold a CDHP in the past six months, compared to only 65 percent in the Spring 2005 survey.

Despite steadily growing interest among their employer clients, the agents and brokers cited several reasons for their general resistance to the plan design. They included: the complexity of the design and the amount of education required for plan participants (86 percent); the inability to carve out prescription-drug coverage (46 percent) and difficulty in coordinating HSAs with existing flexible-spending accounts (34 percent).

A survey of 316 employers conducted by the Deloitte Center for Health Solutions indicates that about 43 percent of respondents say they already offer CDHPs as an option or will be offering the plans within the next two years. An additional 51 percent say they are reviewing the plan design and may offer a CDHP if results are good.

When will employers be certain the plans succeed in controlling costs? Despite early positive results, Watson Wyatt Worldwide senior consultant Tom Billett says the answer may not come for several more years.

"It takes any plan design at least five years to mature. Think back to the introduction of HMOs in the late 1970s. We didn't really understand them for five to 10 years," he says.

Education Is Key

Owens-Illinois Inc. in Toledo, Ohio, a large glass-manufacturing company, is "taking baby steps" toward the consumer-driven model, "but a giant step" toward future cost control, says Roberta Bixhorn, vice president of compensation and benefits.

In January, the company started offering its 9,000 domestic employees an optional HRA account above an increased deductible PPO health plan.

Bixhorn says the option is pegged a bit lower than most consumer-driven health plans, with a $750 fee for single employees and $1,500 for families as a low-risk way to introduce the idea of health-care consumerism to O-I employees. The company estimates initial employee participation at 10 percent.

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Like most employers, O-I has seen a steady increase in health-care costs for a health plan that offered both a PPO and HMO option to employees. Not only was the package increasingly expensive, the company discovered it was more generous than its competition.

"We are moving away from a very rich plan design to a benefit that our research indicates will be very competitive in our industry," says Bixhorn. "This will be a very good change for us."

O-I began promoting the new plan option last year with an extensive print-media communications campaign and a person-to-person educational campaign staffed by volunteers at each plant location, Bixhorn says.

The new benefit is also introduced at the same time as "Healthy Living," a program of health education and wellness.

Health-literacy and disease-management programs are provided by Cardium Health in Farmington, Conn.; health-risk assessment from the Mayo Clinic in Rochester, Minn.; and worksite health screenings from Health Impact in Seattle.

"We feel that health-care education will be an integral part of the success of this plan and we are committed to providing the education and consumerism tools our employees will need to make this work," Bixhorn says.

Dan Cave, president and chief executive officer of Cardium Health, agrees, but considers health education and health-care literacy only one aspect of a complex problem.

"There's no one solution to rising health-care costs -- everyone is in agreement on that analysis. Consumer-directed health plans are primarily a financial mechanism that attacks the problems of utilization with a financial-management incentive," he says. "But to make those work, employers will also need to support other changes as well, including the psychosocial aspects of wellness, such as smoking cessation and lifestyle changes and better consumer behavior," he says.

Health literacy can be the stumbling block, he says. "Underlying the promise of this new paradigm is the assumption that employees will know what they need to know to understand their options, make informed choices and lead healthier lives. Unfortunately, there is little basis for this assumption," he says.

Cardium pegs the financial impact of low health literacy at $58 billion annual, in health-care costs, long and short-term disability, and lost productivity -- factors that can only be offset by aggressive education-and-wellness lifestyle programs as a component of CDHPs.

Though large employers have been the first to adopt CDHPs, small employers are hoping the technique will work for them. Bob Compton, chief financial officer of Agora Inc., a Baltimore-based publisher, says his firm launched an optional CDHP early last year with solid 20 percent employee participation rate. The health-care costs were the obvious motivation, he says.

With 335 employees, the educational publisher has made little progress against rising health-care costs over the past years, Compton says, increases ranging from 15 percent to 22 percent annually.

"This is a very exciting program for our company, but it came after a lot of research and planning," he says. "We realized from the beginning that in order to make this a success, we would need to make a commitment to its rather complicated administration and educational components."

The new benefit features an HSA model and PPO provided by the local BlueCrossBlueShield affiliate and online administration provided by, based in Baltimore.

Founded in 2003, provides HRA, HSAs and flexible-spending-account fund administration and health-care-decision support tools, including local comparative pricing information.

Compton says the administrator's online resources and debit-card service for HSA spending made the firm attractive to the publisher as a one-stop solution.

"We've done very well with the plan so far and we expect that participation will continue to grow as employees relate their positive experiences to their colleagues. And as participation increases, our costs will begin to moderate," Compton says.

"Communication is a huge piece of CDHP and without an effective communications program, employees will simply not be able to make the decisions that CDHPs demand," says Jamie Spriggs, president and chief operating office of

"It all begins with accounts and how well employees manage their HRAs or HSAs," he says.

"Employers need to provide simple methods by which their employees teach themselves what they need to know in addition to a central point of access to that information."

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