Exploring Consumer-Driven Health-Care Plans

New Hampshire employers, as well as employers throughout the country, strive to provide employee benefit plans that attract, retain and reward employees while they continue to battle ever-increasing health-care costs. This has caused significant discussion around what has been termed ConsumerDriven

The creation of tax-favored Health-Care Saving Accounts (HSAs) and Health-Care Reimbursement Accounts (HRAs) have propelled the discussion around CDHPs to a new level, as one of the main purposes of these accounts is the financial incentive to create value-conscious health-care consumers.

Factors Driving Health-Care Increases

Health-care costs have continued to increase at a trajectory higher than the rate of inflation. In 2004, average rate increases among the major carriers in NH have ranged between 14 to 16 percent. While NE has seen increases considerably higher and slightly lower than that average, these rates are in stark contrast to the current rate of inflation, which is about 3.1 percent. The current trajectory of these increases is unsustainable without employers seriously evaluating cost-shifting strategies.

In order to look at why healthcare costs continue to increase at a rate significantly higher than inflation, one must look at the factors affecting health-care trends - rising prescription cost, hospital and physician cost, advances in technology, increase in chronic conditions, increased utilization, aging population and lack of consumer involvement in purchasing health-care services. It is this lack of consumer involvement that these plans are meant to address.

Employees pay for their healthcare cost in two basic ways: through their weekly deduction out of their paycheck and through their health plans via copays, deductibles and coinsurance when they utilize healthcare services. The current health-care financing system often misleads consumers into believing that a physician office visit costs $10 or $15, an emergency room visit $50 or $75 and a hospital stay no more than $500. The reality is that the costs of these services are considerably higher than the out-of-pocket cost paid by the consumer. In general, consumers have come to expect to receive medical care for the price of a $10 copay, which is less than the price of a haircut.

Current increases are forcing employers to make difficult choices. They can stop offering health insurance, absorb the increased cost, or change plan designs and contributions in an attempt to find a balance. Consumer-driven health-care plans are quickly becoming another viable option for employers. The important thing to remember with CDHPs is that they are a concept and not a product. The notion behind "consumer driven" plans is that the employers supply a high-deductible plan along with an employer- and/or employee-funded savings account that causes employees to become more engaged in their health care. Not only are employees paying a greater portion of the premiums today, they are also bearing larger costs at the point of service.

Type of Consumer-Driven Health-Care Plans

In many of the "consurnerdriven" models, patients are exposed to and must pay the real prices for health-care services. One example of how this works is as follows: an employer purchases a Preferred Provider Organization (PPO) plan with a $1,000 individual deductible and $2,000 family deductible and funds a health-care account for each employee with $500 for those with individual coverage and $1,000 for those with family coverage. Employees and their dependents may use the funds from their health-care account or money out of their own pocket to pay for medical services until the deductible is satisfied.

Once the deductible has been met, the PPO coverage kicks in to pay medical costs for the remainder of the year. Preventative coverage may be carved out and covered at 100 percent.

In an effort to relieve the burden on employers and employees, the government has sponsored several tax-favored accounts, such as Flexible Spending Accounts (FSA), Health Reimbursement Accounts (HRA), Medical Savings Accounts (MSA) and Health Savings Accounts (HSA).

Some employers are questioning whether the new models really promote cost reductions or if they are just another method of cost shifting. Will the premium savings on these high-deductible plans offset the additional costs incurred to implement a consumer-driven health-plan initiative? They are also concerned about the monetary effects on less-healthy employees. Some employers who are discussing CDHPs are skeptical as to whether the long-term impact will affect the overall health-care inflation, or even if their employees will understand these plans. Others view them as an answer to the employer/employee cost-sharing burden.

Most people agree that when Americans consume health care, they demand the best providers, want services immediately and would rather these services be covered 100 percent by their health plan.

Do consumers want empowerment when it comes to receiving medical benefits? Historically we've seen communication hurdles in other tax-favored employer-sponsored plans, most notably Flexible Savings Accounts (FSAs) and 401(k) retirement plans.

Flexible Spending Accounts, which have been in existence for more than 15 years, provide an excellent vehicle for employees to save for deductibles, coinsurance and other outof-pocket medical expenses on a pretax basis, yet average participation is generally less than 50 percent of all eligible employees. In the case of 401(k) retirement plans, many employers provide matching dollars to employees that participate, yet employers remain perplexed as to why some employees don't participate and essen tially leave "free money" on the table. Will CDHPs face similar challenges?

Most industry experts agree that these plans will require sophisticated employee communication to be successful. Management will need to be fully educated on CDHPs in order to guide employees through these plans effectively. Employers will need to create consumer incentives for their employees, encourage self-care, implement or utilize wellness programs, tie financial incentives to participation in the programs and promote Web-based tools.

Currently, NH is limited by the number of insurance carriers that are filed with the Department of Insurance to provide HSA qualified plans. However, the three major carriers Harvard Pilgrim, Cigna Healthcare and Anthem - as well as carriers trying to break into the market are working towards implementing these products for 2005.

There is a lag between the concept of Consumer-Driven Health Plans and the marketplace's ability to implement such plans. Many of the questions that arise have no immediate answers. One thing that is certain is NH employers will be hearing much more about these plans in the near future.