Health care is a big topic in the news today, but employers need to know what they can do now to continue to provide their employees with health benefits at a price that is affordable for their business. Consumer Directed Health Plans are a big part of many companies health cost containment strategies, but some employers are just learning about these products and want to know more about how they can introduce them into their company benefits offering.
The following overview of consumer driven health plans (CDHPs) presents important findings from a variety of independent research companies on the types of CDHPs, their popularity with various employee demographic groups, the best ways to implement CDHPs in the workplace and the benefits and savings realized by employers and employee when CDHPs are offered and elected.
What are consumer-directed health plans, and how do they differ from other health plans?
Consumer Directed Health Plans (CDHPs) allow participants to use a form of pre-tax savings accounts (similar to a 401K but for health only) called Health Savings Accounts (HSAs) or Health Reimbursements Arrangements (HRAs) to pay for their routine health care expenses. These accounts work hand-in-glove with a high-deductible health plan (HDHP) to protect the participant from catastrophic health events. These plans kick-in at a certain (high) point to cover medical expenses that accumulate beyond the deductible within a plan year and many of them fully cover a participant’s preventative care even before the deductible is met.
These plans differ from other, more traditional plans like HMOs, PPOs, etc., in that they are less expensive and provide opportunities for individuals to evaluate and make choices about their healthcare from the perspective of a consumer. The benefits to an employee and the employer are that the HDHP costs less to begin with, and the user pays routine medical claims using pre-funded spending accounts or other personal funds.
The theory is that this consumer-to-provider direct connection gets the consumer more involved in their own choices of care; encourages them to be more cautious in the use of medical services, which reduces the use of unnecessary care; and ultimately makes the consumer more mindful of the importance of health behaviors in avoiding the chronic conditions that have made health care expensive for all Americans. A final benefit of CDHPs is that by setting aside money in HSAs and HRAs, employees and employers (depending on the vehicle) are able to keep unused balances or "rollover" the funds at the end of the year to invest for future medical expenses. Thus, CDHPs reward those who do not over utilize the system, with the desired effect of encouraging the population to embrace these plans.
What percentage of employers offer CDHPs and what percentage of employees tend to enroll in CDHPs?
A study by Mercer found that in 2008, CDHPs were offered by 14% of employers with fewer than 500 employees and by 25% of those with more than 500 employees. In 2009/2010, Mercer projects that the number of employers offering these plans may double. According to a study by the Deloitte Center for Health Solutions, 6 million Americans, or nearly 4% of the commercially insured population, participate in CDHPs.
Enrollment in CDHPs, when offered, averages 42% for companies in the small group class (50 or fewer employees). Amongst the larger employer groups, in companies that have offered CDHPs for at least three consecutive years, one-third of eligible employees select those plans (Mercer).
A census by the AHIP, the trade association for American health insurers, reported the following age breakdown in individuals covered by CDHPs in 2008:
•Ages 1-19: 25%
•Ages 20-29: 13%
•Ages 30-39: 18%
•Ages 40-49: 21%
•Ages 50-59: 19%
•Ages 60 and above: 6%
Just a few years ago, CDHP plan adoption was highest among individuals with an income of $50,000 or less, at a rate of 33% in 2005. By 2008, the trend had shifted and 31% of enrollees in CDHPs made over $100,000 while the group earning under $50,000 dropped to only 19% of the enrolled population. According to the GAO, the average adjusted gross income of taxpayers who reported investments in an HSA on their 2008 tax returns was $137,500.
The AHIP reports that the health status of those enrolling in CDHPs runs nearly parallel to those who elect other plans, with about 49% reporting good health vs. 42% of non CDHP participants. 45% of CDHP enrollee report at least one chronic condition as compared to 49% if those in comprehensive plans.
As a professional employer organization, Advantec offers group benefits to our clients and we are able to track the increase in CDHP utilization by our clients and their employees. Advantec’s own experience shows an increase in 2008 from 2007 of 350% in HDHP participation. During the same period, HMO participation remained flat and PPO participation increased 15%. We have seen that employers are not only offering CDHPs more frequently, they are also adopting measures to encourage employee enrollment in the plans. Advantec’s interest in adopting CDHPs for our internal employees was driven by a desire to give employees the opportunity to save for future health expenses and a very keen interest in encouraging participation in wellness plans and employee assistance plans. We funded each of our employees’ HSAs at the level of their deductible with this in mind. We see CDHPs as an opportunity to give to our employees vs. giving to the system. Like Advantec, any employers who adopt CDHPs are not seeking to simply shift the cost of health care, but instead want to change the behaviors of employees to keep them engaged, present, and better contributors while enjoying the outcome of an improved quality of life.
Do employees who enroll in CDHP’s tend to be more or less satisfied with the quality of health care that they receive?
Direct statistics of the overall satisfaction of those who enroll in CDHPs vary. The trends indicate that while satisfaction remains slightly lower than tradition plans, it is increasing year over year. The Employee Benefits Research Institute reports higher satisfaction in individuals who both enroll in an HDHP and fund a savings account or have one funded for them as compared to those who do not have an account.
At Advantec, CDHP enrollees have access to the same networks as Preferred Provider plans, so we do not anticipate any change in the "quality" they receive. We are keeping a keen eye on the "quantity" and "type" of services to gauge behavioral change and length of illnesses.
Trends that indicate quality of care amongst CDHP enrollees show that they are more likely to obtain preventative screenings for diabetes, coronary artery disease, congestive heart failure, cervical and prostate cancer, and other measures and are more likely to participate in wellness programs including smoking cessation, stress management, nutrition, and exercise programs.
Measuring real consumer satisfaction may take several years, because the "benefit" of the accumulated health account savings and the realization of the benefits from efforts taken to improve overall health will not be recognized by participants over just one or two policy years.
The data is clear that CDHP enrollees put more thought into making decisions about what medical procedures they will have and who will perform those procedures.
Rather than an "it’s not my money anyway" attitude, these consumers do think of medical costs as "coming out of their pocket". They also give greater consideration to the longer, negative impact of "not doing" something about potentially risky health behaviors.
To understand the overall effect of CDHP, think of the body as an automobile. Some drivers forego oil changes and routine maintenance and later bear the expense of an engine replacement. If a car covered by a CDHP were to be "totaled" or horribly damaged, however, then the insurance kicks in, but after the higher deductible is met.
Imagine if the driver had to submit a claim form every time the car had an oil change, but the amount charged to the car’s insurance varied, based on the year of service, how many other services the car had had, the service station providing the oil change, and whether the oil change associated with a coolant issue or if it was just time to have one. The COST of an oil change would SKYROCKET out of control and that is what has happened to health care. The CDHP is an attempt to get the consumer/provider relationship back in sync and to allow that to be the point of competition. The result is that the provider, who gives a very good oil change, at a fair price, gets the work.
How can an employer know which elements of consumerism, with regard to health plans, are the right ones? Does this vary based on the demographics of an employer’s employee population?
Assumptions are that the elements "required" to make CDHP work are a high degree of interest and knowledge in how "the money is spent." It must be coupled with easy to digest education, and access to advocates and phone support as the essential mix. Younger participants and certain other demographics have made the on-line components easy to deliver. Pushing the information to others has been a challenge i.e. Wal-Mart’s standard price is lower than pharmacy discount. Tools such as Twitter just don’t reach the bulk of the population yet.
Is there a way an employer can or should increase the number of employees who choose to enroll?
The first step in attempting to influence overall participation would be to limit the total number of plan options given to employees. Too many options can be confusing to the consumer, and when there are clear delineations in true cost, the choice is clearer. Human behavior has evolved to resist taking responsibility for actions and choices, which is the driver behind CDHPs. Selecting the best plan, one that meets high deductible standards but still provides excellent coverage for preventative care, is very important. Helping fund employees’ HSA or HRA accounts will also increase the participation.
These are techniques which can help steer or influence a choice, but they are meaningless without proper communication. Employees need to understand the financial and personal benefits of CDHPs and should be educated on the overall health care landscape and the societal impact of taking individual responsibility for one’s health. Companies that conduct enrollment meetings and provide tools such as cost estimators and savings calculators have significantly higher rates of adoption. Over half of those who choose not to adopt CDHPs when offered make their decision based on a fear of high out-of-pocket costs. To influence this group, education is key.
Communication does not end at enrollment, either. CDHPs with the best satisfaction rates provide online access to account information, health education tools, and quality information about specific providers.
Are there any challenges or pitfalls employers might face in establishing or maintaining a CDHP?
The primary challenge that any employer will face is a misperception of the employer’s intent and a misunderstanding of CDHPs as stated above. Employers and advocates must communicate that the change is not just "cost shifting". Communication and education are essential, especially if the employer has moved to offer only CDHP options. Providing additional benefits that demonstrate the employers’ desire to influence healthy behaviors also makes a big difference. At Advantec, we removed our vending machines when we moved to a CDHP offering. We provide employees with open and free access to a break room stocked with fruits, vegetables and nuts. All our employees have access to wellness programs, weight loss programs, smoking cessation, etc. In moving our employees 100% to CDHPs, we’ve been mindful that we serve as a role model and example for all our clients, above and beyond taking every step to help our employees.
What are the costs or the cost savings associated with CDHP’s? How can employers measure those costs or cost savings?
The cost savings are reflected in the premiums. Premiums for CDHPs are, on average, 25% lower when compared to all other plan types and CDHPs experience much lower increase trends. Many employers, Advantec included, are off-setting any cost savings with contributions to employees’ HSAs for the first two to three years and then slowly decreasing those contributions as the employees build up their accounts and/or change behavior.
Does enrolling in a CDHP tend to affect the spending behavior of employees?
CDHPs are definitely affecting spending behavior, enrollees are 20% more likely to track current health care expenditures and to estimate and save for future expenses. A McKinsey study found that CDHP patients were twice as likely as patients in traditional plans to ask about cost of drugs or services and three times as likely to choose a less expensive treatment option. Chronic patients were 20 percent more likely to follow prescribed treatment regimes carefully.
Their use of emergency services is over 30% less than those of participants in other plan types. Going to an emergency room for a cold or flu is now replaced with a call to nurse practitioners; a service that CDHP participants utilize 40% more frequently as compared to other plans. At Advantec, we find employees sharing "prescription" savings with each other and coupons in the lunchroom. We have definitely seen a subtle shift in behavior, but we are careful to discourage saving pennies, at the cost of dollars, when a neglected condition becomes a bigger problem.
Is there any pending or recently-enacted health-care reform legislation that would impact CDHP’s?
We do not know what exact form that will take yet, but it is important to note that in 2007, 27% of those selecting CDHPs were previously uninsured, a good indication that, if allowed to evolve, consumer driven healthcare could be a strong component of the solution to our healthcare crisis.
What do is the future of CDHP’s?
CDHPs are here to stay. Moving the point of competition as close to the consumer as possible never fails to impact the marketplace. The fact that it also allows savings for health care in the future is huge for the younger workers who don’t believe that social security, pensions or Medicare will be available when they reach retirement.
Is there anything else you would like to add?
The focus on reduced waste, reducing administrative layers and getting consumers to take responsibility for "routine care" is a critical component to our solving America’s healthcare problems. Placing budgeting in the hands of the consumer vs. the employer puts the balance in the right place, allowing employers to contribute to but not control the primary decision-making role regarding health care. CDHPs as they exist today are a great step in the right direction, but we have a long way to go.