A few years ago, consumer-driven health care was being touted as the latest, greatest hope for companies desperate to rein in their employee medical insurance costs. Fast-forward to the present, though, and the reality is a health-care movement that's more evolution than revolution. Companies have been slow to offer consumer-driven plans, and employees have shown no great eagerness to enroll in them.
According to Mercer Health & Benefits LLC's National Survey of Employer-Sponsored Health Plans 2005, which covers more than 3,000 organizations with at least 10 employees, only 2 percent of companies offered a consumer-driven health-plan option to their workforce last year, and just 1 percent of all those companies' employees were enrolled in the plans.
At the same time, the number of companies that offer a consumer-driven plan is expected to increase significantly this year. According to the Mercer Health & Benefits survey, 11 percent of plan sponsors report they are very likely to offer such a program in 2006. And the larger the organization, the more likely it is to offer a consumer-driven option to its workforce.
width="361" height="635" alt="" border="0" />Overcoming Employee Inertia
Not surprisingly, these developments have caused many companies to realign their expectations for consumer-driven health care and to take a longer-term view of these plans and their promise.
When Baltimore-based investment management firm T. Rowe Price introduced high-deductible medical insurance coupled with a health reimbursement arrangement (HRA) to its more than 4,000 workers in 2004, it quickly discovered that employees are not particularly price-sensitive or receptive to change when it comes to health plan choices. Even though the company's priciest and most popular plan option -- a preferred provider organization (PPO) -- is 55 percent more expensive than the high-deductible/HRA option, enrollment in the latter is just 8 percent.
While that percentage is in line with what other organizations that offer such plans have experienced, Randall Singer, T. Rowe Price's vice president of global benefits, thinks his company can do better. "The enrollment level is a bit disappointing because we thought the plan would garner more interest," he says. "People in the high-deductible plan/HRA option have been satisfied, so we thought it would carry over to increased enrollment."
Singer attributes the consumer-driven plan's low enrollment in part to employees' perception that they lack a compelling reason to switch plans. The company has been much more successful in enrolling new employees in the plan.
Overall, Singer believes the consumer-driven strategy holds promise for containing health-care costs over the long term. He views T. Rowe Price's plan as a sign of things to come as this approach becomes more commonplace and accepted. And he believes that the company's decision to offer the plan keeps T. Rowe Price in the vanguard of benefits design. "We are always looking at how the health-care marketplace is evolving, and we want to be close to the forefront by having this plan," he says. "We don't want to lag behind."
For most companies, getting employees to embrace HRA plans and health savings accounts (HSAs) will be no easy task. "Most people don't change health plans unless they have a dramatic reason, such as very high pricing," observes Helen Darling, president of the National Business Group on Health, an employee benefits research and advocacy group in Washington, D.C.
Darling argues that if businesses want to spur change in employees' health-care choices, they must put their money where their mouth is. "Companies can create a big price differential between the consumer-driven health-plan option and the alternatives," she suggests. "They can also contribute to HSAs or HRAs to bring down out-of-pocket costs, then communicate like crazy until people understand these plans and how to use them."
But even businesses that undertake these efforts should temper their expectations, Darling cautions. "Anything above 10 percent is a good enrollment rate," she says.
More Than Just High Deductibles
Like T. Rowe Price, many companies are embracing the consumer-driven approach with the clear understanding that doing so sets the stage for the future. They're looking beyond specific plan designs and preparing the ground for a cultural shift and behavioral change among their employee populations. And that will take time.
"Employees are used to being taken care of," says Mike Thompson, a principal with PricewaterhouseCoopers HR Services in New York City. "Companies can't expect to change that mind-set overnight. They have to train people to do better; provide leadership; and help people understand why they are going down this path, why they are not turning back and how employees can make the most of it."
Although plans that combine high-deductible medical coverage with an HRA or HSA are an important first step toward consumer-driven health care, companies must support these offerings by providing the tools and education that can help employees manage their own health.
Alexander Domaszewicz, national health consumer-ism practice leader in the Newport Beach, Calif., offices of Mercer Health & Benefits, notes that organi-zations must provide actionable information that's specific to individual employees' needs so that workers can make intelligent decisions about the level of care that's medically appropriate. At the same time, "companies need to help employees change their lifestyles to reduce the need for medical services and medication," says Domaszewicz. "On its own, consumer-driven health care will not magically make costs go down, but with an informed and involved employee population, a lot of good things can happen."
Businesses that want to turn their employees into savvy health-care consumers will need to provide access to robust and plentiful data about the cost and quality of medical products and services. Currently, though, such information can be hard to come by.
Paul Grundy, well-being director for IBM Global Well Being Services and Health Benefits in Hopewell Junction, N.Y., is well-aware of that problem. But he doesn't see it as insurmountable. Companies that introduce consumer-driven health care now, in its nascent form, are "preparing employees for the time when much more meaningful information is available," he says.
IBM is in its second year of offering a high-deductible plan with an HSA. The program has enrolled 3.5 percent of employees, which Grundy says is a level consistent with that achieved by several employers of similar size. "We look at this as a long-term strategy, and part of this is building receptivity among employees to playing a more active role in health-care decision-making," he says. "These plans will add the most value in the future when more tools will be available to support them, as well as more meaningful data and information."
That future is approaching rapidly. "More has happened on the data front in the last five years -- especially in the last year -- than in the last 30 years," says Darling. "The momentum is such that people won't tolerate anything that gets in the way of greater price and quality transparency."
Grundy agrees. He predicts that the market for consumer-driven health-care products and the tools to support them will achieve explosive growth in the next five to 10 years. "As people become more used to it and data becomes available, people will increasingly migrate toward these plans," he says.
Until then, IBM considers its consumer-driven plan a work in progress. The company intends to study the health-care usage patterns and purchasing behavior of employees enrolled in its high-deductible/HSA plan and compare those variables with the behavior of other employee groups.
Holistic Plan Design
With so much work still ahead on honing the consumer-driven health-care strategy, one might wonder why companies would bother. But this approach has already lived up to some of its early promise as a cost-containment tool. The Mercer Health & Benefits survey found that the average high-deductible/HRA or HSA plan costs $5,714 per employee. That's 12 percent lower than the $6,518 average price tag for a PPO plan.
However, a consumer-driven plan alone can't deliver the health-care cost savings companies are looking for. A 2006 survey of 585 large organizations conducted by Washington, D.C.-based Watson Wyatt Worldwide and the National Business Group on Health found that companies which rely on a combination of high-deductible insurance and an HRA or HSA are not doing enough to realize the full promise of consumer-driven health care. The businesses that are achieving the greatest success in controlling costs are implementing a wide variety of programs that complement their consumer-driven plan.
The study examined companies' health-care expenses in 2004 and 2005. The most successful organizations -- those that experienced a cost increase in the lowest quartile -- kept the increase to just 3 percent on average over that two-year period, compared with 11.5 percent for companies in the highest quartile and 8 percent for organizations at the median.
At least part of this variation can be explained by the fact that the high-performing companies couple their high-deductible/HRA or HSA plan with initiatives designed to improve the quality of care. For example, many of these companies pay a differential to higher-quality providers. Some offer health improvement and productivity programs that help employees manage their own health. And some provide incentives and information to encourage employees to use health-care services appropriately.
The survey results explain why companies are introducing disease management programs that help employees cope with chronic conditions; wellness programs to help workers stop smoking, lose weight and take critical steps to improve their overall health; and education about the need to focus on the cost and quality of their health care. "Companies that are serious about this are taking a holistic approach and identifying the key metrics they need to change," says Thompson.
Domino's Pizza LLC is a case in point. The Ann Arbor, Mich.-based company is working to understand the impact its consumer-driven health-care option is having on employees' utilization patterns and purchasing behavior as well as on costs, according to Joseph Abraham, vice president of compensation, benefits and support services. Although total health-care cost is the overarching metric, "we also want to see how employees are using providers and facilities," he says.
For example, Domino's Pizza carefully tracks utilization of its wellness program. It also monitors the number of employee visits to emergency rooms. Urgent-care facilities are a less expensive option than emergency rooms for non-life-threatening conditions, so the company wants to encourage employees to choose the former whenever possible. "This type of metric shows where we are getting behavior change," says Abraham.
Although most companies have a long way to travel on the road to fully consumer-driven health care, a small but growing number of organizations are leading the way. These businesses understand and accept the long-term demands of the undertaking largely because the alternative -- staying with the current system -- has become untenable.