Studies show the consumer-driven approach provides mutual benefits to companies and workers.
According to the 13th Annual National Business Group on Health/Watson Wyatt Employer Survey on Purchasing Value in Health Care, a company’s average healthcare expenditure per employee was $7,211 in 2007 and expected to rise to $7,620 in 2008. In all, 453 large U.S. employers participated in the survey which also stated that in 2007, the average annual cost increase for healthcare was 6 percent, a reduction from the 8 percent increase in 2006. However, costs are predicted to again increase by 9 percent in 2008 and again (although at a slightly-lower rate) by 8 percent in 2009. With this double whammy of high healthcare costs and a slowing economy, healthcare stakeholders are examining the potential of consumer-directed healthcare plans (CDHP) to reduce their overall healthcare costs, given CDHP’s cost transparency and provider-related quality measurements.
Studies show the consumer-driven approach provides mutual benefits to companies and workers.
The federal government has expressed its support of healthcare programs that encourage transparency in pricing and an open exchange of quality information. In August 2006, President Bush signed Executive Order 13410, which instructed federal agencies that administer or sponsor federal health insurance programs to improve transparency in pricing and quality, promote the adoption of health IT standards, and support overall efforts to increase quality and efficiency.
Later that year, the Department of Health and Human Services (HHS) took an important step towards the implementation of the executive order by calling on employers throughout the nation to commit to supporting its “Four Cornerstone goals” of value-driven healthcare. These four cornerstones are health IT standards, quality standards, price standards, and incentives. During a March 14, 2006 presentation to the Commonwealth Club of California, HHS Secretary Michael Leavitt stated his intention to initiate policies designed to encourage healthcare payer support of increased quality and price transparency. “People need to know what they pay for healthcare and what quality they get for their money,” Leavitt said.
With the growing adoption of CDHPs and their tools to support cost transparency and consumer empowerment, one would expect that most, if not all, payers would offer these options to their members. In fact, although 41 percent of employers who responded to the National Association of Health Underwriters 2006 survey chose CDHPs as the most effective way to reduce medical costs, only 29 percent expected to offer the plans in 2007, which represents zero growth from the prior year. However, 85 percent of respondents identified “enrollment communication and support” as the largest barrier to CDHP adoption, which tends to explain the contradiction. The same percentage stated that many CDHPs did not include necessary functionalities such as online tools, a single access point and provider cost comparisons, echoed by 84 percent of consumers surveyed by the Council for Affordable Health Insurance in 2006.
Lifting the Veil
Although various methods exist to estimate and gather healthcare costs, payers can most easily provide consumers with the data through CDHP portals, which interface with providers, contracts and benefits plans. By leveraging the data within providers’ electronic claims systems, payers can deliver real-time electronic data exchange to consumers. Members can manage their accounts, examine explanations of benefits and review real-time financial summaries of their individual account cards, which are typically linked to their health reimbursement accounts (HRA) and health spending accounts (HSA).
Equally as important, individuals benefit from a CDHP portal’s cost comparison tools that allow them to view account details and summary information on physician visits, prescription drug purchases and treatment costs. These tools may also offer information on: a drug’s primary use, risk and benefits; alternative drugs and therapies; drug comparisons; over-the-counter options; as well as, a prescription calculator to compare brands versus generics.
This aggregated information provides the patient with an overview of costs associated with given providers or pharmacies. Moreover, this data can be integrated into electronic medical records (EMR) and personal health records (PHR), allowing payers, providers and individuals to work from a shared platform of information. Once healthcare stakeholders fully utilize this real-time data exchange platform, one could expect reduced adverse drug events, decreased misdiagnoses and elimination of duplicate testing, as well as enhanced patient care and satisfaction, and increased provider productivity.
Cost and Quality Comparisons
Although the initial lure of CDHP was cost reduction, the healthcare industry is now realizing that a substantial benefit will also result from sharing data on provider quality. Yet, only about one-quarter of executives believe that their organization supplies easily understood, accessible and usable healthcare quality data to employees, according to an April 2006 study by PricewaterhouseCoopers. Similar views were reported by 24 percent of respondents at 35 large, U.S.-based multinational companies.
CDHPs are beginning to offer hospital and physician performance metrics to assist individuals in selecting quality providers. Some plans offer data on a physician’s network status, verified disciplinary actions, malpractice history, evidence-based quality measures, adverse events and patient satisfaction survey data. This practitioner-focused information may be drawn from the payer’s pay-for-performance programs or using tools such as the Healthcare Effectiveness Data and Information Set, or from third-party patient advocates such as Consumer Assessment of Healthcare Providers and Systems (CAHPS).
For hospital metrics, such as adverse events, length of stay, success rate and readmissions, many plans look to performance data based on The Leapfrog Group’s practice standards, CAHPS Hospital Survey (H-CAHPS) data or other standardized patient experience data, NQF measures, AHRQ indicators, and others. Plans are also careful to ensure that this performance information is updated and verified annually — or more frequently. With the ability to compare a specific provider’s costs with the quality and performance delivered, consumers will be able to make informed healthcare decisions — resulting in improved outcomes, and thus, lower overall healthcare costs.
Consumer Engagement
One of the main goals of CDHPs is to encourage consumers to take a proactive role in managing their care. As such, many CDHP portals include consumer-focused healthcare databases, online health and drug encyclopedias, e-newsletters, and even tools to evaluate whether an illness or condition necessitates a visit to a healthcare provider. These consumer empowerment tools encourage healthy lifestyle changes and deliver structured plans based on the three-component model of life balance: nutrition, exercise and positive attitude (e.g. stress-reduction techniques).
This proactive care concept has a powerful impact on disease management and ongoing wellness. Many CDHPs offer online health-risk-assessment tools that provide consumers with a baseline of their health status and suggestions on how to improve their current condition, as well as steps to prevent future diseases for which they may have risk factors. In addition to CDHP portals, the health risk appraisals may also be supplied to employees via onsite wellness or disease management seminars, online message boards, or through confidential access to a clinician via phone or the Internet. These tools, combined with incentives for healthy behavior, have the potential to impact consumers’ long-term health status. This positive impact is recognized by many employers, as reflected in the National Business Group on Health/Watson Wyatt survey, which reported that 83 percent of employers offered health risk appraisals in 2008, an 18 percentage-point increase from 2007.
Integrated Financials
The last tool in the CDHP “toolkit” is the financial component — a medical savings account. CDHPs typically offer either HRAs or HSAs to assist members with the high deductibles. The HRA is funded only by the employer, which may occur prior to or at the time of the medical expense. Unused funds would roll over to the following year, but are not portable if the employee leaves the company.
In contrast, the HSA is a tax-advantaged medical savings account that allows both deposits and withdrawals for medical expenses to occur without taxation. Created in December 2003 as part of the Medicare Modernization legislation, the HSA can be funded by both employers and employees and is fully portable. This medical savings account can be managed similar to an IRA, enabling users to place their funds in growth or value investment vehicles to later deliver potentially higher funds for future medical costs. An additional benefit is that HSA funds may be used for non-medical expenses after retirement age, but will be treated as income and taxed appropriately. Withdrawals prior to age 65 would be treated as an early distribution and would incur a penalty of 10 percent plus regular income tax.
Due to these unique benefits, the rollout of HSAs, in conjunction with CDHP, is expanding. In the National Business Group on Health/Watson Wyatt report, analysts found that 47 percent of the companies surveyed currently offer a CDHP, an increase from 39 percent in 2007 and 33 percent in 2006. Even more — 54 percent — plan to offer a CDHP by 2009. The study also found that 27 percent of companies offer a CDHP with an HSA and 24 percent offer a CDHP with an HRA. Statistics from the Department of the Treasury also mirror this growth spurt with a seven-fold uptick from 2004 to 2005 in individuals insured by plans that were compatible with HSAs. Additionally, the Treasury Department estimates that by 2010, the number of consumers with CDHPs compatible with HSAs will rise to 14 million.
However, in a Towers Perrin survey, researchers found that only 29 percent of consumers with CDHPs funded their HSAs at any level. This low participation may be related to the complex process of creating and managing an HSA. For example, employees must understand the various tax implications and regulations, including contribution caps and covered medical expenses. Furthermore, some employers will not have contracts with HSAs, requiring their employees to research and select their own HSA providers.
Best Practices
Executive buy-in is crucial to support the extensive, ongoing communication efforts that are necessary to ensure a successful CDHP or HSA rollout. Once establishing that top-down level of support, the communications team must develop champions from the ground up. An effective method is to form focus groups to discuss any challenges the members will face when using the CDHP portal tools and HSA enrollment process. This feedback should be gathered very early in the process and incorporated into the development of targeted, effective communications.
These communications should begin far in advance of the plan’s launch and should address frequently asked questions about enrollment, covered medical costs under the HSA, tax advantages and regulations, as well as advice on how to invest HSA funds. A variety of methods should be used to send these communications to employees in order to ensure that the employees and their families receive and understand the information. For example, many spouses still obtain most of their insurance-related information from printed materials mailed to the home, while the employees may prefer online communications (e-mail, e-newsletter, Intranet) or face-to-face meetings with their company’s human resources staff.
The CDHP portal must also be easy-to-use, functional and offer a turnkey enrollment process. According to Forrester Research Inc., an independent technology and market research company, a plan is a “truly integrated platform” if the consumer sees the health plan and HSA administrator as one system. Many CDHPs, working directly with financial institutions, create portals that enable consumers to create accounts, make payments and manage contributions, use decision support tools and other online financial services. Since health plans may deal with many HSA banks, the long-term success of any CDHP technology platform requires a robust back-end claims processing and payment system.
Power of Attitude
All CDHP tools — online and offline — offer consumers tremendous opportunities to maximize their CDHPs and HSAs. However, without the right mindset, the full potential may not be realized. For example, some employers may fear that HSAs encourage turnover, since their employees would no longer be shackled to a funded, non-portable medical savings account. To limit their exposure, this subset of employers may choose to contribute a minimum — or none at all — to the HSA. Similar to a 401(k) match, employees are much more likely to participate in an HSA if an employer also contributes. Without participation in an HSA, the employee has a high-deductible healthcare plan with limited benefits, which will most likely result in lower employee participation.
Interest in HSAs by smaller employers seems to vary based on a company’s staff salary level. Some see CDHPs with HSAs as a way to continue, or begin, offering healthcare benefits to employees without exceeding limited budgets. Studies have also shown that it’s less common for companies with lower-paid staff to contribute to HSAs, whereas companies with higher salaries offer HSAs with contributions as part of a standard benefits package.
Motivation is the most important aspect of promoting CDHPs or HSAs, whether the employer is a start-up or Fortune 500 corporation. If the main goal is cost reduction, a short-term payoff is possible if a significant percentage of employees participate. However, employers with only 15 percent CDHP enrollment won’t see substantial savings, according to Ted Nussbaum, Watson Wyatt’s director of group and healthcare consulting in North America.
According to the National Business Group on Health/Watson Wyatt report, companies with at least 50 percent employee participation showed a two-year, average healthcare cost increase of only 3.6 percent versus 6.2 percent for firms without similar plans. Looking at companies with CDHP plans, regardless of the level of employee participation, researchers found an average of 5.5 percent versus 7 percent increase over two years, compared to firms without similar plan offerings.
The Secret for Success
However appealing the initial cost-reduction numbers appear, these results can only be maintained or increased if employees are satisfied with their plans. Thus, the key to successful cost reduction for many companies will be a CDHP that is first and foremost designed to improve care. This would not only drive the selection of quality oriented CDHPs, but would also shape corporate communications and management behavior, while incentivizing wellness programs.
Healthcare stakeholders must be convinced that by giving consumers tools to proactively manage their own care, organizations gain employee satisfaction, increased productivity and reduced healthcare costs; and, perhaps most importantly, obtain the priceless return of individual health and well-being.
