A turn for the better: insurers rely on brokers to sell their consumer-driven health-care plans, but brokers must understand the plans to succeed in the growing market.

The dawning recognition that consumer-driven health-care plans can counteract soaring health-care costs is luring more and more carriers and vendors into this growing market. Consumer-driven health plans, also known as consumer-directed health plans, are designed to curb overuse of the health-care system--a legacy of managed care's cheap copays--by essentially shifting costs and financial incentives to plan members themselves.

Forrester Research Inc. has projected that consumer-driven health plans will attract 2.7 million members and capture $16 billion in premiums by 2005, $86 billion in premiums by 2007 and $423 billion--a 24% market share--by 2010.

Insurers in the forefront of this effort say they rely exclusively on brokers to sell their plans to employers. But while a number of brokers have enthusiastically embraced this new model, others remain wary.

"It's a lot easier to go with what you've been used to vs. getting into some of these new areas, so sometimes brokers will say it's too complex or untested," said Henry Loubet, senior vice president of Keenan & Associates brokerage. "But the reality is sometimes they don't want to learn about it themselves."

Keenan has been in business for about 30 years and is the largest privately held independent brokerage, benefits consulting and workers' compensation administration company in California. It ranks as the 24th-largest brokerage nationwide, Loubet said. He was hired in July 2003 to spearhead the company's entry into the consumer-directed market, a step it expects to make by April 2004.

Larry Sobal, president and chief executive officer of Jabas Group Inc., Appleton, Wis., a benefits consulting company, said smaller brokers probably are not as likely as larger brokers to grasp this concept. "For one thing, the typical client who is seriously looking at this plan has probably 100 employees or more, and most of those clients are being served by larger brokers," he said. "So smaller brokers who tend to concentrate most on small employers where these models are not as readily available are probably not in the game because of that."

For his part, Jeff Bringardner, vice president of sales for Humana Inc., Louisville, Ky., has found "a tremendous amount of interest overall" in consumer-driven plans among brokers, "and the broker population is becoming more and more savvy," he said. "Brokers I would call product champions are the ones that have really taken it upon themselves to study this. And these are the people who are more of the pioneers."

Learning How to Sell

But in the broker community, there are still some skeptics, Bringardner noted. To counter this, Humana is trying to make it easier for brokers to introduce these plans to their clients. The insurer has conducted direct mailings, targeting certain cities to try to soften up the marketplace for brokers, Bringardner said. Humana also arranges lunch meetings, inviting brokers to bring along prospective and existing clients to talk with subject-matter experts on Humana's consumer-driven plans.

"We're taking the approach of trying to work with all the brokers," Bringardner said. "We've planned a number of sessions, we've done global training, and this year we're focused on more of a drill down to take this down from a conceptual level." At a meeting in Wisconsin in September, for example, Humana representatives spent two days presenting the concepts and product specifics of their plan to about 150 of their top brokers from throughout the United States. "We're doing everything we can to try and mainstream this for the broker population" Bringardner said.

The insurer has a large sales force that works almost exclusively with brokers to sell its consumer-directed plans, he said. Very few of its sales for these plans are on a direct basis, and these cases have involved public-funded entities that have not seen the value in using a broker or consultant, Bringardner said.

Humana's health benefits choices include SmartSuite and SmartSelect. The most popular, SmartSuite, includes a couple of plans called Humana Coverage First that provide an upfront $500 benefit allowance for each covered member to use for in-network services each year, followed by a large bridge deductible, and then a traditional insurance plan. The SmartSuite plans are bundled and offered in their entirety to a group on a total replacement basis.

"We have a tremendous focus on engaging the consumer with education before, during and after the enrollment period," Bringardner said. Through Humana's Health Plan Wizard, consumers can go online and see which plan works best for them in terms of out-of-pocket expenses and payroll deductions. "We've been doing this for three years and we've got a track record," he said. "We feel we have a sustainable advantage in that we've been able to demonstrate longer term cost controls over multiple years."

Humana's plans grew out of CEO Michael McCallister's concerns about the rising costs of health-care coverage for Humana's own employees. As a publicly traded company, Humana could not continue to satisfy shareholders, and have administrative increases, yet remain competitive in the marketplace, Bringardner said. McCallister's various contacts with fellow CEOs around the country told him they had no solution to this problem, either. "We felt that as an industry, we were guilty of historically overmanaging the healthy and undermanaging people who needed the most guidance," Bringardner said. "So we changed our whole model about four years ago with some very substantial increases in funding for our technology platforms. And we started SmartSuite."

In surveys, Humana employees now report they feel more in control of their health-care decisions, he said. The company's statistics show that, compared with the general population, employee utilization is up for preventive services and wellness benefits, but down substantially for use of radiology, pathology procedures and emergency rooms. "Our bottom line is we're seeing the vast majority of the savings not coming from risk transfer or cost transfer or shift in benefits, but really in a shift of control to the member," Bringardner said. "This isn't about a cost shift, it's about a control shift."

In just over a year of selling its consumer-driven plans in the commercial marketplace, Humana has signed on nearly 100 groups with about 155,000 members.

"We're producing claims trends that are less than half of what the rest of the country is seeing with traditional insurance plans," Bringardner said. "And a significant portion of those trend savings are not due to cost shift but are due to behavioral changes."

Cost Transparency Has Appeal

At Aetna, all sales of its consumer-directed plans are through brokers and consultants, said Tim Brown, senior vice president, Middle Market Accounts and Health Care Delivery. He focuses on the middle market--employers having from 51 to 3,000 employees--a category that has done business almost exclusively through brokers regardless of carriers, he said.

In general, the concept of consumer-directed plans has generated lively discussion among brokers across the nation, he said. Brokers believe "that the transparency of the real cost is important to long-term savings to their customers--the employers and plan sponsors. So they're all in favor of that" Brown said.

Sales are taking off in certain parts of the country, notably the Midwest, Southwest and Southeast, where employers see these plans as viable offerings right now, Brown said. In other U.S. regions where very rich benefit plans prevail, consumer-driven plans have yet to find their market space, he said. For example, benefit plans in the Northeast tend to feature a lot of first-dollar coverage, low copays, and very few plans are based on deductibles, Brown said.

Aetna, too, is encouraging brokers to learn more about its plans. Company sales representatives will call on brokers to fill them in on the details, and the carrier invites brokers to sign up for special Web conferences. "So there are quite a few ways of getting this information to the brokers," Brown said. So far, about 117 groups and more than 40,000 members have become Aetna's customers for this product.

Aetna's basic consumer-driven plan works differently in the area where a typical plan would have a deductible, Brown said. "In front of the deductible would be a fund of money funded by the employer or the employee, and this is used to fund either covered expenses up to some portion of the deductible or other items as set forth in the plan document," he said. "It's intended to give the members a lot more transparency about the cost of health care. Most people today think an office visit really does cost only $10. This is intended to give them the information needed to understand the real cost of medical care and the rate at which it increases."

The company offers its plan--of which there are "hundreds of variations"--both on a self-insured and fully insured basis, Brown said, noting that some specialty companies in this market work only on a self-funded basis. Aetna also integrates its pharmacy and dental plans into its consumer-driven plan, he said.

Aetna launched its plan, Aetna HealthFund, in Fall 2001 and has continuously enhanced the tools available to members with each release, Brown said. "The tools help them understand what a drug costs, what procedures cost, how much a hospital visit costs, so they can make informed decisions about that," he said. "For example, the cost of having a diagnostic procedure in a free-standing facility is very different from having the same procedure done in a hospital setting in many places. It's important that they understand that and they can make informed choices about where to have the care done and which providers to utilize."

Aetna HealthFund recently was selected by the U.S. Office of Personnel Management as a federal employees health benefits program option in 2004.

Committed to the Broker

Chicago-based Destiny Health, which launched its consumer-directed plan in May 2000 and has about 25,000 members in Illinois, also sells exclusively through brokers. Through this channel, Destiny works with 800 employers in Illinois, most of whom offer the plan to employees as a full replacement product, and not just a choice with another plan. In addition to Destiny Health's market in Illinois, it has partnerships with Guardian and Tufts Health Plan, giving it a presence in the mid-Atlantic states and Massachusetts.

"We're very- committed to the broker," said Kenneth J. Linde, president and CEO. "We tend to be in the small to mid-sized fully insured marketplace, which is a more broker-driven market than the self-insured marketplace."

Basically, the Destiny Health plan separates controllable and uncontrollable expenses, Linde said. "We integrate the insured product with our personal medical fund, which is a little different from many other plans that are high-deductible plans with everything subject to a deductible," he said. "So things beyond a person's control get the full insurance product and things within a patient's control get the day-to-day expenses of our personal medical fund."

Learning From Experience

Destiny Health is a subsidiary of South Africa-based Discovery Ltd. The Destiny plan is similar to the parent company's Discovery plan in South Africa, which has been up and running for 11 years and boasts 1.5 million members. "That's a huge competitive advantage--we are the largest consumer-health driven company in the world," Linde said. "That gives us a tremendous amount of data and experience on how people do behave tender this product."

For example, the company has found that by second- and third-year renewals, consumers have learned how to optimize some of the money in their personal medical funds. "People start thinking and the positive incentives work," Linde said." The renewal rates go down year after year and that's how the program works."

In this relatively new domain of health insurance, competition already is heating up.

In the beginning, Linde said, innovative companies like Destiny were the only ones out there with consumer-directed plans. But now, almost every company wants a piece of the action. "Over time, what's happened is the same thing that happened in the HMO business: the insurance companies and others are coming into it," he said. "I expect many of the existing carriers to copy or follow in the direction of consumer-driven health care because it works and we have to change the consumer's behavior as a part of helping to control health-care costs."

Health-maintenance-organization and preferred-provider-organization products that exist today just aren't working to control health-care costs as they used to, said Linde, a 30-year veteran of the HMO business, who built a national HMO company and ran it for 12 years, and ran $500 million of the indemnity business of the parent company as well. The problem is that many of the controls that created a backlash in the HMO business are now creating the inability to control cost, but there is no capability to ratchet down provider system pay schedules as before, he said. "There needs to be positive incentives to change behavior to control costs and that's what our plan tries to do--not negative incentives, but positive incentives," Linde said.

Fighting for Shelf Space

This field is as competitive as the rest of the health-care business, noted Brown of Aetna. "Most of the major carriers have something to offer around fills," he said, adding that the few specialty companies offering only consumer-directed products now have to fight for shelf space. "I think that the carriers that can offer this as an option with other benefits and make it simple for the employers from their administration standpoint have considerably more to offer," he said.

The competition in consumer-driven health-care plans may be fierce, but there are a lot of "me-too" players coming along, said Bringardner of Humana. He thinks his company has a bead start through development of its technology platform. "Consumer-driven health plans are not about just a plan design--anybody can create a plan design and the plan design, but it's all of the mechanics, and the processes and the tools that support it that are harder to duplicate," he said. "There are many companies scrambling right now and frankly, there are a couple of the big national players that I find don't know or understand where they want to be in the consumer-driven space."

Competition Means More Options

From the broker's standpoint, the heated competition means clients have more options to choose from, Sobal said. Employers are not quick to change insurers, however, if they've had reasonable success with that carrier or third-party administrator, so employers will tend to turn first to their current insurance vendor to see if it offers some kind of consumer-directed derivative, he said. "But we say that picking the insurance vendor is the last part of the process" Sobal said. "The key part is figuring out what your strategy is and designing the way you would want the plan to work."

To achieve this, he encourages employers to think about such factors as employee demographics and geographic distribution of their work force, Internet access, and the company's management culture. Employers also need to consider whether they want to offer a consumer-directed plan as a full replacement or alongside other traditional plan options. They must ask themselves if medications will be reimbursed within the health reimbursement arrangement model, or will they offer a separate drug plan? And what about elective treatments or alternative medicine? In other words, Sobal said, does the employer want a high-tech, Web-driven approach or something on a more manual basis?

"There are a ton of design questions to answer and as brokers, we say, "Let's go through and design a generic plan and then let's decide if your current vendor offers something that matches that or if we need to look elsewhere," Sobal said. "If you do all that and say it's a go, then the thing you cannot emphasize enough is the communication process. This is a radical change for how employees will access health care and to simply give them this plan design without proper education and communication on how to make it work for them is a recipe for disaster."

Blessed by the IRS 

Employers are becoming increasingly receptive to consumer-driven plans, he said. Until the Internal Revenue Service blessed the health reimbursement arrangement model in June 2002 by allowing unused funds in spending accounts to be rolled over into the following year and permitting both medical expenses and premiums to be paid from the accounts, most employers were very cautious and unwilling to implement an HRA base plan. By then, Sobal added, it was too late to impact many 2002 plan designs. Awareness is changing, however, as more is written about this topic and brokerages such as Jabas Group host seminars to educate employers on these plans.

"We've had employers come in and say they wanted a consumer-directed plan and didn't care why; they just wanted to do it," Sobal said. "And we tell them they're doing it for the wrong reasons and are not likely to be successful. It's very easy to get seduced by the message that this is a savior and it's going to fix a lot of problems, but the reality is if you don't do it well, it will make things worse."

So far, about 20 of Jabas' 1,000 clients are using these plans--a small percentage considering the growth potential that the consumer-driven marketplace holds, Sobal said. In 2002, he added, a few pioneering companies put plans in place; in 2003, a handful more began to initiate plans, making for a broader market distribution; and 2004 should see even wider distribution, as more health insurers roll out their derivatives of a consumer-directed plan, often just taking their traditional plan design and incorporating an HRA.

"It's beginning to have more mainstream availability," Sobal said. It will take until 2005 for a larger percentage of employers to initiate these plans, he said.

"Although we do not feel that consumer-driven plans will exceed 20% to 25% of the marketplace, that's a good chunk," Sobal said. "But it'll take some time to get there, and by the time it reaches that level, it will have morphed into a whole new generation of plan designs."

A Plan of Their Own

California brokerage Keenan plans to join the consumer-driven health-plan market next year with a customized, private label program supported by a partnership with a major health plan or defined-contribution vendor to be selected by Jan. 1, 2004. This will be distributed through the Keenan sales force as well as selected relationships with key brokers throughout the state.

Henry Loubet, senior vice president, was hired expressly to launch this program, which should start selling in March or April 2004. It will amount to a benefits administration Web-based program, he said, with a number of customized features such as wellness and health promotion, online enrollment, care and disease management and enhanced reporting capabilities.

"We have a voluntary benefits program called Benefit Choices, where we offer employers benefits with relationships that we've negotiated with some large carriers in life insurance, disability, critical illness and long-term care," Loubet said. "We will wrap that around a unique program with wellness plans and online health risk assessments coupled with an online enrollment vendor that we offer free of charge, and then the employer can do a combined core and voluntary open enrollment with employees."

With Benefit Choices, Keenan already has found that during open enrollments in California schools, more than 50% of employees have elected to buy one or more of its products, Loubet said.

Keenan is a brokerage firm that concentrates on distinct markets, notably schools, health systems and municipalities. The organization has contractual relationships with more than 750 school districts in California, representing about 70% of all the schools in the state, Loubet said. The health systems connection includes 150 hospitals, medical groups and other health-care providers, representing about 25% of this market, he said. The newest focus on municipalities and other governmental entities has only been launched in 2003, he said.

Unlike many other brokerages, Keenan has tended to be a direct provider of services as well as a broker and consultant. "So the consumer-directed side falls in that genre where we want to be a direct provider of consumer-directed health programs to our membership primarily, in the schools and health-care systems and municipalities area" Loubet said.

Initially, consumer-driven health-care plans have been slow to win acceptance in California, he said. "California has such a large HMO penetration, coupled with lower premiums than other states, that they have been slow to change," Loubet said. But he thinks Keenan's initiative will help jump-start the movement. "We think there's a lot more demand out there than so far has taken place," he said. "You'll see as of Jan. 1, 2004, there will be a lot more adoption of these kinds of programs in California and we think this trend will grow over the coming years. We're very bullish about the opportunity in the consumer-directed marketplace."