Making healthy choices: consumer-driven health plans allow insureds to be more involved in decisions concerning health care.

Key Points

* Consumer-driven health plans are predicted to collect almost $88 billion in premiums in 2007.

* Health savings accounts are growing in popularity, particularly among smaller employers.

* Some people believe consumer-driven health plans will help mitigate rising health-care costs; others are a bit more skeptical.

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Chicago-based staffing firm Mack and Associate's employees are excited about their new health plan that puts them in the driver's seat. Rising health-care costs forced the company's president, Charlene Gorzela, to make a big decision: go with a cheaper plan that offers less coverage or pay more for comprehensive coverage. Her solution to move to a consumer-driven health plan for her 13 employees not only is helping the company cut costs, but offering much more than she bargained for--employees who are satisfied with their benefit plan, are understanding the true cost of health-care products and services, and have a financial stake in their health care.

The ongoing war against mounting health-care costs is taking a toll on employers. Companies anticipate health-care costs will increase 12% this year, but they say they only can afford a maximum 8% increase, according to a study by global human resources outsourcing and consulting firm Hewitt Associates. Many employers are softening the blow by shifting a greater portion of costs onto employees. Consumer-driven health-care plans, such as flexible spending accounts, health reimbursement accounts and health savings accounts, are helping consumers get the most of their out-of-pocket expenses by putting them in control of their health-care spend. Fourteen percent of companies responding to a survey by global consulting firm Deloitte Consulting LLP said they plan to offer a consumer-driven health plan by 2006, while another 29% are currently reviewing the consumer-directed options and may offer one in the near future.

People First

"Consumerism will change health care, as it has affected every aspect of society," said Aetna Inc. President Ronald Williams.

But consumerism hasn't always been the philosophy advocated by some constituents. "In the world of managed care, for 20-plus years the solutions have been incremental at best and employees were disenfranchised and bore more of the burden of cost increases as employers reacted by pushing increased contributions from employees' paychecks, created plan designs with copays and changed provider networks to save money," said Doug Robinson, senior manager in Deloitte's Seattle office. "Every day we ask questions about cost when we buy items such as appliances or cars, but we hadn't done that before in health care because under managed care, we said those things weren't necessary and we didn't have to know the costs."

That situation is changing. "Now it's a shared platform of responsibility between employers as plan sponsors and employees as the end user," Robinson said. In a recent Watson Wyatt survey, 24% of employers who have adopted the models said they were motivated most by the belief that they will reduce overall plan costs, while 22% said employees who participate in plans will make better spending decisions at the point of care.

"The missing piece in health insurance had been the consumers themselves. Now consumers are starting to ask questions about costs--something that never happened just three years ago," said Beth Bierbower, vice president of product innovation for Humana Inc. They're also engaging in more dialogues with their providers about treatment alternatives, generics and other low-cost options. Humana was one of the first national carriers to offer consumer-centric health plans, beginning in 2001. More than 250,000 members now are enrolled in the company's suite of consumer-choice Smart plans.

Health plans also are noticing a change in consumer health habits. A majority of Destiny Health's consumer-driven health plan members have begun an exercise program in the past year, and about three-fourths of members now are enrolled in a nutrition program.

The shift into consumerism at the turn of the 21st century led to the growing popularity of health reimbursement plans among employers--albeit slow growth initially. Many employers' initial wait-and-see attitudes and thirst for more information about the plans now have turned into action and a growing number of large plan sponsors, in particular, are offering their workers such plans. HRAs reimburse employees for qualified medical expenses, are funded solely by an employer and provide first-dollar medical coverage until funds are exhausted.

Since its introduction in January 2002, the Aetna HealthFund family of consumer-driven plans, which now includes HRA and HSA products, has grown significantly. In the middle of 2004, nearly 175 employer clients, with more than 175,000 members, were enrolled in the HRA models--a four-fold leap in enrollment since the prior year, said Robin Downey, head of product development. In addition, a growing number of employers are looking to HRAs as full replacement plans, she said.

New Kid on the Block

While many larger companies are moving to HRAs, smaller employers, on the other hand, are increasingly eyeing the newest addition to the consumer-driven family: health savings accounts.

HSAs, which allow employees to contribute pretax dollars to an account to pay for out-of-pocket medical expenses, were passed as part of The Medicare Prescription Drug and Modernization Act of 2003 and became available for the first time on Jan. 1, 2004, to individuals covered by qualified health plans that have a deductible higher than $1,000 for individuals and $2,000 for families. Employers, employees or both can contribute as much as a combined $2,600 for individuals and $5,150 for families for HSAs annually.

In January, President Bush announced a proposal that would provide families of four with annual incomes of less than $25,000 a $1,000 tax credit annually for HSAs. It also would provide eligible families with up to $2,000 in refundable tax credits to help purchase health insurance with HSAs or a maximum of $3,000 in refundable tax credits to help purchase traditional health coverage.

Slightly more than 55% of employers now are considering HSAs for future use, although only 3% plan to provide access and contributions for active employees this year, according to the Hewitt Associates study.

"The key advantage of HSAs is that they're cash accounts, are completely portable, belong to the employee, and employees and employers can contribute to them on a pretax basis," said Douglas M. Kronenberg, chief strategy officer for Alexandria, Va.-based Lumenos Inc. and chairman of the Consumer Driven Health Care Association, a not-for-profit organization representing consumer-driven health-care leaders. In addition, HSAs allow employees to roll over their "earned" dollars when they change jobs. The plans, which work in conjunction with an HSA-qualified health plan, also are ideal for future savings. Employees who use their health-care dollars wisely can carry money forward, accumulate it and take it into retirement as a supplemental retirement account, he added.

It's the tax benefits that are attracting many individuals to the plans. Kim Bellard, vice president of e-marketing and customer relationship management for Highmark, said the company initially thought healthier individuals would be drawn to HSAs, but surprisingly now believes that more "older, high-worth" individuals may be opting for the plans more because of their tax advantages than the healthcare benefits.

Interest around HSAs also is helping take a bite out of the U.S. uninsured crisis. Thirty percent of individual policies in 2004 were purchased by people who were previously uninsured, according to a recent America's Health Insurance Plans study.

Cary Badger, vice president of customer marketing for The Regence Group, a Blue Cross Blue Shield plan that serves members in Washington, Oregon, Utah and Idaho, believes the plans even one day may replace many of today's HRAs due to their flexibility and strong endorsement from the federal government. In July 2004, the Treasury Department and the Internal Revenue Service issued comprehensive guidance on HSAs that will help providers establish HSAs and consumers enjoy the benefits, and in November of that same year, Treasury announced new maximum contribution levels for HSAs and out-of-pocket spending limits for HSA-compatible high-deductible health plans for 2005.

But others are less optimistic. Nearly 29% of the Watson Wyatt survey respondents said there isn't enough experience with consumer-driven health plans to demonstrate their effectiveness, and 20% didn't think the plans would effectively manage costs.

Some employers are venturing down both routes, said Aetna's Downey.

In the Nick of Time

Satisfaction around consumer-driven health plans is at an all-time high.

Many health plans are reporting satisfaction levels of anywhere from 70% to more than 90%. In addition, rate increases have dropped significantly. Lumenos' rate increases dropped to 7% last year, compared with the 12% to 13% national average, said Kronenberg.

"Once employees use the plans, they often don't want to go back to managed care, where they didn't have control of the money," said Kronenberg. Slightly more than half of the company's members reported having more knowledge in managing their health care after being enrolled in the plans, he said.

Some health plans also believe the plans are helping to mitigate double-digit health-care cost increases. Of the 19% of companies currently offering consumer-driven health plans surveyed by Deloitte, 15% expect to save more than 10% on health-care costs, while 35% of early adopters say the plans will save more than 5%.

But some question whether cost reductions are only a temporary Band-Aid to reducing health-care costs. Seventeen percent of companies in the Deloitte survey said they only expect to save less than 5% from their consumer-driven health plans, while another 29% of respondents said the plans are cost-neutral and 4% believe they'll be more expensive.

It's a staging effect that may have a long-term payoff, said Regence's Badger. "First, consumers want control to determine which providers they can see, how much they have to pay and when they go for services; they then ask questions about quality and how much the gross costs will be."

But despite their touted benefits, some constituents question whether the plans are too good to be true. In a Jan. 16 Los Angeles Times article, the author said employees are wary of the plans because they see HSAs as "another effort by companies to divert financial burdens from their own bottom lines and onto workers' backs." But Deloitte's Robinson believes employers see it another way. "There will always be some skeptics, just like we saw with managed care, but we're now seeing a greater acceptance by employers and a more educated human resource populous."

Some groups, such as unions, have been a harder sell. Contractual negotiation limitations and fear of increased deductibles have led to their skepticism about the plans. That's slowly beginning to change, however. About 10% of Lumenos' clients, for instance, now have union employees using its program.

Increasing Momentum

Many health plans are confident that the recent rise in consumer-driven health plan enrollment is just the tip of the iceberg.

Many hope the models are part of the answer to fixing what they say is a "broken" U.S. health-care system. "It's not the only piece but a major tool to build broad support for the ability of all players to make a difference in how the system operates and costs within the system," said Regence's Badger.

Deloitte's Robinson also believes the plans will offer tremendous opportunity for more innovation and creativity around consumer-based tools and health coaching. Several health plans now offer their consumer-driven health plan members access to health coaches, often staffed by nurses, who provide round-the-clock health-care information. "As more people become enrolled in the plans, the real experts can grab new consumers and make them truly empowered consumers, which is where the real growth will be in the next five years," he said.

Learn More

Aetna Health and Life Insurance Co. A.M. Best Company # 08189, 68971, 64071, 68698

Distribution: Brokers, consultants, retail network (pharmacy products)

Destiny Health Insurance Co. A.M. Best Company # 60357

Distribution: Independent brokers, joint venture partnerships with Guardian Life Insurance Company of America and Tufts Health Plan

Highmark Inc. A.M. Best Company # 64010

Distribution: Captive sales force, brokers, direct

Humana Health Plan Inc. A.M. Best Company # 68898

Distribution: Agent/brokers, direct to employees, direct

Regence Blue Cross Blue Shield Cos. A.M. Best Company # 60074, 60199, 60266, 64412

Distribution: Agents and brokers, direct

For ratings and other financial strength information about these companies, visit www.ambest.com.

RELATED ARTICLE: Study: high-deductible health plans may have pitfalls.

High-deductible health plans can lead to poorer quality health care and more, not fewer, financial problems for patients, according to a new study.

The Republican Party has touted health savings accounts, or HSAs, since last year as a market-based solution to clamp down on the soaring cost of health care. The plans involve a high-deductible plan, usually $1,000 per person, coupled with a tax-free savings account for health expenses.

But a new report by the Commonwealth Fund, a New York-based health-care think tank, found that people with the plans still have medical debt and that they may not seek care they need. The organization surveyed 4,000 adults with insurance and found 49% of those with high-deductible plans have problems with medical bills or debts, compared with 31% of those who have health plans with lower deductibles.

Thirty-eight percent of those with high-deductible plans had some sort of problem with access to health care, such as not being able to afford a prescription; not seeing a specialist when needed; skipping tests, treatments or follow-ups; or not seeing a doctor or clinic at all. Those in more traditional health plans, by comparison, only experienced such problems 27% of the time.

"Health savings accounts coupled with high deductible health plans have potential pitfalls, especially for families with low incomes or individuals with chronic health conditions, who are at greater risk of accruing burdensome medical debts and facing barriers to needed health care," Commonwealth Fund President Karen Davis said in a statement. "The evidence is that increased patient cost-sharing leads to underuse of appropriate care."

All told, the report concluded, the plans "have more downsides than positives;" the high-deductible plans "reduce use of effective (medical) services;" and they give a greater tax break to higher-income families.

--Chris Grier

High-Deductible Plans Increasing

15

The number of insurers that offered high-deductible plans to large employers in September 2004

58

The number of insurers that offered the plans to large employers in January 2005

438,000

Enrollment in high-deductible plans coupled with an HSA as of September 2004

Source: The Commonwealth Fund