Vital signs strengthen for CDHPs: a Mass.-based pipe valve distributor reports saving as much as 8 percent by using a consumer-directed benefits plan compared with a traditional health benefits plan

Risk & Insurance, Feb, 2005 by Mindy W. Toran

Skyrocketing health care costs convinced veteran human resource manager Diana Bonogofsky to implement a consumer-directed health plan last summer. Premiums rose more than 20 percent last year at her company, Micro Focus, a Sunnyvale, Calif.-based software firm. "We had to do something to get health costs under control. We believed a consumer-directed health plan was the right way to go," she says.

When the company offered a CDHP in August, 66 percent of eligible employees chose the new plan over a traditional HMO. The plan, designed by benefit management firm Benemax of Medfield, Mass., consists of an employer-funded Health Reimbursement Account and allows employees to roll over any unused funds for use the following year.

Like the Health Savings Account, employees can contribute pretax dollars to the HRA, but unused funds revert to the employer. Employers determine what percentage of unused funds can be rolled over for use the following year.

Micro Focus employees are free to use health care providers of their choice, and the plan provides access to hospital report cards, health and dental databases, prescription cost comparisons and online second-opinion tools designed to promote healthy lifestyles and prudent consumption of health care.

"We felt the CDHP would keep our premium increases down significantly, while allowing us to continue offering a rich benefits plan designed to attract top employees and stay competitive," says Bonogofsky. The plan has a $500 deductible, with $350 funded to each employee's HRA by the employer. The remaining $150 is paid out of pocket by the employee. Once the $500 deductible is reached, the employee is covered by a traditional PPO plan.

"The CDHP allows us to keep employees' costs at a reasonable rate, without the company having to bear double-digit cost increases from health care carriers," says Bonogofsky. "The plan emphasizes employees' responsibility for their own health, and encourages them to use health care dollars wisely."

The plan also offers a Healthy Living benefit that includes reimbursement for health club memberships, smoking cessation, weight loss programs, nutrition counseling, and lifestyle drugs. "We're already noticing employees starting to think about the cost of health care and how to stay healthy while spending less. And our renewal rate for this year increased just 2.8 percent--far less than if we had continued with our previous health plan," she notes.

"We're seeing a tremendous change in employer receptivity to consumer-directed health plans, largely due to the passage of the HSA ruling," says David Cowles, executive vice president and cofounder of Benemax.

The ruling was part of the Medicare Prescription Drug Improvement and Modernization Act passed by Congress in December 2003.

"Employers are tired of tinkering with plan design and seeing incremental results that vanish in a year or two," says Blaine Bos, a consultant in Mercer Human Resource Consulting's Minneapolis office and one of the study's authors. "They're looking for real change, and consumerism seems to promise that."

EDUCATING EMPLOYEES

Education plays a key role in the success and acceptance of consumer-directed health plans.

"The length and depth of the communication campaign promoting CDHPs is a determining factor in employees' acceptance of the plans," says Scott Keyes, a senior consultant at Watson Wyatt in Minneapolis. "Among our clients, enrollment in CDHPs doubled from 2003, largely due to employers' focus on cost control and better communication of plan details to employees.

Jay Coldwell, product director, emerging markets, at Wausau Benefits in Wisconsin, says, "Employees need these plans explained to them in as many forms as possible. Employees need to be involved in every aspect of their health care, and need to be provided with the tools and technology to help them in the decision-making process." These tools include health coaching, Web-based tools, cost information, comparative information about providers and hospitals, and pharmaceutical information.

Decision-support tools play a large role in educating employees about health care choices and benefits.

"As consumers become more engaged in the decision-making process, they need access to tools and information that will make them feel comfortable about their health care decisions," says Ann Mond Johnson, president of Chicago-based Subimo, which provides Web-based health care decision support systems.

Subimo's Web-based technology provides information that helps employees compare out-of-pocket costs of different health insurance choices, such as HMO vs. PPO or CDHP, and predicts the likely annual cost of benefits.

NAVIGATIONAL TOOLS

Another tool helping employees navigate through consumer-directed health plan choices is the benefits debit card.

Similar to a banking debit card, benefits debit cards enable employees to electronically access funds in their HSAs, HPAs, and Flexible Spending Accounts to pay for eligible expenses at physician and dental offices, pharmacies, vision care facilities, and other places where medical services and products are provided.