Risk segmentation related to the offering of a consumer-directed health plan: a case study of Humana Inc

Health Services Research, August, 2004 by Laura A. Tollen, Murray N. Ross, Stephen Poor

Other changes from year one to year two included moving from a three-tier to a four-tier prescription drug benefit, as well as general increases in point-of-service cost sharing across the board. One other notable difference was the addition of the "Wizard" in year two. This online decision-making tool helped employees choose an appropriate health plan from among the SmartSuite options, guiding them through a series of questions about their preference for paying premiums versus cost sharing and about their expected health care use (and that of their family) in the coming year. The Wizard then recommended the health plan that would best meet an employee's preferences and needs.

The Appendix to this paper (available online) summarizes the major cost sharing and other changes made to the PPOs and the HMO between year one and year two. In general, cost sharing at the point of service increased, including the introduction of a $100 per day hospital copayment in all three plans. (5) The "Standard PPO" was the thinner of the two PPOs in both years. The richer PPO--known in year one as the "Enhanced PPO"--went from a dual-option to a triple-option plan and was renamed the "Tiered PPO" in year two. (The three options were: remaining within the Humana provider network; choosing a provider within an expanded ChoiceCare network; or, going out-of-network.) Cost sharing in the HMO product stayed fairly constant, other than the per diem hospital copayment and a $5 increase in the office visit copayment. Although benefits under all three plans declined somewhat, premiums remained flat, ranging from $15 to $20 per semimonthly pay period for single coverage.

The two Coverage First plans featured similar mechanics but the particulars differed somewhat (see Table 2). Employees choosing either plan received an allowance that could be used to pay for health care services. Once that allowance was spent, Coverage First enrollees paid for 100 percent of their care out of pocket until a deductible was satisfied. After that, traditional PPO coverage kicked in. The deductible amount and the depth of coverage beyond the deductible differed between the two plans.

Two features distinguish the Coverage First plans from many other consumer-directed plans built around health reimbursement arrangements (HRAs). First, unspent Coverage First allowance funds could not be rolled over to the next year. Second, the allowance could be used only within the Humana network and only for covered services. (Many HRAs permit payment for services from any licensed provider, including those such as chiropractors who may not otherwise be covered by the plan.) This lack of fungibility runs counter to the notion of making enrollees price sensitive--because allowance dollars cannot be stored up and have no alternative use, enrollees have no incentive to conserve them. The Coverage First plans create true price sensitivity only after the HRA is exhausted and before the higher deductible is met (when coinsurance kicks in). (6)