RSM Resources

Double-digit annual cost increases have become the norm in American health care, and practically every projection anticipates costs continuing to increase at double-digit rates. Many midsized companies are increasingly struggling to balance their desire to offer competitive benefits packages with the growing burden of subsidizing employee insurance premiums and paying skyrocketing medical claims.

While consumer-directed health-care plans (CDHPs)are a relative newcomer to the health-care arena, covering just 3.2 million Americans in 2005, they are already offering employers tangible solutions to their health-care insurance dilemmas. Research shows that CDHPs are helping employees understand the actual costs of health care and that total spending goes down when employees have more responsibility for their health-care expenses.

Here’s how CDHPs typically work:

• An employer generally provides a high-deductible medical insurance plan that kicks in after the employee reaches an out-of-pocket threshold through the health account. CDHP premiums are significantly lower than traditional plans, because no claims are charged to the plan until the employee has paid the full deductible.
• Each year, an employer contributes a lump sum to each employee’s individual health account. The employee uses that balance to pay his or her own or dependents’ medical expenses — after the employee has met the deductible.
• Many high-deductible medical insurance plans also cover preventive care, such as physicals, regular health screenings and childhood immunizations, with no deductible.
• Employees are responsible for their own health care. They choose their physicians and other providers, and take advantage of educational and personal support services, such as Web-based decision tools and 24-hour nurse help lines.

CDHPs go even further in creating an autonomous health-care experience by giving employees control over their health accounts.These accounts come in two forms: a health savings account (HSA) or health reimbursement arrangement (HRA). HSAs are portable, and employees can take their account balances with them if they switch employers, leave the workforce or retire. Employees usually cannot transfer HRAs, but as with an HSA, they can generally roll over balances year to year, accumulating unused funds and creating an additional financial safety net to cover unanticipated health-care expenses. Both types of accounts have significant tax advantages for companies and their employees: Employers make the contributions tax-free, and employees withdraw the funds tax-free.

Results show positive impact
Health insurers and their client companies have reported impressive results from CDHPs, both in terms of reducing bottom-line costs and improving employee knowledge about their personal health-care costs.

In 2001, Aetna became the first national insurer to introduce a consumer-directed HRA plan. In2004, the company found that plan members had only single-digit medical cost increases (3.7 to 6 percent), compared with the 11.2 percent industry average increase for that year. Also, employee use of preventive care — which promotes good heath habits and supports early detection of conditions that can be complex and expensive to treat — increased by about 23 percent, compared with 8 percent for members of other plans.

Blue Cross Blue Shield of Minnesota was another early provider of CDHPs and introduced several plan options in 2002. Its CDHP enrollment grew to an estimated 131,950 in January 2006 from 13,459 in 2003.Nationwide, the "Blues" have CDHPs in all 50 states, totaling more than 1 million members. The Options Blue CDHP is the fastest-growing product in the Blue Cross portfolio, and initial sales have exceeded that of any other Blue Cross product launch in recent history.

In a 2005 customer satisfaction survey, nearly half of Options Blue members said having the plan available had given them a more positive impression of their employer.

"About three in 10 respondents report that having Options Blue has changed the way they use health care," says Karen Scott, program marketing manager. "More specifically, four in 10 people say they’re more likely to discuss treatment costs with their doctor, ask about alternative treatment options and use a nurse phone line. This indicates that employees understand how to get the most from their plan and are becoming more assertive health-care consumers."

Additional research shows that employees are increasingly comfortable with CDHPs and confident about their ability to manage them. Hewitt Associates, which administers employee benefits programs, surveyed39,000 employees in November 2004 about their attitudes toward CDHPs. Of those responding, 93 percent said they were comfortable taking on more responsibility for health-care decisions. In addition, 56 percent of employees who had the opportunity to enroll in a CDHP for 2005 did so.

Explosive growth on the horizon
Industry watchers predict substantial growth in CDHPs over the next three to five years, especially among midsized companies battling escalating health-care costs. According to one recent survey, 22 percent of employers have a consumer-driven health plan in place,and more than half said they were reviewing CDHPs and may offer one soon.

When evaluating a CDHP for your company, consider these tips from Chris Rabe, CDHP product consultant for Blue Cross Blue Shield of Minnesota:

• Educate employees. "This is a new model for health care, and employees need time, education and ongoing resources to understand how the plan works and what it means for them," Rabe says. "The more you invest upfront in employee communication and education, the more quickly employees will adapt to the program."
• Show leadership support. "Employees need to see that their company’s leaders believe in the plan, not only for its financial impact, but for the advantages it offers employees. Senior managers should talk openly about why the plan makes sense for the company and for employees personally."
• Set clear goals. "Know what you’re hoping to achieve from the plan, keeping in mind that changing employee behavior is a key driver of long-term expense savings. Companies should be measuring hard dollars saved along with behavioral factors that move overall costs down, such as employee utilization, physician and emergency-room visits, and use of generic drugs versus brand-name medications."

Experts agree that CDHPs could be one of the most meaningful changes to the American health-care system in decades, reshaping how employers and employees  alike use their health-care resources and plan for their short- and long-term health-care needs.