How Consumer-Driven Health & Wellness Plans Lower Insurance Costs
Bend the
Healthcare
Trend
MARK S. GAUNYA AND JENNIFER A. BORISLOW
© Copyright 2010 Mark S. Gaunya and Jennifer A. Borislow
All rights reserved. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system without the prior written permission of the author, except for the inclusion of brief quotations in critical reviews and certain other non-commercial uses permitted by copyright law. For permission requests, contact the author in writing at the address below.
The Health Dollar Equity Builder™, The Health Dollar Maximizer™, The Health Dollar Value Builder™ are trademarks of Strategic Vision Publishing, LLC. All rights reserved.
ISBN 978-0-9825459-2-8
ISBN (print) 978-0-9825459-2-8
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Strategic Vision Publishing, LLC
1 Griffin Brook Drive,
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To my wonderful wife, Debbie, and our three beautiful children, Grayson, Kelly and Brooke—you are my life.
Mark S. Gaunya
To my husband, Mike; our children, Jessica and Lauren; and my parents Wil and Margaret Kurth—I would not be the person I am without your love, support, and encouragement.
Jennifer A. Borislow
Praise for Bend the Healthcare Trend
Bend the Healthcare Trend is a great read and a practical guide to implementing a Consumer-Driven Health Plan and wellness strategy. Importantly, the book supports the belief that an empowered and engaged workforce with access to good information will make better healthcare decisions.
Douglas J.
McKeown
CEO and Chairman of the Board, Woodard & Curran
Bend the Healthcare Trend is a wonderful resource for employers of all types to understand and attack the problems associated with the rising cost of healthcare. We have successfully implemented the strategies outlined and have been rewarded with single-digit rate increases over each of the last several years—with the most recent renewal being less than 1 percent! If you want to create a sustainable benefits program, this book is a must read.
Jill
Duncan
Director of Finance, New Hampton School
President,
Independent Schools Association of Northern New England
Bend the Healthcare Trend is a practical roadmap filled with years of knowledge, current-day application, and proven results. The coauthors are among the highest respected and well-known experts in the healthcare industry. This is a must-read for healthcare consultants, employers, and administrators.
Peter H.
Jennings
CEO and President, HR Concepts, LLC
An easy read for today's multi-tasking HR professional, this book provides a great assortment of real-life scenarios that are designed to make the selection and implementation of Consumer–Driven Health Plans much easier. Read this book and take the next steps to improving your own company's financial health.
Mim
Minichiello
Vice-President, Client Services, Tufts Health Plan
Bend the Healthcare Trend is the most succinct, accurate, and forward-thinking work I have read on the subject of health care benefits and wellness programs. We are in our fourth year of implementing many of the ideas presented and have found them to be successful on all fronts. Our employees appreciate the opportunity to get more involved with their healthcare choices and the program is more affordable for them and the school. A true win-win result.
Peter B.
Rackliffe
Associate Head of School & Chief Financial Officer,
Gould Academy
Chairman, Maine Association of Independent Schools
Benefits Group (MAIS)
Jennifer and Mark are the gold standard among benefits problem solvers. Their new book will become the planning and implementation handbook for thousands of future-based business owners and organization executives.
Dan
Sullivan
President and Founder, The Strategic Coach
This publication is not a substitute for the advice of your insurance advisor, accountant, lawyer, or any of your other advisors, personal or professional.
Neither the authors nor the publisher is rendering insurance, accounting, tax, or other professional services by publishing this book. As each individual's situation is unique, questions relevant to personal insurance needs should be addressed by an appropriate professional to ensure that the situation has been evaluated carefully and appropriately.
Neither the authors nor the publisher make any representations about the suitability of the information contained in this book, and all such information is provided “as is” without warranty of any kind. The authors and publisher specifically disclaim any liability, loss, or risk that is incurred as a consequence, directly or indirectly, of the use and/or application of any of the contents of this work.
Some case study names and details have been changed to protect the privacy of individuals mentioned.
Table of Contents
Foreword
Acknowledgments
Introduction
Chapter 1: The Primer
The Problem
The Cause
The Current Solution
A New Approach
Principle One: Transparency
Principle Two: Responsibility
Principle Three: Opportunity
Get Involved
Case Study: All-Access Pass
Chapter 2: The CDHP Value Proposition
Consumer Skepticism
Engaging Healthcare Consumers
Advantages to CDHPs
Informed Decisions
Case Study: Responsibility in Action
Chapter 3: The CDHP Engine—the Healthcare Account Structures
Plan Mechanics
Flexible Spending Accounts (FSAs)
Health Reimbursement Arrangements (HRAs)
Health Savings Account (HSAs)
The Proof Is in the Savings
The Only Choice
Case Study: Finding the Right Structure
Chapter 4: A Culture of Health and Wellness
The Root of the Problem
Choices, Choices
Top Cost Drivers
Personal Health and Its Effect on Healthcare
The Foundation
A Likely Story
Case Study: Wellness Strategies
Chapter 5: Building A Health and Wellness Program
Building a Culture of Health and Wellness in Your Organization
Increasing Your Chances of Success and Unlocking Financial Resources
Health and Wellness Program Development
Encouragement-Based Health and Wellness Programs
Performance-Based Health and Wellness Programs
Best Practices for Health and Wellness Program Management
Case Study: The Safeway Story
Chapter 6: Implementation and Communication
Introducing the CDHP Solution
Support Systems
Focus on the Foundation—The 3 Principles of CDHPs
Transparency
Responsibility
Opportunity
Implementation
Organizational Leadership
Human Resources
Mandatory Management Meetings and Employee Education
Communication and Education
Use Examples
Use Simple Language
Offer Various Media
Seek Feedback
Compare and Contrast Plans
Provide Post-meeting Resources
Case Study: Being Informed
Chapter 7: Education Best Practices
Learning the Mechanics
Types of CDHPs
Using Your Account
Financial Savings
Spreading Accountability
Summing It All Up
Case Study: Communication Is Key
Chapter 8: Post-implementation Communication and Education
Early Stages
Reinforcement
A Helpful Resource
Member Education Forums
Administrative Processes
Turning Theory into Application
Live Claiming Examples
Sharing Experiences and Responsibility
Healthcare Account Management
Flexible Spending Accounts (FSAs)
Health Reimbursement Arrangements (HRAs)
Health Savings Accounts (HSAs)
A Step Ahead
Continuous Promotion
The Value of Continuing Education
Case Study: Big Business Benefits
Chapter 9: The CDHP Renewal Solution
Great Expectations
Gathering and Studying the Data
Healthcare Trend
Claims Experience
Premium Increases
The Year in Review
Making Choices
Healthcare Account Funding
Too Much Funding
Too Little Funding
An Appropriate Amount
The Next Steps
Education Year after Year
Spreading the News
Case Study: Plan Design
Chapter 10: The Report Card
The Payoff
Getting Prepared
Tackling the Issues
Forward Thinking—Sustainability versus Growth
Case Study: Big Savings for Small Business
Conclusion
Glossary
Index
Foreword
Five years ago, my former employer, Harvard Pilgrim Health Care, published an annual report called “The Cost of Not Knowing.” It focused on how little information existed in the public domain concerning healthcare cost and quality. As the primary author of that report, I was struck by three core issues:
There is no incentive to be a low-cost, high-quality provider of healthcare services because there is no public accountability or recognition for cost or quality.
Differences in hospital admission costs varied by up to 300 percent. We looked at the cost per admission for Harvard Pilgrim members using community hospitals in Massachusetts. Costs ranged from $2,305 to over $9,700, even after adjusting for variables such as case severity.
There is virtually no correlation between high cost and high performance.
Today, America remains stuck in neutral when it comes to understanding much of anything about healthcare cost and quality. Ask ten people how much it costs to deliver a baby, and you'll get ten different answers. Ask about specific hospital costs and you'll be lucky if you get any answers at all. The same holds true if you ask someone about who does a good job with hip surgeries. No one knows.
Why have we been so slow to embrace the transparency we so eagerly demand from other industries? The decisions we make about healthcare are critical to our well-being. Information around complication and infection rates, for example, are a lot more important than the number of pixels embedded in the picture of a flat-screen TV. Yet we know more about the latter than we do about the former. Why?
Part of the problem is that we lack a feeling of ownership when it comes to our healthcare benefits. The government or an employer make most of our major decisions about what's covered and how much we pay; we get most of our information about who does what well from our friends, family, and care providers. But in this day and age, given the amount of money and complexity that's involved in healthcare, this isn't enough. We need to be more involved and more engaged.
More than most, Mark Gaunya and Jennifer Borislow understand the fundamental premise of informed healthcare, and their book is an excellent primer on how to get there. The story is simple enough: People who spend more time thinking about their health, healthcare, and health benefits make better decisions for themselves and their families. Moreover, when they do, the system responds.
There was a fascinating cover story in the September 2009 issue of The Atlantic Monthly called “What Washington Doesn't Get About Health Care.” It was written by David Goldhill, a business executive who lost his father to a hospital-acquired infection during a relatively routine procedure. He spent the subsequent two years trying to figure out why his dad had died from such a preventable ailment. He concluded that, as consumers, we are so far removed from the day-to-day realities of the healthcare system that we fail to bring the same focus to assessing healthcare delivery as we do to assessing every other service or product we buy.
In his own words:
“Ten days after my father's death, the hospital sent my mother a copy of the bill for his five-week stay: $636,687.75. He was charged $11,590 per night for his ICU room; $7,407 per night for a semiprivate room before he was moved to the ICU; $145,432 for drugs; $41,696 for respiratory services. Even the most casual effort to compare these prices to marginal costs or to the costs of off-the-shelf components demonstrates the absurdity of these numbers, but why should my mother care? Her share of the bill was only $992; the balance, undoubtedly at some huge discount, was paid by Medicare.
Wasn't this an extraordinary benefit, a windfall return on American citizenship? Or at least some small relief for a distraught widow?
Not really. You can feel grateful for the protection currently offered by Medicare (or by private insurance) only if you don't realize how much you truly spend to fund this system over your lifetime, and if you believe you're getting good care in return.”
Goldhill believes a system built around the twin pillars of personal responsibility and shared decision-making would be far more successful than the one we have today. Mark and Jennifer agree, and in this book they have provided you with the framework, tool kit, and capacity to take on the task of owning your healthcare.
Bend the Healthcare Trend is an important step towards making us all better, more informed, and more engaged consumers. And maybe, just maybe, if we make some progress on becoming engaged consumers, we'll demand more public disclosure from our mostly non-transparent healthcare system. That, by the way, would be a very good thing.
Charlie Baker
Former President and Chief Executive Officer
Harvard
Pilgrim Health Care
Acknowledgments
This book is twenty-one years in the making—a journey that started in healthcare, traveled through corporate America in insurance, and continues through employee benefits consulting. Somewhere in the midst of those collective experiences, I found my passion and a sense of purpose.
As the son of Steve and Denise Gaunya (a physical therapist and nurse, respectively), I was introduced to the entrepreneurial world of being a healthcare provider. I watched them help many people and also struggle to build a sustainable business. They exposed me to the challenges of being an entrepreneur, and they also provided me opportunities most young men in their early twenties do not enjoy—a seat at the table and the ability to participate in growing a business. I am forever grateful to my parents for instilling in me the values of hard work, a good education, and the importance of family.
The words “pay it forward” are now famous through the movie of that name—and that's exactly what Peter Andruszkiewicz did for me when I was only twenty-six. Though I had been originally hired in accounting and had no insurance sales experience, Peter asked me to lead his commercial accounts team at Blue Cross and Blue Shield of the National Capital Area (now CareFirst). Years later, I asked Peter why he gave me the job, and he said, “Someone took a chance on me at a young age, and I thought you deserved one. Let's just say I paid it forward.” That moment changed the course of my career, and I will always be grateful to him for that opportunity.
After the birth of our son and twin daughters, we moved to Naperville, near Chicago, when CIGNA Healthcare recruited me to be a vice president of sales. Two years later, a very talented healthcare recruiter named Sal DiGiuseppe called. He introduced me to Ken Linde, the CEO of Destiny Health, a start-up consumer-driven health insurance company with a parent company based in South Africa, one of the first countries that introduced consumer-driven healthcare. Ken asked me to be the company's vice president of sales and help him build an insurance company that would fundamentally change the way people look at health insurance. The value of that experience is immeasurable, and I am grateful to them for inviting me to be a part of something very special.
As Destiny Health grew, it expanded into other markets and formed new strategic partnerships. Destiny Health and Tufts Health Plan joined forces, and we relocated to Hopkinton, just outside of Boston. On our way, I met Jennifer Borislow—now my business partner and one of my closest friends. Together, we lead a thriving employee benefits practice and work with talented professionals and wonderful clients who we enjoy helping. I am forever grateful to her for asking me to be her business partner—and for giving me freedom to express my creativity every day. I can never repay her.
And to our clients: Thank you for your partnership and support. Your stories are the proof that consumer-driven health and wellness plans lower insurance costs and change lives.
There are many more people who have touched my life and career... too many to mention. To all of you who I didn't mention by name and who helped me along the way, thank you. Thank you for your friendship, guidance, support, and encouragement. I hope you enjoy this book!
Mark S. Gaunya
It is a great privilege to collaborate with Mark on this book project. Mark embodies the passion and vision for looking around the corner and seeing things I may not be able to see. It was Mark's passion for consumer-driven health plans (CDHPs) that ignited a spark in me. I have had many teachers who have blessed my life with their gifts. Mark is at the top of the list of my very best teachers.
When it was suggested that Mark and I collaborate on writing a book to share our collective knowledge, expertise, and passion on CDHPs and wellness, my immediate reaction was “How do we effectively collaborate and communicate our passion to engage the reader in a better understanding of CDHPs and wellness?”
Mark and I met almost seven years ago, when I flew to Chicago to represent Tufts Health Plan in evaluating Destiny Health as a strategic partner to bring this forward-thinking concept to the Massachusetts marketplace. I was immediately attracted to Mark's passion, knowledge, and profound thinking about CDHPs. We immediately developed a close friendship, and eventually I was successful in convincing him to leave the corporate world behind and join me as my business partner. Simple math would suggest that 1+1=2, but when Mark agreed to join me in leading Borislow Insurance (BI), the new math became 1+1=3.
At BI, we are blessed with an extremely talented group of individuals who allow us to focus on developing and deploying new client strategies. To the BI team, we are truly grateful to you for your dedication, hard work, and commitment to continuously making a difference in our clients' lives.
To our clients: We are honored and blessed to have the ability to work together. We are passionate about the work we do to help you save time and money in managing your benefit programs.
To the Highspot team: Your project management kept us on track during the process of writing and publishing this book. The weekly updates helped guide us to the finish line, and we are grateful for your direction and support.
With gratitude and appreciation, I also want to acknowledge the love and support of many lifelong friends. My family and my close friendships are what I treasure most in life.
Jennifer A. Borislow
Introduction
Albert Einstein is one of many purported to have said, “The definition of insanity is doing the same thing over and over again and expecting different results.” Think about this quotation for a second, and ask yourself if this applies to the way you manage your company's health insurance benefits.
Have you been doing the same thing over and over, expecting different results? If so, you will want to keep reading.
Double-digit increases in healthcare costs pose a growing challenge for all Americans. The US spent around $2.4 trillion on healthcare in 2008, and that number is expected to rise to over $4 trillion by 2018. Healthcare costs made up 17 percent of our GDP last year, and they're growing at two to three times the rate of inflation! The escalating costs of healthcare and our growing reliance on health services are making employers and employees nervous. If prices continue to rise, will Americans be able to afford access to healthcare services?
Roughly 60 percent of all Americans are covered by employer-provided health insurance, and 9 percent cover their own costs. Most employers can no longer afford to make purchasing decisions about the company health plan without engaging their employees. It's time for employers to ask employees to get engaged, change their behavior, and become more aware of their lifestyle choices and how they use—and pay—for healthcare services. Employees must understand that they are consumers and that, as consumers, they have choices. Employers need to provide their employees with valuable information and the incentives to make long-lasting changes.
Consider the following points: Do you know the price of a high-definition TV, a pair of running shoes, or a car? You probably have an idea of the cost of each, and you wouldn't buy any of them without first doing some comparison shopping. Like most people, you'd want to find the best price for the highest quality product you could afford, so you'd shop around before deciding where to spend your money. Comparison shopping is a normal part of consumer behavior, so why do we behave differently when evaluating and purchasing our healthcare options?
Do you know the cost of an emergency room visit, the cost of choosing a brand-name drug over a generic alternative, or the cost of an additional night in a hospital? If you don't, odds are your employees don't either. And if consumers don't know the costs, they can't make informed decisions about their purchases. Most consumers don't use the same discretion when purchasing health insurance or healthcare services as they do when purchasing a new car. Although choosing a new car is a big decision, making informed choices about which health insurance plan to select and how to take the best care of your health is far more important.
Just because you're familiar with Ford vehicles doesn't mean you're going to buy one. There are many makes and models of cars, so you'll likely do research on the Internet and visit different dealerships to see who's offering the best cars for the best prices. Based on your needs, you'll choose the type of vehicle that suits you. If you're a member of a five-person family, you might consider a minivan. If you're single, a compact two-seater might be more your style. You'll also choose from the manufacturer's list of available options to customize your new car. If you live in an area that gets a lot of snow, you'll probably want a four-wheel drive vehicle. If you have young children, you might want a DVD player in the backseat.
Insurance plans, like vehicles, are made up of different options, so why wouldn't you want to choose one that addresses your group's specific health and budget concerns? If consumers bought only what was traditional or the first product on the market, we'd all still be driving Model Ts. Car makers understand that consumers want options. Insurance plans can and should support the consumer's right to choose. Consumers should be free to make purchasing decisions that speak to their values, don't support unnecessary cost increases, and give them more control over their spending and responsibility for their health and well-being.
If your employees want to seek care at large teaching hospitals, they may pay a little more for that care and must decide if the higher cost justifies the value. In Massachusetts, for example, the cost of seeking care at many teaching hospitals is approximately 30 percent higher than at a community hospital—yet the care isn't necessarily worth 30 percent more. Consumers have different needs, but the one thing they all agree on is the desire to have choice when it comes to accessing healthcare providers and services.
The challenge is that employees don't appreciate the full value of their health insurance plans and the cost that their employers incur to provide that benefit. Employees want choices but don't necessarily want to pay for them. Case in point: An assessment of workforce attitudes indicates that employers and employees lack a shared vision about what it means to be an informed healthcare consumer.1 Employees feel they're sufficiently thoughtful about how they use a health plan (that is, spend money), and how much analysis they do before making buying decisions. Yet, the average American employee who needs family insurance spends about fifteen minutes each year during open enrollment to make a $18,000 health insurance buying decision.
If healthcare is already costing the US so much money, how is it possible that costs continue to rise at two to three times the rate of general inflation? As the following chapters will explain, a disturbing value equation is formed when consumers are isolated from the true cost of healthcare. When the only money that leaves their wallets is a $30 co-pay, how can they be expected to assign a realistic value to the service they've received? Many people think nothing of visiting their family doctors when they're feeling just a little under the weather. Instead of resting and seeking another option, they seek quick relief of their symptoms, which is the quickest way to drive up healthcare costs.
Every healthcare consumer is personally responsible for a small portion of our country's total healthcare spending, and individual users have the power to turn this troubling value equation around. When consumers are empowered to spend responsibly and take better care of themselves, total spending will slow down, ultimately reducing the inflation rate of premium increases. Employee engagement will translate into savings for both consumers and employers.
By offering employees choices and empowering them to make informed, responsible, and cost-conscious decisions about their lifestyle choices and their healthcare spending, you'll create a healthier, stronger workforce. You'll also be saving your company, yourself, and your employees—not to mention the entire country—a lot of money. It's time for consumers to become proactive about their healthcare spending by leveraging the unique value proposition of the consumer-driven health plan (CDHP) solution. To energize employees about the CDHP solution, you must first help them improve their knowledge of healthcare costs. Once consumers become aware of the actual costs of the healthcare services they access, they'll be less inclined to make poor lifestyle choices (which put a strain on their budgets and the healthcare system), and they'll work toward cutting down their unnecessary use of health services.
Consumers may not be aware of the direct link between bad habits—tobacco and alcohol use, lack of physical exercise, and poor diet—and the steadily increasing cost of healthcare, but one is partially responsible for the other. The top priority after buying a new car is maintenance. To keep the car in excellent shape, a maintenance schedule that includes regular oil changes and having the tires rotated is required. To prevent damage to the vehicle, you'll avoid accidents by not speeding and driving carefully when it's raining. If only most people gave their bodies the same consideration, we would be a much healthier nation.
That's why another important step toward reducing reliance on healthcare is implementing a health and wellness program in the workplace. It will help employees take better care of their health, and you'll see the benefits reflected in fewer visits to health services providers, fewer prescription drug purchases, and increased workplace productivity.
The solution to the healthcare spending crisis in America rests with consumers—they have the ultimate voice. Until we engage, educate, and empower them, healthcare costs will continue to rise and the burden of treating preventable illnesses will continue to strain the system. Traditional health insurance options helped cause our current healthcare crisis, so how can we expect the same options to solve them? It's time to let our healthcare dollars do the talking by choosing the appropriate CDHP solution and putting the power back where it belongs: in the hands of consumers.
1
The Primer
The Problem
Our healthcare costs are soaring. After many failed attempts to control these costs, it's time to rethink the word “healthcare” by putting more emphasis on health and less on care. A paradigm shift is needed, and this starts by seeing ourselves as consumers of healthcare who are in control of what our dollars purchase, and not as patients who passively accept what's offered by physicians or an employer's health plan.
According to the Blue Cross Blue Shield Association (BCBSA), the organization that insures three out of four Americans, national healthcare expenditures are expected to increase by more than 70 percent between 2007 and 2015 to almost 20 percent of the gross domestic product (GDP).1
Most Americans have three misconceptions about the rising cost of healthcare:
Healthcare costs will always rise, just as the costs of most products and services do.
Rising healthcare costs are caused by economic forces beyond their control.
It's someone else's fault. Doctors, hospitals, insurance companies, government, or employers are to blame.
Rising Health Insurance Premiums2
These notions aren't necessarily true. As the chart above illustrates, health insurance premiums have increased faster than the rate of inflation and the average worker's wage. Many factors that cause rising costs are well within consumer control.
The Cause
Healthcare trend is the healthcare industry's terminology for inflation, and it's made up of two components: unit cost (the actual cost of healthcare products or services) and utilization (the number of times a healthcare product or service is purchased). In most markets across the country, 30 percent of healthcare trend is unit cost and 70 percent is utilization.
Consumers have a big role in getting national healthcare spending under control, but most healthcare users don't understand how their choices have contributed to the current challenge. This is because they don't understand the true costs of their lifestyle choices and the impact those choices have on the cost of health products and services. From 1998 to 2004, the average cost of an abdominoplasty (a tummy tuck) rose by 19 percent, only slightly faster than the rate of inflation. By comparison, per capita healthcare spending in the US increased by 49 percent over that same period.3
It may seem that the rise of individual healthcare costs, such as the cost of a tummy tuck, parallel the rise in overall healthcare spending, but clearly, this isn't the case. So what caused this enormous discrepancy? The root of the problem is the uninformed healthcare consumer.
A tummy tuck is an elective surgery not covered by insurance; those who decide they want or need the procedure pay for it out of their own pockets. Because it's their money they're spending, they're unlikely to make frivolous decisions—they won't, on a whim, run to a plastic surgeon to undergo a costly and invasive procedure without first doing their homework. Medical procedures paid for with consumers' hard-earned money are carefully researched, considered, and weighed against other options. It's what an informed healthcare consumer does.
In contrast, most consumers are unaware of the actual costs of the healthcare services covered by their insurance plans. When billing and payment are arranged between doctors and insurance companies, consumers don't think twice about going to the doctor or getting a prescription filled. For most consumers, it's just a co-pay.
Simply put, when there isn't a real cost associated with medical care, consumers won't take the time to consider the cost or whether they really need the service they're seeking. This kind of behavior leads to unnecessary use of the healthcare system and drives up cost.
Of course, no one should be discouraged from getting the care and medication they really need. Most treatments are medically necessary. But just as you shouldn't go to the plastic surgeon on a whim, you shouldn't go to the doctor every time you have the sniffles. Consumers have little control over some factors contributing to healthcare costs; however, we all have quite a bit of control over the lifestyle choices we make every day. Common lifestyle choices that put us at risk include the following:
Lack of physical activity
Poor nutrition (e.g., high fat, low fiber)
High-risk recreational activity
Ineffective stress management
Tobacco use
In turn, these poor lifestyle choices can lead to preventable chronic or life-threatening diseases such as diabetes, heart disease, cancers, and stroke. According to the BCBSA, in 2004, 147 million people in the US had these or associated illnesses, which are very expensive conditions to treat. Costs for treatment of preventable illnesses surpassed $300 billion for the top five conditions listed in the report.4
The Current Solution
Managed care hasn't ignored the issue of rising healthcare spending, but for the most part, their strategies have run their course and aren't succeeding in holding down costs. Traditional health plans rely on a managed-care structure whose primary aim is to control rising healthcare costs by focusing on preventive care and physician-driven decision-making. It's a supply-side economic approach to managing costs. Traditional managed care's many cost-reduction techniques have included offering economic incentives to physicians for selecting less costly forms of care, controlling inpatient admissions and the length of hospital stays, and, in some cases, withholding care. Initially, managed care held down costs through this method, but over time, healthcare consumers pushed back because they didn't want insurance companies dictating their medical care choices. The power of choice had been all but taken away from consumers.
The difference between using traditional managed-care techniques to reduce costs and helping consumers monitor their own behaviors and healthcare spending is driven by one major factor: motive. Consumers are focused on saving money, especially when it's their own. Their focus on money is tempered by attention to their health. By becoming better informed about the care they receive and the lifestyle choices they make every day, consumers not only avoid using the system unnecessarily but also guarantee their health is the number one priority for them and their families. That mindset benefits their employers and the insurance companies underwriting their risk.
A New Approach
When consumers are uninformed about the causes of increased healthcare spending, how can they understand that they might be at the root of the problem? If their spending remains unchecked, healthcare costs will continue to rise faster and higher than income levels and the general rate of inflation, reaching cost levels that employers and the government can't support. The only reasonable alternative is to consider a new approach to health insurance— consumer-driven health plans (CDHPs) and worksite wellness.
Consumer-driven health plans are health insurance plans that combine a lower premium high deductible health plan (HDHP) with a healthcare account. The tax-preferred money contributed to a healthcare account, combined with some out-of-pocket expenses, covers healthcare spending up to the amount of the annual deductible. This health insurance solution is highly effective because of its philosophy, which is governed by three principles: transparency, responsibility, and opportunity.
Principle One: Transparency
In a traditional health insurance plan, a typical user goes to a health services provider without considering the visit's cost. In most cases, all the consumer pays toward the cost of the service is his or her co-pay. The inherent design of this health insurance product hides the rest of the cost from the consumer. Without knowing the true costs, consumers have no incentive to consider their options and choose the most appropriate, cost-effective treatment.
On the other hand, CDHPs promote transparency. Consumers are encouraged to seek out information such as the cost of health services and the range of alternative treatments. This helps them make the most informed and effective choices. After a user accesses a health service, the health insurance company sends an explanation of benefits (EOB), which details the cost of the item or service in the form of a cost breakdown. Consumers see exactly where each part of their healthcare dollar goes, and who is responsible for paying the cost. Unlike users of traditional health insurance plans, CDHP users understand the true cost and value of the health services they receive.
Principle Two: Responsibility
With knowledge comes responsibility. Once consumers know the value of the health services they receive, it's up to them to make informed decisions about how they use them, and to do whatever they can to avoid needing them in the first place. A responsible decision about using health services could be as simple as speaking to a nurse or taking a day off work to rest instead of making a trip to the doctor. In most cases, consumers can access the health insurance company's nurse help lines for medical advice instead of going to the emergency room for non-emergencies. The help lines are staffed by registered nurses specifically trained to answer symptom-based questions and provide guidance.
To avoid needing these services at all, it's the consumer's responsibility to take appropriate measures to maintain good health. These decisions can include washing hands more frequently during flu season; cutting back on high-cholesterol, high-fat, and low-fiber foods; and working some physical activity into his or her daily routine. When consumers make responsible decisions by educating themselves about the real cost of health services and consistently seeking preventive care on their own, the burden on the healthcare system becomes much lighter.
Principle Three: Opportunity
The CDHP solution comes with opportunities for the consumer to benefit physically and financially. Beyond improving the consumer's health and general well-being, participating in a CDHP offers significant financial advantages to the consumer in the form of unused dollars, which can be carried forward for future healthcare expenses.
Let's say the deductible for a single employee is $1,500. You, as the employer and provider of health insurance, might contribute $750 into a healthcare account, a tax-preferred contribution. Your employees can use your contribution to pay for eligible medical expenses, and if they're prudent with those funds, they may not incur additional out-of-pocket expenses beyond the premium paid to purchase the health plan. If they don't spend the employer's healthcare account allocation, they can save it for future healthcare expenses by rolling it over from one year to the next. We call this financial benefit to the consumer the rollover effect, a powerful incentive to manage their healthcare account dollars wisely.
Consumers who participate in a CDHP also have comprehensive protection when they need it most. If they spend the full $750, the next $750 would come out of their pocket, and then the HDHP coverage kicks in, covering most eligible medical expenses above the $1,500 deductible when it's structured with a high level of co-insurance (i.e., 100 percent or 90 percent paid by the health plan).
CDHP Components
Even in catastrophic situations that cause a CDHP member's healthcare spending to exceed the annual deductible, there can be significant savings for the employer and the employee through lower premiums and comprehensive coverage.
The good news is that exceeding a $1,500 deductible isn't all that likely. By engaging in the first two CDHP principles, transparency and responsibility, most employees should be able to avoid using up their healthcare accounts. More often than not, there will be money left over at the end of the year, and that's when even more benefits kick in. The money that isn't used up over the course of the year can roll over to the next year. This process can continue indefinitely and create a financial benefit in subsequent years. The difference between paying a traditional insurance premium and investing in a healthcare account can be compared to the difference between paying rent and buying a house. If you can afford either, why spend your money on something that offers you no return on your investment?
Get Involved
As providers of health insurance, employers must ask themselves if they want to engage their employees in the process of controlling healthcare costs, and if they're comfortable encouraging employees to manage their own healthcare accounts. If these sound like steps in the right direction, CDHPs represent a new healthcare option that curbs costs through education and behavior change and supports wellness. Below are some advantages you may expect from a CDHP:
Comprehensive coverage, including preventive care. Employees in CDHPs continue to receive recommended care at the same or higher levels as those in traditional plans. Preventive care visits increase for those in CDHPs because there's a financial incentive to stay healthy. According to the 2008 BCBSA member survey, 69 percent of CDHP plan members had regular checkups, physicals, or preventive health screenings.
Preferred provider organization (PPO) benefits. A PPO is an organized network of doctors, hospitals, and other medical providers who agree to offer their services to an insurer's clients at a discounted fee for each service. It offers employees a list of doctors and hospitals that could save them money, and they won't need a referral to visit a new doctor, as a traditional managed-care product requires.
Rewards for healthy lifestyles. Good health is priceless! The biggest step toward reducing reliance on healthcare is to improve employees' overall health and well-being. By achieving this goal and maintaining positive results, employees will be healthier and reduce their healthcare spending. They may also earn rewards and incentives from their health plan provider.
The rollover effect. Rollover funds are the engine of change in a CDHP because they help consumers save unused benefit dollars from year to year. These tax-preferred dollars accumulate until account holders are ready to use them.
If these benefits sound appealing to you, you're not the only one. According to the 2009 BCBSA Healthcare Trends in America study, CDHPs represented 8.8 percent of the market in 2007. In 2008, that number rose to 12.6 percent. That may not sound like much, but it signifies an enormous 117 percent growth rate from 2006 to 2008. In addition, to encourage employees to improve their health and lifestyle, almost 10 percent of all employers have begun to offer comprehensive wellness plans, compared to only 7.4 percent in 2007. Employers across the country are recognizing that CDHPs are a reasonable answer to the deep problems plaguing the American healthcare system. It's time for companies of all sizes to choose a more cost-effective approach to healthcare and help change the system for the better.
Among Firms Offering Health Benefits, Percentage That Offer a CDHP, by Firm Size, 2005–20085
Note: The 2008 estimate includes 0.3% of all firms offering health benefits that offer both an CDHP/HRA and an CDHP/HSA. The comparable percentages for 2005, 2006, and 2007 are 0.3%, 0.4%, and 0.2%, respectively.
Case Study: All-Access Pass
Cindy was a healthy, fifty-three-year-old grandmother who worked as a business officer for an independent private school in Maine. As part of the decision-making team that chose to switch the school's health insurance plan from a traditional HMO product to a CDHP, she was a well-informed user of her CDHP.
In 2008, Cindy began suffering from severe migraines. After reviewing her physician options in her PPO, she found a physician in her area and booked an appointment. The physician wasn't overly concerned with Cindy's headaches and repeatedly advised her to “wait and see.” After a few months of waiting and seeing, Cindy's headaches weren't getting any better. Still in pain and unwilling to accept her physician's lack of response, Cindy put her CDHP to use.
The product design uses a PPO, which gives Cindy access to an extensive network of healthcare providers, both in and outside of Maine. After doing some research, Cindy booked an appointment with a nationally recognized expert in Boston, Massachusetts. She was soon diagnosed with a potentially fatal brain aneurism, and, within two weeks, was undergoing life-saving surgery at Brigham and Women's Hospital in Boston. Had Cindy continued to assume the passive approach of her first physician, it's likely that her condition would have become fatal. As a CDHP member, however, she had access to specialists outside of her home state, allowing her to get the treatment she needed.
Cindy's total medical expenses exceeded $100,000. Her deductible was $3,000, and her employer covered 50 percent of it through the healthcare account, exposing Cindy to a maximum out-of-pocket of $1,500. After she paid that, her CDHP fully covered the remaining cost. Cindy's CDHP not only gave her the peace of mind that came from knowing that her financial obligation was completely manageable but also saved her life.
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The CDHP Value Proposition
Consumer Skepticism
All innovative products and services have to overcome some hurdles when first introduced to the market, and CDHPs are no different. Americans have been subscribing to the same type of insurance for over twenty-five years, and much of its effectiveness at holding costs down has run its course. The US healthcare system has changed a lot over the past several decades, as have consumers' knowledge and sensitivity to healthcare costs. CDHPs take those changes into consideration.
When something is new, people tend to be skeptical, especially when it offers a solution to a problem that seems impossible to fix. What do consumers who are still using traditional managed-care plans know about CDHPs? Ask most people, and you'd probably find their answer is based on uninformed media influence, negative perception, and the general misgivings that tend to surround new products and services. Unfortunately, the negative publicity gives them a somewhat skewed perception of this innovative approach to health insurance.
One of the most common misperceptions about CDHPs is that they're only HDHPs. This tells only half the story. An HDHP without a healthcare account covers users only when they've incurred significant costs. The engine of the CDHP is a healthcare account, which helps the consumer understand the true cost of healthcare and contains the funds that pay for their healthcare products and services.
The principles of transparency, responsibility, and opportunity define this new approach to health insurance. The employer, consumer, provider and health plan all play a significant role and those roles must be understood for a CDHP to deliver on its value proposition. So what exactly does the CDHP value proposition entail?
Engaging Healthcare Consumers
A CDHP is made up of two equally important parts: a lower premium HDHP, and a healthcare account. The HDHP is sometimes referred to as catastrophic insurance because the deductibles are, by definition, higher than those of most health insurance plans ($1,000 or more) and they generally ask consumers to pay part of the cost of healthcare products and services before insurance coverage kicks in. With the HDHP's premium savings and transparency, employers can redirect premium dollars into healthcare accounts and engage their employees by providing them with dollars to pay for their medical expenses.
Cumulative Changes in Health Insurance Premiums, Inflation, and Workers' Earnings, 1999–20081
With CDHPs, the money employers and employees save on their insurance premiums can be contributed directly into the other important component of the CDHP, the healthcare account. The healthcare account is a tax-advantaged vehicle that is used to pay for qualified medical expenses and is sheltered from federal income tax. Consumers can choose how this money should be spent or saved, and how they want to proceed when or if it comes time to access the funds.
Healthcare accounts offer consumers a new way to pay for healthcare. They allow them to make decisions without having to consult an insurer or a third party and to pay for current medical expenses while possibly saving for future ones, all on a tax-preferred basis. The best part is that if you live a healthy and responsible lifestyle and don't need to spend your money on medical expenses, it's yours to use in the future. If it's not spent, it doesn't go into someone else's pocket like the money you've been contributing to traditional insurance plans.
Advantages to CDHPs
One of the CDHP's features is the lower premium, higher frontend deductible. Though some consumers shy away from a higher deductible at first, assuming they'll be paying more for their healthcare out of pocket, it's worth their while to review the benefits. The main appeal of higher deductibles is that they can significantly lower premiums—by as much as 20 to 25 percent in the first year and lower rates of increase from year to year thereafter. Ideally, an employer should redirect at least 50 percent of the premium savings toward helping employees set up and fund healthcare accounts.