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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.

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 co-founder 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, HRAs, 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.

"The consumer has instant access to money for health care expenses versus having to fill out claim forms and waiting to be reimbursed," says Robert Butler, executive vice president of MBI, a Waltham, Mass.-based employee benefits software firm and one of the first companies to offer a benefits debit card.

Anne Carpenter, vice president of marketing at Evolution Benefits in Avon, Conn., which also offers a benefits debit card, adds, "Debit cards are the perfect vehicle to deliver and manage consumer-directed programs. The money is available immediately, so employees can easily access health care services and not use the emergency room. In addition, they're more conscious about where their money is going, which gets them more involved in the decision-making process," she says.

"Because employees have more control over how they spend their health care dollars, they tend to think twice before running to the doctor," says Jeff Nierman, vice president, branch operations, at Independent Pipe & Supply Corp., a Canton, Mass.-based distributor of pipe valves and fittings. The company currently uses a benefits debit card to administer its HRA and FSA plans.

"Each employee has an individual benefits debit card, provided by our third-party administrator, Choice Care Card, with which they can access the funds in their HRA to pay for medical costs incurred before they reach their $1,000 deductible, at which point their insurance kicks in," says Nierman.

The company pays 75 percent of the cost of the deductible, or $750 per employee, which is deposited in their HRA. After using the program for a year, Independent Pipe estimated cost savings of about 8 percent compared to the cost of renewing with their traditional health plan.

"Employees on average only claim 30 percent to 40 percent of their allotted HRA money," says Nierman. "The savings we experience in premiums are used to fund the debit cards, and offsets the cost of the high-deductible plan."

"We're beginning to see positive behavioral changes as a result of consumer-driven health plans," says Stuart Slutsky, vice president, technical marketing, at Chicago-based Destiny Health.

A study by Destiny's parent company, Discovery Holdings, an international health insurance company with 1.5 million members and 10 years experience in the CDHP field, found that members using savings accounts spend 7 percent less per prescription and 27 percent less overall on drugs than individuals with traditional insurance. In addition, 81 percent of members reported satisfaction with their health plans.

"Consumer-driven products in the United States have evolved from their beginnings as high deductible PPOs to sophisticated products that offer members access to state-of-the-art decision-making tools, health care information and benefits tailored to suit each member's individual needs," says Destiny's CEO Ken Linde. "They have come of age and are destined to play an important role in mitigating future health care cost increases."

MINDY W. TORAN, a former Risk & Insurance® staff editor, is a freelance writer and frequent contributor.

February 1, 2005

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