Small, Medium or Large Employers Reap Benefits with Consumer-Directed Healthcare

Healthcare is now sharing center stage in our mainstream media. Every business feels the impact as healthcare costs rise faster than inflation. More than 45 million working-age Americans are uninsured. As employers find it increasingly difficult to cope with rising costs, this number is on a steep incline and employers have to cut back or drop coverage for their employees. According to the Kaiser Family Foundation, between 2001 and 2004, the number of non-elderly adult Americans no longer covered by employer-sponsored insurance declined from 66% to 61%. Cost shifting has been the employer’s only defense - moving more premium costs to the workforce. Even with employees sharing more expenses each year, they are actually paying the smallest percentage of their total healthcare expenses in the last 40 years! This lack of price sensitivity has led directly to increases in healthcare utilization. The bottom line is that fewer benefits can be offered to employees because healthcare expenses are usurping other forms of compensation and rewards.

What are the alternatives? A political debate exists about whom the primary payor should be - the government (universal coverage) - which would proliferate a model like Medicare - or private insurers - where our existing employer-sponsored system will evolve with economic incentives that drive out inefficiencies. Changing payors doesn’t solve the problem of healthcare inflation which is arguably due to the fact that consumers don’t have a sense of the real costs. Regardless of the future outcome, in the foreseeable future, employers will still fund the bulk of the cost – either directly or through tax-based subsidies. Evolving the existing model assumes that when healthcare costs are neutralized, more employers will be able to offer a health benefit. Healthy competition in account-based health plans is opening up an individual HSA-based insurance market that provides a sound solution for adults that cannot obtain a health benefit from their employer. Consumer-Directed Healthcare (CDH) has emerged as the economic incentive fueled by “price transparency” to drive inefficiencies out of the system. A tenet of CDH is that the provider-patient relationship is restored to its natural economic form of vendor-customer. In any other free market vendor-customer relationship model, consumerism prevails, driving price competition, quality and market efficiency.

This basic principle is driving sea-change in the U.S. healthcare industry as the trend towards fixing healthcare has supported CDH. Transparency is the theme du jour. Every week another health system or plan announces price transparency. Provider quality initiatives, such as Pay-for-Performance or “P4P” are emerging as standards that large health systems are driving towards to apply variable compensation rates. CDH is taking hold. However, it is in its infancy and many employer organizations are new to CDH. It represents a strategic long-term initiative where the greatest benefit will emerge after several years because behavior change is requisite to the return on investment.

Why will CDH work? There are several reasons: 1) Every American should understand that paternalistic employer-based health plans are not sustainable and Medicare will most likely look very different in twenty years. A recent study by a large investment institution projects that the retirement out-of-pocket healthcare costs for an average married couple retiring today will be approximately $200 thousand dollars. More importantly, people surveyed woefully underestimated these costs. 2) When employees are responsible for first dollar coverage, they are motivated to price shop. Ask anyone that has a health savings account (HSA) if their healthcare shopping behavior has changed! 3) If employees know that they share responsibility for their long-term healthcare coverage then they also realize if they spend today from their health accounts, they are eliminating the opportunity to save and spend tax-free dollars on healthcare in the future - they do seek out health behavior change!
From an employer’s plan design perspective, CDH is founded upon account-based plans. Employers need to start planning a strategy by understanding the economics of CDH – what is the ROI? What incentives are necessary? The good news is that many options exist in plan design. The bad news is that many options exist in plan design! Employers should look closely at Health Reimbursement Arrangements (HRAs) and HSAs and understand, with the help of experienced consultants, which plan (or combination of both) fits best with their corporate culture.

Very recent legislation (December 2006) changes the landscape for CDH accounts, making them very employer-friendly. Some changes include eliminating deductible limits on contributions to HSAs as well as enabling rollovers from HRAs, Flexible Spending Accounts (FSAs), and Individual Retirement Accounts (IRAs) to HSAs. Employers can also contribute more to HSAs of lower paid workers.

To give you a head start on your CDH planning here are some ideas and evolving best practices. Note: you need to check with your benefits consultant to see if these options are available to you:

CDH Plans: Tailored to the Needs of the Employer

Arguably, small businesses have been hit the hardest with healthcare inflation. Many companies have severely cut or dropped health benefits altogether. Employers can now consider offering just health accounts and enable their employees to acquire individual insurance. Employers can completely manage costs because they are not offering the health plan, but subsidies to health accounts. Depending upon plan design, this can be a compelling benefit and compete directly with a traditional PPO for most employees.

Premium Reimbursement Accounts (PRAs) are a great option for employers who want to offer the solution described above to their employees. PRAs enable employees to pay insurance premiums with pre-tax dollars. The benefit is twofold – the employee gets the tax benefit that employers receive or they would receive in a group plan and the employer reduces their payroll taxes.

Medium sized businesses can leverage CDH as part of an overall strategy to migrate to self-funded from fully-insured. Employers can map out a plan to produce a favorable claims history complemented by account-based health plans. With this CDH-powered strategy, an employers’ health status will soon reflect consumerism’s impact on the workforce. CDH becomes a launching pad to migrate to a self-insured (self-funded) model. Although many insurance carriers offer complete CDH solutions, businesses looking forward to the flexibility of changing insurance plans may want to consider using a CDH company that administers account-based plans, providing the consumer and administrative experience that is portable to the employee and the employer. This freedom allows employers to maintain some leverage with health plans because with any new market, price fluctuations will have greater swings in the next few years as competing plans are going for a “land grab” strategy to capture new CDH business.

Large businesses will see the same benefits as their smaller counterparts, but may be more motivated to decouple the CDH consumer account experience from health plans. Most large market companies provide administrative services or insurance from multiple health plans. With CDH accounts, money and data is more frequently being transferred between the employer, the CDH administrator, the employees, and providers. Balances in HSAs and HRAs build year after year, not to mention the affinity associated with the consumer experience using a health payment card and portal. Having multiple CDH administrators can be a support challenge and an IT headache, as employees transfer to new locations, or the employer must provide separate support and communications for each consumer-facing solution. A plausible solution is working with a single CDH administrator that integrates with multiple carriers. This enables the employer to offer their employees the same user experience while disseminating a consistent message and education across the entire workforce, regardless of which plan/carrier the employee selects.

CDH: It’s not just about the Accounts; it’s about the Entire Experience

As more players enter the CDH marketplace it can be challenging to find a solution that delivers a comprehensive consumer experience as well as a company that you can evolve with into the future of account-based health plans. For employers and their employees to reap the benefits of CDH, they need to buy into the philosophy of CDH and actively manage a healthy lifestyle. To accomplish this, employees need thorough education about the benefits of CDH and have access to wellness tools to make informed healthcare decisions, which goes beyond a plain vanilla account with little service.

Key features available to your employees should include multi-purse or stacked healthcare payment card and an integrated portal for multiple accounts. This kind of technology enables an employer to offer multiple accounts, such as an FSA and HSA on a single card (multi-purse or stacked). A stacked card has the technology to draw funds from the most appropriate account first so the employee doesn’t have to worry about identifying which account the payment should be drawn. Employees should also have access to a single sign-on portal to add claims, view account balances, and manage investments if they have an HSA. Their portal should enable them to have access to provider cost and quality information and education about how to manage chronic conditions. Employers searching for additional wellness tools and employee incentives can add health risk assessments or wealth and health coaches.

Regardless of the size or type of business, CDH can be a viable solution for any company looking to offer healthcare assistance or a solution that empowers employees to a healthier and wealthier lifestyle. If you aren’t ready this year, start with a CDH awareness program and test drivers for uptake with an FSA. FSAs are “CDH on training wheels” and a terrific benefit to use as a platform to educate your employees about CDH as they prepare to take on more responsibility for their own health going forward.

About ConnectYourCare

ConnectYourCare’s benefit delivery platform provides a pathway for migration to CDH, supplying tools for employees to better manage their healthcare choices and a vehicle for employers to realize healthcare cost containment. ConnectYourCare solutions include a multi-purse health payment card and Internet portal for employees to manage tax-advantaged accounts and related investments, completely transparent financial claims adjudication, multi-channel access to ConnectYourCare’s customer support services, and comprehensive medical information and decision-support tools with a focus on wellness.

ConnectYourCare is a Revolution Health Group company. Please visit http://www.ConnectYourCare.com for more information or call 1-877-495-3341.