ConsumerDriven Health Care

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Consumer-Driven Health Care

• An Accredited Continuing Education Course

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Agenda

• Context Some Differing Points of View
• Overview Back to Basics
• Adoption of CDHC Whats the Status?
• Market Experience How CDHC is Playing in
  Corporate America
• Selling CDHC A Framework for Brokers
• Implementing CDHC A Framework for Employers
• Our Advice Look Before You Leap for Greatest
  Success

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First, lets hear from you

• Your point-of-view on consumerism
• Pure cost shifting not sustainable?
• Has some merit?
• Its the answer?
• Its inevitable?

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Differing points-of-view

• CDH plans are nothing more than stop-gap
  responses to problems occurring in the health
  care system. Greater cost sharing is not
  sustainable and such plans will create a death
  spiral.
• - John Garamendi, Insurance Commissioner
• (CDH) is, arguably, the most important
  development in health insurance since the
  widespread introduction of HMOs in the 1980s .
  (It has) the potential to alter consumer behavior
  in ways that could fundamentally change how
  consumers think about their health and how they
  utilize health care resources."
• - McKinsey and Company CDHP Report

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Can consumerism help fix whats broken?

• Including
• Declining health of the population
• Increasing drug costs and demand
• Demand for costly, enhanced technology and
  services
• The magnitude of avoidable errors
• The practice of defensive medicine
• A lack of transparency in cost and quality
• Disparate cost of care
• Rising number of uninsured and associated cost
  shifting
• Generally disengaged, uninformed population
• High levels of health care inflation

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Call to action
Per-Employee/Employer Health Care Costs 2001 and
2006
Source 2006 Towers Perrin health care survey
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Call to action
Business leaders are seriously concerned about
rising health care costs
Senior leaders believe competitive health
benefits are critical to talent management
objectives
Senior leaders view health care costs as a
serious business issue
Source Towers Perrin - Making Health Care
Consumerism Work, 2005
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The status quo is unacceptable

• Employees
• Maintain a persistent sense of passive
  entitlement to their benefits
• Are shielded from the real cost of the healthcare
  they consume
• Arent making healthy lifestyle decisions, nor
  are sufficiently aware of their health history
  and current risks and conditions
• Employers
• Are spending more on healthcare and trying more
  tactics, but employees are no healthier
• Are tired of cost shifting and need a more
  collaborative, integrated, change-focused solution

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CDHPs an alphabet soup of new plans
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Common ingredients of consumer-driven plans

• Make consumers aware of the true cost of their
  care
• Engage members in health care purchases
• Give members a financial stake
• Provide resources for informed decisions

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Health Reimbursement Account

• HRA dollars are typically tapped first, then
  members must meet the remaining deductible before
  medical plan coverage takes effect. Preventive
  care and pharmacy costs are covered separately.

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Health Savings Account
There are two components of an HSA
Health Savings Account (HSA)
Account, contributions and withdrawals
administered by a bank or other trustee
1)
Preventive Care
High-deductible health plan administered by an
insurer or third-party administrator
High Deductible Health Plan (HDHP)
2)
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CDHPs Other flavors

• Tiered provider network
• Other tiered plans
• Design-your-own network plan
• Defined contribution approach

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Comparison of tax-advantaged accounts
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Comparison of tax-advantaged accounts
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Comparison of tax-advantaged accounts
NEW
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Comparison of tax-advantaged accounts
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Comparison of tax-advantaged accounts
HSA contributions are deductible from state
income taxes in all states except Alabama,
California, New Jersey and Wisconsin
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Comparison of tax-advantaged accounts
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Comparison of tax-advantaged accounts
NEW
NEW
NEW
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Additional HSA details
NEW

• Additional NEW HSA guidance
• 2 ½ month Health FSA (HFSA) grace period impact
  on HSA eligibility lessened
• An otherwise HSA eligible employee is not
  disqualified from HSA contribution during the
  general purpose HFSA plans grace period in
  limited circumstances including
• Cash balance in FSA is zero at the end of the
  plan year OR
• Qualified distribution of the entire remaining
  HFSA as of the end of the plan year
• Allowable one-time irrevocable rollover of
  existing IRA funds into HSA
• Rollover amount counts toward the annual HSA
  contribution limit
• Specific rules limitations exist
• Allows for higher employer contribution to HSA
  of non-highly compensated employees
• Applies only to employers making contributions
  under comparability guidelines (outside a Section
  125 cafeteria plan)

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Additional HSA details

• HSA funds can only be used to pay for medical
  expenses that occur AFTER an account has been
  established (opened with money available)
• Deadline for contributions is April 15th of the
  following year
• Employee, not employer is responsible for claims
  substantiation
• Guidance from Treasury Department (IRS Notice
  2004-23) gives some direction as what is
  considered preventive care and therefore
  eligible for first dollar coverage. Examples
  include
• Routine prenatal and well-child care
• Smoking cessation, including prescription drugs
• Obesity weight-loss programs, including
  prescription drugs
• Child and adult immunizations
• A variety of screening services

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Employers perspective Pros and cons of HRA vs.
HSA
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CDHP timeline
Medical Savings Accounts
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Adoption of CDHPs
Source Inside Consumer-Directed Care, Nov. 4,
2005
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Companies offering consumer-driven plans
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Case studies CDHC in action

• HRA offered as dual option
• Decreased office visits and drug prescriptions
  per employee
• Employees feel more informed, in greater control

• Majority of employees enrolled in HRA
• 70 of enrollees use decision support tools

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Case studies CDHC in action

• Apogee Enterprises holds line on employee health
  coverage in 04 and 05, with single CDHC plan
• Claims full-replacement has greater impact on
  worker behavior
• CEO champions initiative with pre-enrollment
  video and continued involvement

• Serigraph saves 100,000 a month vs. year prior
• Four optional CDHC plans each features different
  premium and deductible
• Two-thirds of workers enrolled, with greatest
  number in highest-deductible plan
• Smokers pay 4 to 8 more per pay period

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McKinsey study -- promises and pitfalls

• Promises
• CDHPs delivering on promise to increase consumer
  engagement and reduce utilization
• Consumers respond to increased financial
  accountability favorably
• Make more careful, value-conscious utilization
  decisions
• Have a heightened level of engagement in overall
  health and wellness
• Pitfalls
• CDHP members not as satisfied with their plans or
  the information provided

Source Consumer-Directed Health Plan Report,
McKinsey and Co, June 2005
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Promises

• Increased value consciousness in employees
• Over 50 more likely to ask about cost
• 33 more likely to independently verify treatment
  alternatives
• 3X more likely to choose less extensive or less
  expensive treatment
• Increased attention to wellness and prevention
• 25 more likely to engage in healthy behaviors
• 20 more likely to participate in wellness
  programs
• 30 more likely to get annual checkup
• Cost control
• Behavior changes that reduce short/long term
  costs
• 20 more likely to follow treatment regimens
• Twice as likely to inquire about drug costs

Source Consumer-Directed Health Plan Report,
McKinsey and Co, June 2005
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Pitfalls

• Only 44 were as or more satisfied with CDHP
  coverage
• Satisfaction varies greatly among employers
• Not likely to turn to health insurer for advice
• Not satisfied with provider information available
  (especially price)
• Few trust health insurer to manage health
  accounts
• Greater dissatisfaction when employer is
  perceived as implementing purely to shift costs
  vs. share responsibility

Source Consumer-Directed Health Plan Report,
McKinsey and Co, June 2005
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CDHP cost per employee is lowest of all medical
plans
Source Mercer National Survey of
Employer-Sponsored Health Plans, 2005
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Efficacy highlights of emerging health plan
studies

• In 2006 CDHPs saw an average increase of 2.6
  compared to 7.3 increase for traditional health
  plans.
• Annual premiums in high-deductible plans average
  3,280 a year for single coverage and 9,001 for
  family coverage.
• By comparison, the premiums for health insurance
  plans overall are higher 4,024 for single
  coverage and 10,880 for families.

Deloitte Survey 2006 Kaiser Family Foundation
2005 Employer Health Benefits Survey
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Efficacy Key questions remain

• Will CDHPs effectively engage members to be
  better health care consumers, effectively
  controlling costs?
• Will CDHPs drive adverse selection and have an
  unfavorable impact on the holistic health care
  picture?
• How will greater cost sharing impact the provider
  community and health plan negotiations?
• Will consumerism drive transparency and
  competition in the health care market?
• Can we perfect health care decision-support
  tools?
• Is there an alternative?
• If consumerism doesnt control costs, will more
  drastic means be warranted?

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CDHC requires a consultative sell

• Beyond price, your client has additional
  concerns
• Is CDHC right for my company?
• Are my employees ready for a consumer-driven
  plan?
• Well have a learning curve here. Well need
  solid communications to get our workers up to
  speed on CDHC.
• Even when the price is right, a CDHP requires
  that you consult your client on readiness and
  implementation

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Let client profile guide product sale
Employer Assessment
Financial Picture
Benefit Spending
Labor
Culture

• Supply and demand
• Commodity or strategic
• Percent of expense base
• Union climate

• Profitability
• Growth
• Capital
• Valuation
• Competitor cost structure
• Global markets

• Dollars per employee
• Medical trend
• Percent of total compensation

• Paternalism
• Risk attitude
• Social role
• Community/ political affairs

Diagnostic
Core to the business
Low-cost commodity
Bear
Bull
In the zone
PL Outlier
Conservative
Innovative

• Satisfied with Desperate for new
• existing solutions
• Financially healthy
• Health benefit trend in
• line with company
• Paternalistic
• Scarce labor market

Deal Makers Motivated Employers

• Health costs outstripping financial capacity
• Slow growth and/or eroding margins
• Workforce less resistant

Source 2004 ChapterHouse LLC
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Profile employees as well as the employer
Workforce Assessment
Understanding of health benefits
Health care status
Employee expectations
Technology savvy
Financial capacity

• Attitudes toward health care benefits (who pays)
• Awareness of the macro problems
• Provider preference and perception

• Comfort with Web tools
• Trust in using Web tools for personal information

• Whats covered
• Copays and deductibles
• Affordability of selected health plan options

• Generally healthy
• Chronic diseases

• Workforce pay scale
• Socioeconomics

Diagnostic
Low Wage
High Income
Ignorant
Expert
Ill
Healthy
Right
Privilege
Technophobe
Technophile

• Completely Ready
• unprepared now
• Deserve it all for free
• Minimum wage
• Unionized

Deal Breakers Apprehensive employees with
deeply rooted behaviors

• Sophisticated employee base
• Sensitive to health care challenges shared
  concern for consequences
• Familiar with Web-based tools

Source 2004 ChapterHouse LLC
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Qualification tool Is client ideally suited
fora consumer-driven plan
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Or more comfortable with traditional managed
care?
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Implementation framework for employer customers
Employer
Employee
Staged Transition of Financial and
Decision-Making Responsibility
Emerging Consumer Model
Design the Plan
Manage the Care
Be a Health Services Value Shopper
Plan for the Future
Manage the Plan

• Elect deductible and co-insurance levels
• Determine HSA contributions
• Select a pharmacy plan
• Select a network model
• Select group product inclusions
• Make sure the plan is affordable

• Establish a health care budget
• Understand financial responsibility
• Pay for health care services
• Know whats covered and whats not
• Fund and manage the HSA account

• Evaluate health status
• Set up a personal health record and care plan
• Actively manage health status
• Access preventive care
• Diet, exercise, program compliance
• Read relevant health care content

• Evaluate care options
• Evaluate provider value
• Compare cost and value
• Purchase services

• Develop a budget
• Develop a savings plan
• Develop an investment plan
• Manage the health care fund through the HSA

Source 2004 ChapterHouse LLC
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Survey gauges worker readiness for HSA

• I feel comfortable using the Web in health care
  decision-making (e.g., choosing a doctor,
  choosing a hospital or researching cost and
  quality)
• When I get sick or injured, I usually do
  research on my own to learn more about my illness
  or medical condition.
• I feel comfortable asking my doctor about the
  specific cost of a procedure.
• Its important for me to save money for medical
  expenses over the long term (i.e., from 5-10
  years).
• Im aware that an urgent care facility can
  provide the same quality of care as an emergency
  room, but at a lower cost.
• Im familiar with medical savings accounts, such
  as Flexible Spending Accounts, Health
  Reimbursement Accounts or Health Savings
  Accounts.
• Plus 15 other statements that score relative
  agreementor disagreement

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Sample plan for HSA communications
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Sample plan for HSA enrollment and account setup
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Implementation 7 ways to succeed

• Employees value choice - but make certain you
  eliminate one or more other choices
• Require mandatory re-enrollment - inertia is a
  powerful force!
• Approach consumerism as a family affair -
  otherwise youre missing two-thirds of the
  population whose costs youre subsidizing
• Attract the entire population - If you only
  attract low-users to CDHP, trend rate wont
  improve
• Make strategic contributions - condition employer
  HSA deposits on employee HSA deposits
• Partner the plan design with wellness offering
• Communicate, communicate, communicate -
  multi-audience, multi-media, multi-times

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Implementation 7 ways to fail

• Tack it on - add it along side current options
  that are only changing minimally
• Offer low HSA contributions - focus on
  conservative cost calculations when setting plan
  design and few will be takers
• Bury it - give it equal educational weight to
  other options
• Ignore the deductible hurdle - and fear will
  prevent serious consideration disbelief in
  ability to handle the costs
• Stay low touch - rely on mass communication
• Be ambivalent - avoid endorsing the option
• Leave it up to your vendors - your story will be
  incomplete

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CDHC Real interest, real promise

• The givens
• Strong adoption of CDHC
• Studies show plans deliver immediate cost relief
• Copays have insulated members from real cost of
  care. CDHC helps address this.
• Traditional managed care has brought some
  beneficial changes

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06 Survey Only 39 Saved More than 1,000 for
Health Care, Just 28 More Than 2,000 Most Are
Unprepared for CDHPs
Q. What is the total amount of money you have set
aside today that, in theory, you could use for
future health care needs? Source Consumer
Attitudes Toward Health Care Survey, commissioned
by Great-West Healthcare and conducted by Q A
Research, 2006
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Will members postpone care, only to incur greater
costs?

• Survey says
• 19 of Americans had medical problems, but did
  not see a doctor
• Another 17 did not get medical treatment or test
  recommended by a doctor
• Non-compliance highest among those in only fair
  or poor health

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CDHPs alone cannot control claims costs of
criticallyor chronically ill
15,000

• 20 percent of members report no claims in a
  given year.
• A 1,000 deductible CDHP can help a company
  control health care costs incurred by nearly 80
  percent of the workforce. Shifting costs from
  employer to employee may have a positive impact.
• Consumer-driven health care holds less promise
  to help manage expenses for 3 percent of the
  population with 50 percent of the costs. With
  this member segment, the 1,000 deductible will
  do little to manage costs that are better
  controlled through medical management.
• Identify and reach out to the moderate plan
  users before they become heavy users of health
  care services. Here, the focus must be on
  preventive care, screenings for high-risk
  factors, health assessments and wellness
  incentives.

A
B
10,000
C
C
Allowable charges
D
D
5,000
1,000
B
A
Source Great-West Healthcare claims data, 2004
10
30
40
20
60
70
80
90
100
50
Percent of membership
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Will members become more engaged in decisions?
Members infrequently use health plan sites for
decision support. Most dont use resources
available from employers.
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Health care literacy programs pave way for CDHC
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Recommended Due diligence and holistic CDHC
approach

• A broad range of consumer-driven plans to suit
  varying client profiles and risk tolerance
• Consumer-driven PPO
• HRA
• HSA
• Medical management programs that focus on claims
  costs that CDHPs alone cannot control
• Member information and Web tools that help
  workers and their families make informed consumer
  decisions
• Let employer and employee profile drive plan
  selection, weigh options carefully and retain
  what has worked

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