Consumer-Driven Plans Blooming

Published July 1, 2003

Health insurance products designed to give consumers a bigger say in their coverage–and consequently become more discriminating consumers of health care services–are multiplying at a dizzying pace.

HRAs and High Deductibles

“Small business owners aren’t quite nervy enough to impose a high-deductible insurance plan on their employees,” reports Ann Meyer in the April 21 edition of the Chicago Tribune. So, she writes, employers are turning to creative thinking to soften the blow.

A June 2002 Internal Revenue Service ruling, for example, has sparked interest among employers in Health Reimbursement Arrangement (HRAs). “The reaction to this has been overwhelming,” says John DiVito of Flexible Benefit Service Corp., who is quoted in Meyer’s report. HRAs complement any type of insurance plan, Meyer notes, and the employer need not pre-fund the account.

A banking trade group in Chicago paired a Blue Cross/Blue Shield plan with an HRA. Meyer explains how the group increased its BC/BS hospitalization deductible to $1,000 (from no deductible) and is using the HRA to help pay $750 of the deductible. The HRA does not roll over from one year to the next, but employees get the advantage of a reduced premium.

Meyer also talks with Patrick Moore of Diversified Insurance Services, who warns employers against managing their own HRA funds. “You don’t want to be handling explanation of benefits for people,” Moore says, “because you would be getting information you shouldn’t have.” To avoid having to traverse complex privacy rules, Moore recommends employers use a qualified third-party administrator to handle HRA funds.

HRAs and PPOs

In an interesting observation on the development of the consumer-driven marketplace, Meyer writes “HRAs with standard PPOs … are generally less expensive than their sister products: the consumer-driven health plans offered by insurance companies.” The latter are more expensive, Meyer says, because they offer intensive consumer education and support.

While Meyer’s assessment might well hold true in the first year or two of coverage, it raises a question about longer-term effects. Will consumers become better shoppers armed only with the financial incentives to do so, or must they have the education and support offered by insurance companies’ consumer-driven plans?

Defined Contribution

Employee Benefits News regularly covers the many variations in plan design that qualify for the “consumer-driven” label. Jill Elswick writes that, on the road to consumerism, health plans “are now exploring a number of bypasses, side streets, and off-ramps.”

Consultant Chase Carey tells Elswick, “It’s too soon to be calling an HRA on top of a big-deductible PPO plan the consumer-driven health plan of the future.”

Elswick cites several variations on the theme, including “Plan Design Consumerism,” in which employers make a defined contribution available and workers can use those funds to pick and choose their own network of physicians, benefits, or cost-sharing.

Each change in the design results in a different total cost of the coverage. Two of the leaders in this model are Vivius, which is working with Health Net, and Choicelinx, which is with Oxford Health Plans and Blue Cross/Blue Shield of Massachusetts.

While such a “building block” approach may give workers “pause to think about the cost implications” at enrollment, they don’t affect behavior at “the point of care,” according to Definity’s Chris Delaney. Lumenos’ Doug Kronenberg agrees, noting such plans may sensitize consumers to the cost of coverage, but they don’t address the cost of the care itself. It’s “kind of tweaking the old system,” he explains.

Consumer Choice Is Goal

Humana’s Beth Bierbower takes a middle-ground position, contending choice is the ultimate goal. “Not everybody is interested, ready, or willing to take a product that’s an HRA with a high-deductible on the back end,” she says. And while only 6 percent of Humana’s employees chose an HRA, Bierbower notes, they all benefitted from the educational tools that were developed to support the HRA option. Humana has seen a “14 percent jump in preventive services, and overall reduction in claims.”

Another variation in plan design, according to Elswick’s report, is coming from Mutual of Omaha. It will be introducing an HRA featuring separate deductibles for medical (possibly $1,500) and drugs ($200). And Wausau Benefits has developed a product that includes an out-of-pocket deductible before the HRA kicks in.

Finally, CareGain features a “HealthcareIRA,” which rolls 25 percent of unused HRA funds into “a portable lifetime medical expense account” but returns the balance to the plan sponsor to help with next year’s costs.

Elswick concludes, “Such creative thinking is likely to continue as the notion of consumer-driven health expands into the mainstream.”

Greg Scandlen is director of the Galen Institute’s Center for Consumer Driven Health Care and assistant editor of Health Care News. His email address is [email protected].