USHEALTH Group is a small insurance company, with fewer than 200 employees, headquartered in Fort Worth, Texas. In March 2005, the company received a renewal notice from its group insurance carrier, UnitedHealthcare. USHEALTH had a traditional group health plan, with a $500 deductible and a $15 co-pay.
Employees were pleased with their health insurance plan, which cost the firm $5,600 per employee, but they expected to get some bad news in United’s renewal notice. The loss ratio for the past year was 103 percent, and the broker had warned them to expect a sizable rate increase.
Loss ratios measure the relationship between the claims the insurer pays over the course of a year and the premiums paid by a policy group. Most insurers target loss ratios of 85 percent, leaving 15 percent of the premiums for profit and expenses. As expected, the renewal notice from United included a hefty 19 percent increase, resulting in a new per-employee cost of $6,600.
In anticipation of that news, the company had requested an alternative quote from United for a high-deductible health savings account (HSA) qualified plan. Neither the company’s broker nor United recommended the company do a complete conversion, feeling it was too radical a move. They counseled there would be serious morale consequences: Most employees would feel threatened by a high-deductible plan, they said, and would feel sticker shock when their $15 co-pays disappeared. Moreover, they reported, no other local employers were contemplating such a dramatic change in their health insurance plan for employees.
Against their advice, USHEALTH Group decided to install a $2,000 individual, $4,000 family deductible HSA-qualified plan. The premium savings were compelling: Instead of a 19 percent increase, the high-deductible premium was 28 percent less than what the company had been paying. That lowered its per-employee cost from $6,660 to just under $4,000. These savings, combined with a small increase in the employee cost-sharing of the premium, allowed the company to contribute $1,750 for individuals and $3,500 for families into the HSA account, and to match additional employee contributions up to the full deductible.
The company was prepared for a sizable employee backlash–but if anything, they underestimated it. Along with its broker and UnitedHealthcare specialists, however, the company prepared a comprehensive education and communication campaign that included several evening sessions to which spouses were invited.
The extensive preparations were rewarded. Armed with a better understanding of how the plan would likely impact them financially, employees grudgingly accepted their fate. One big concern they expressed was the potential financial consequences of a sizable medical expense before sufficient funds were accumulated in the employees’ HSAs. The company agreed to provide an interest-free loan up to the full HSA contribution if that occurred, with repayment coming from future employer contributions into the employees’ accounts.
Several employees have used that financial bridge. And as an additional incentive, the company guarantees each employee’s account will earn 6.15 percent interest, making extra contributions as needed to make up the difference between 6.15 percent and the lower interest rates offered by the accounts’ administrator, First HSA.
“The key to making such a dramatic change has been employee education,” explained Jan Fogg, USHEALTH Group’s assistant vice president for human resources. “It’s been a challenge to educate employees and cause a culture change in our company from the ‘take care of me’ thinking on our previous traditional plans to a consumer-driven health plan that requires personal responsibility. Employees are learning firsthand what the real cost of health care is, and that gets them involved, sometimes in creative ways, in being part of the solution to help curb the rising cost of health care.”
The behavioral change occurred almost instantaneously. Now employees were spending their own money for health care services. Within a few weeks, the stories of what happened when employees became “shoppers” and not just consumers of health care services began to emerge.
“Participating in an HSA has forced me and my family to really take a look at our medical needs, and we find that although we don’t avoid necessary treatment, we are less frivolous and more sensible about our decision to go to the doctor,” employee Chuck Hoffman said. “We encountered some initial confusion with the doctor’s office about billing our repriced fee rather than a nominal co-pay, but those issues have been resolved.”
Several employees have been diligent about “comparison shopping” for health care services such as X-rays and colonoscopy fees. They have shared that information with other employees, who also have been able to save.
The final piece of good news arrived in late February with UnitedHealthcare’s 2006 renewal notice. The company’s broker was all smiles as he said that, based on United’s projection of a 67 percent loss ratio under the new plan, United was offering a mid-single digit renewal increase.
As USHEALTH Group’s management had hoped, the new HSA plan has been a huge success for all concerned. Imagine the company’s surprise when the insurance broker said no other employers in the area were considering such a bold change in their employee health insurance plans.
Benjamin Cutler ([email protected]) is chairman and CEO of USHEALTH Group.