Use Of “Consumer Driven” Health Plans Ready To Explode
|Following three consecutive years of double-digit inflation, conditions are ripe for an alternative to today’s mainstream health plan offerings. |
With pressure mounting to rein in healthcare costs, small businesses may be turning to plans where employees exercise choices in provider usage. At the same time, the number of such plans and options is growing.
This trend is a natural outgrowth of the desire by many firms’—big and little—to shift more of the healthcare costs to employees.
According to a new, possibly landmark study, employers are becoming increasingly familiar with various types of “consumer-driven” health plans. Moreover, this trend has significant meaning for both employers and employees.
The term ”consumer driven” refers to plan design. In most cases, a plan labeled “consumer-driven” generally entails greater choice of health plans and providers—and greater financial risk—for employees.
Exposing Employees To Real Costs
A critical element of consumer-driven health care is exposing consumers to the actual prices of medical care services. This, in turn, proponents believe will lessen overall healthcare costs by making healthcare users into careful consumers.
To make these efforts worthwhile, Web-based medical information tools are considered essential in making employees more informed and active consumers.
The study’s authors believe thirty percent of U.S. workers may be eligible for at least one type of consumer-driven plan in the spring of 2005 under a “best-case” scenario for growth.
This ratio would be a 15-fold increase over two years. However, only a relatively small number of employees who are offered such plans are likely to enroll in them, according to the study.
The Commonwealth Fund-supported survey, the first of its kind, indicates that employee benefit managers, while interested in such plans, are nonetheless skeptical of such plans’ ability to improve healthcare delivery quality. More than 1,850 large and small companies were surveyed.
Jon Gabel, vice president of health systems studies at the Health Research and Educational Trust, and three colleagues surveyed employee benefit managers at more than 1,800 employers of all sizes to gauge their familiarity with and likelihood of purchasing consumer-driven coverage in the near future.
Gabel says. “Very few employers thought that HRAs would be highly popular with employees. Nonetheless, our survey findings indicate that HRA enrollment may take off in the next two years.
“A best-case scenario for HRAs would have roughly 30 percent of employees able to choose an HRA plan in the next two years,” Gabel says.
“This figure would equal the percentage of employees that can choose a point-of-service plan and would be double the number that can choose an indemnity plan.”
The survey found extensive familiarity with the term “consumer-driven health care.” About 66 percent of employees work for a firm where the employee benefit managers were “very” or “somewhat” familiar with the term, and familiarity with the term grows with firm size.
HRAs Are Better Known
Employee benefit managers were most familiar with health reimbursement arrangements (HRAs), those high-deductible plans in which employees can pay for a portion of their out-of-pocket costs from a spending account established as part of the plan. Eighty-two percent of all employee benefit managers were familiar with HRAs.
The employee benefit managers were less familiar with personalized plans, which allow employees to design their own networks and benefits packages (47 percent), and with customized-package plans, which allow employees to choose the size of their provider network and the richness of their benefit package (49 percent). The familiarity with HRAs did not necessarily mean that employers were embracing HRAs, however. While strong majorities of employee benefit managers “strongly” or “somewhat” agreed that HRAs may result in lower healthcare use and spending, along with more intelligent medical care purchases, strong majorities also believe that HRAs won’t improve the quality of care and won’t be popular with employees, and will attract only healthier employees.
In spring 2003, 2 percent of employees worked for firms that offer a high-deductible health plan coupled with an HRA. The study indicated larger the firm, the more likely that employees are eligible for such plans. Only 1 percent of employees in small firms (those with 3-199 workers) were offered such an option, but 2 percent of employees were in large firms (200-5,000 workers), and 4 percent were in jumbo firms (5,000 or more workers).
The survey found that larger employers were most likely to begin offering HRAs in the next two years. Thirty-one percent of employers said they were “very” or “somewhat” likely to consider offering HRAs, compared with 13 percent for personalized plans, 14 percent for customized plans, and 19 percent for tiered provider networks.
“Employers retain considerable skepticism about HRAs’ ability to control costs and improve consumers’ decision making and quality of care.”
A further complication is the implementation of the Medicare Prescription Drug, Improvement, and Modernization Act, which authorizes the use of tax-free health savings accounts portable from employer to employer.
Those accounts, which must be coupled with high-deductible health plans, have the potential to supplant HRAs in the large- and small-group market, Gabel says.
Still further complicating the picture is Health Savings Accounts (HSA) which have many positive advantages for employees but appeared too late to be included in the study.
According to the study, the Improvement, and Modernization Act (MMA) of 2003, which authorizes the use of health savings accounts (HSAs). HSAs allow employees or their employers to contribute on a pretax basis to an account—if the person selects a high-deductible plan. Contributions may not exceed $2,500 per year for a single person or $5,000 for a family, nor may they exceed the size of the deductible. HSAs are portable from employer to employer and are not subject to any taxation as the account grows and when it is used. Hence, HSAs have substantial tax subsidies that are not conferred for other health plans.
The study’s authors believe it may be possible for HSAs to replace HRAs in the large- and small-group market, and the tax advantages of HSAs could spur further growth.
Because employers hold contradictory views, the immediate future of consumer-driven health care is uncertain, from the magnitude of enrollment growth to the ultimate form of consumer-driven health care plans, the study’s authors indicate.
They do believe however that significant change is in the wind.