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Zurich's head of benefits lowers costs by implementing consumer-driven plans

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Sarah Staggs, head of benefits at Zurich North America, implemented a multiyear consumer-driven strategy to put the brakes on the insurer's health care spending, which had been careening out of control with annual increases of more than 20%.

By gradually reducing health care plan offerings to just three levels of consumer-driven health plans administered by a single insurer, and by emphasizing consumerism and wellness, Ms. Staggs has whittled those annual increases down to an average of just 4% over the past four years for the Schaumburg, Illinois-based North American unit of Swiss insurer Zurich Insurance Group Ltd.

“When we first looked at introducing consumer-driven health plans in 2002, we were experiencing 20% to 21% annual increases in medical costs when the rest of the world was probably more like 10% or 11% and moving down. But we weren't moving down, so we realized there was something we had to do relatively quickly,” Ms. Staggs recalled.

“I think we were experiencing part of the problems of what was happening in some of the smaller companies, trying to unify them into a larger program,” she said. “We had just merged five companies together to form Zurich North America and had a combination of different health plans and providers.”

“We also realized we needed to move to the concept of "Your health care doesn't cost that $20 copay. Your doctor's visit cost the company the other $80 you didn't have to pay.' And we need to make sure that people are getting the right care at the right time in the right place. People were using emergency rooms for basic health care when a doctor's office visit could handle it,” Ms. Staggs said.

Ms. Staggs' first step was to consolidate health plans, which enabled her to negotiate a better deal with one health plan vendor: United Healthcare.

“We gained some efficiencies there. It made our job of communicating internally easier. We weren't spending so much time explaining the difference between three different vendors. We were explaining what does the plan cover, how should you use it, and here are the tools that can help you make the best decision for you to meet your health care needs,” she said.

Her next steps were to introduce a CDHP with a health savings account as an option in 2005, and then to gradually eliminate the plans with lower deductibles, adding two other options with even higher deductibles, all with HSAs. Today, Zurich North America offers just three CDHPs: Choice Plus HSA, with a $1,250 single/$2,500 family deductible; Choice Max HSA, with a $2,000 single/$4,000 family deductible; and Choice Premier HSA, with a $2,800/$5,600 deductible, Ms. Staggs said.

Zurich North America also contributes $500 to HSAs for single coverage if an employee contributes at least $100 of their own money, and $1,000 for HSAs linked to family coverage if an employee contributes at least $200. The funds are deposited annually on Jan. 1 so that employees who need to pay for health care expenses within their deductibles early in the year have access to them.

Since the middle-level CDHP has become the most popular benefits option, with 44% of Zurich North America's benefits-eligible employees enrolled, and with the average HSA account balance at the end of 2013 being $3,396, the consumerism strategy appears to be working, according to Ms. Staggs.

“We have done a lot on the design side with going to full-replacement high-deductible health plans to push the button as far as we can on design, realizing that we've actually reaped some benefits as a company for that because our per capita spend is lower than the national average,” Ms. Staggs said. “Part of the benefit of that is employees are responsible for a little bit more of the first dollar, but we look at it also that people have become better consumers. They ask more questions.”

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