Managed care firm ties health account to HMO

WOODLAND HILLS, Calif.—In an acknowledgement that the consumerism movement could help reduce health plan costs, a health maintenance organization has created a hybrid product that combines the preventive care focus of a traditional HMO with the financial incentives and health education tools of a consumer-driven health plan.

Believed to be the first product of its kind, according to health plan experts, Health Net Inc.'s Optimizer HMO, which was introduced to employers with at least 51 employees in the California market earlier this month, is a traditional HMO combined with an employer-funded health reimbursement arrangement that plan members can tap to make copayments and pay any other out-of-pocket costs using a special debit card (see related story).

The hybrid plan requires members to choose a gatekeeper primary care physician at enrollment as with a traditional HMO. The premiums are about 18% to 20% lower than Health Net's traditional HMO products.

Plan members also are eligible to receive up to $200 in additional funds in their HRAs--contributed by Health Net, not their employer--if they meet two criteria: Completing a health risk questionnaire nets them $100, while those who contact "Decision Power," the HMO's health coaching service, within six months of a hospitalization will receive $100. Plan members also have access to health education and decision support tools on Health Net's interactive Web site, called "It's Your Life."

But, unlike the vast majority of consumer-driven plans, the Optimizer HMO does not require plan members to take on any additional financial risk, and they may actually come out ahead if they don't use all of the funds in their HRAs. Moreover, providers are still paid on a capitated basis, a compensation strategy that some managed care critics have suggested provides incentives for doctors to withhold care in some cases.

While on the surface, it may seem that merging these two disparate types of plans would create a dichotomy, Mark Morgan, chief commercial officer at Woodland Hills, Calif.-based Health Net, said the combination actually puts the physician and patient incentives in alignment. "You have a physician who is interested in minding the effectiveness and cost of delivering health care, and you have a consumer who is engaged in that as well."

"Health Net's Optimizer HMO is a consumer-directed plan with no deductible that provides tools to help make better health care decisions and incentives for demonstrating healthy behaviors," Stephen Lynch, president of Health Net of California said in a statement.

"And because we know that those who make smart health care decisions spend fewer health care dollars, Optimizer HMO can cost significantly less than existing traditional HMOs," he added.

Some health plan experts praised Health Net's creativity.

Bill Custer, director of the center for health services research at Georgia State University in Atlanta, suggested the Health Net plan innovation could help fill the information gap that has hampered many consumer-driven plans.

"The problem with consumer-driven health plans is that people have a financial incentive to some extent, but they don't know where to get the information they need. Those kinds of information vehicles aren't there yet," he said. "In this case, they have the information within the HMO, and they're going to provide a plan that gives incentives to plan members to come and get it."

John Leigh, a principal at Towers Perrin in New York, said the HMO/HRA combination could be a good way to make consumer-driven plans more attractive to lower-paid workers who have thus far shunned CDHPs out of concern they may not be able to afford them. In many cases, lower-paid workers have stuck with HMOs, which have higher upfront premiums, but lower out-of-pocket costs, he said.

"Somehow we've got to get lower-paid employees engaged in this discussion about how much things cost and make them better consumers. This seems to be a good first step. You've got the consumerism features on the front end and something that they're very familiar with on the back end," said Mr. Leigh, who is developing a similar model for a self-funded employer that he declined to identify.

"Consumer-driven isn't just plan design; it's a philosophy," said Mark Snyder, director of benefits for Owens-Corning Corp. in Toledo, Ohio. "So if they're trying to drive more awareness around costs and health, that's good."

While declining to comment specifically on the new Health Net product, Fred Williams, director of health benefits management at Quest Diagnostics in Lyndhurst, N.J., said in an e-mail response that "a health care strategy needs to include tactics for helping employees understand how their behaviors are affecting their health to promote significant insurance-cost savings. Helping employees understand the costs and consequences of their health care decisions, including preventive screenings and healthy behaviors is essential. In addition, intelligently applied incentives have also proved effective."

"I applaud them for their unique design and recognizing that consumerism needs to be introduced into health care. The incentives piece is also positive," said Kyle Rolfing, a co-founder of Definity Health Inc., who is now chief executive officer of RedBrick Health, a Minneapolis-based health services company that develops tools to help members of CDHPs become more educated health care consumers.

But at least one CDHP advocate questioned whether such an arrangement will be as effective at controlling costs.

"On the one hand, they've begun to see the importance of engaging individuals," said Meredith Baratz, vp-market solutions at Definity Health, a unit of Minnetonka, Minn.-based UnitedHealth Group and a pioneer in the development of CDHPs. "But from our perspective, it's important that people understand the real cost of health care. I'm not sure how they can do this in a copayment environment."

Health Net's Mr. Morgan disagreed, saying this product provides a way to create behavior change without additional cost-shifting to plan members.

"Where we think this has real power is it's not a $5,000 deductible plan where the consumer is on their own. You have a physician to help guide them in making purchasing decisions," he said.

This is a great way to integrate the best of the HMO capitated environment and consumerism," Mr. Morgan said.