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More employers offering only consumer-driven health plans


Plagued by high health costs, more employers are embracing the concept of replacing all existing medical insurance plans and implementing a full replacement consumer-driven health care program. But, they are proceeding with caution.

Among the top concerns for those pondering the move to a full replacement program is lack of choice for employees and protection under the plans for lower-paid employees, experts say.

"Three or four years ago, we saw very few companies give serious consideration to full replacement," said Patrick Travis, senior manager, in Chicago for Deloitte Consulting L.L.P.'s Human Capital Practice. "In this last cycle, we are starting to see many, many more employers giving it a serious look."

One reason employers are starting to come around is simply that consumerism is no longer a foreign concept, Mr. Travis said. Most organizations now "at least have a toe in the water" when it comes to consumerism, and offer some type of CDHP alongside traditional plans, he said.

Additionally, continuing cost pressures are forcing companies to evaluate more aggressive strategies to contain costs, Mr. Travis said.

Overall, though, the number of companies taking the plunge remains small; about 10% of companies now offer CDHPs as the sole coverage option, said Helen Darling, president of the Washington-based National Business Group on Health.

"Relatively few employers are offering consumer-directed health plans only," Ms. Darling said. "But the ones who do full replacement are the ones who get significant savings."

When imposing a high-deductible health plan, both the employer and the employee tend to save money since utilization of health care goes down in frequency, Ms. Darling said.

"If all employees are in (a CDHP) plan, the savings would be higher than if only 10% to 20% of employees were in the less costly plan," she said.

Total replacement programs also tend to prevent adverse selection, which can occur when only the healthiest employees enroll in a CDHP while high-dollar claimants remain in traditional plan options, experts note.

"You don't have to worry about the person who does five triathlons a year and are generally healthy electing a CDH plan while your smokers and cardiac patients are selecting traditional plans," said Mike Sturm, principal and consulting actuary at Milliman Inc. in Brookfield, Wis. "When you switch everyone over, you eliminate that selection bias."

Providence, R.I.-based Textron Inc.--which, in 2002, was one of the very first employers to introduce a full replacement plan--has seen an improvement in the overall health of its 28,000 employees, in part, because preventive care visits have spiked under its total replacement plan (BI, Aug. 14, 2006).

Over the past three years, lipid tests for cholesterol increased 27%, tests for coronary artery disease grew 24% and colonoscopies for those 50 and older are up 66%, George Metzger, Textron's vp of human resources and benefits, said in an e-mail. In that same period, preventive visits have increased 20% among male employees, who traditionally have been less likely to seek preventative care, Mr. Metzger said.

According to Chris Calvert, vp and senior health consultant at the Sibson Consulting division of New York-based Segal Co., companies going to full replacement "really have bought into the theory of consumer-driven health care that employees should be more engaged in their health care."

"Companies that are doing full replacements are saying that 'we are in this together, company and employee'...they're getting everyone involved, which is one of he keys to success," Mr. Calvert said.

A common concern among employers is the burden of a full replacement program may fall disproportionately on lower-paid employees, consultants say.

"It's a legitimate concern, particularly in some industries where there is a very large disparity between individuals on a pay scale," said Deloitte's Mr. Travis.

Employers can, however, solve the problem by altering the plan's design. "There is nothing that says that you can't continue to do payroll contributions depending on level of pay. We often see that employers will do pay-banded contributions," to a health savings account, for example, Mr. Travis said.

Linking premium to salary

Another option, Milliman's Mr. Sturm said, is to charge employees premiums for their coverage based on their salary. "The less you make, the less you pay for health insurance."

Fairfield, Ohio-based Innomark Communications--which currently offers a mix of plans that include preferred provider organization offerings as well as CDHP options and is considering a full-replacement consumer-driven health program--is considering setting up a special account to help offset expenses for lower-wage employees or for catastrophic health events.

Under such a program, "the money stays with the company, so if (employees) don't use it or were to leave, the company can keep it," said David Vonderheide, Innomark's director of human resources.

Many employers also worry that implementing a total replacement CDHP would eliminate choice for employees and therefore not be well-accepted.

"Most large employers are committed to the concept of choice for their employees, not saying one size fits all," according to Tom Billet, senior benefits consultant at Watson Wyatt Worldwide in Stamford, Conn.

But according to Mr. Travis, "There is a misconception that elimination of non-CDH plans and going full replacement means elimination of choice." Choice could still be made available by changing plan design within the consumer-driven delivery model, he said.

A multitude of choices can also confuse employees, said Chiaw Eei NgGibson, head of benefits and HR economics for Hartford, Conn.-based Aetna Inc, which last year went to a full replacement plan for its 31,500 employees.

"In the years that we offered the PPOs, HMOs and CDHPs side-by-side, we got feedback from employees that those were too many choices," Ms. NgGibson said.

Currently Aetna offers two types of CDHPs, one linked to a health savings account and one to a health reimbursement arrangement, and typically has an 80% of employees covered by those plans.

Start early

When it comes to moving to a full replacement CDHP, there is no such thing as too much communication, experts say.

"The singular most important thing (employers) can do is communicate with the employees," and do so "months before they are going to implement" a full-replacement program, said Bill Tait, corporate vp, sales and market operations for Humana Inc.

Mr. Tait suggested appointing a team to develop an education campaign that involves insurers, consultants and the company's senior management.

In order to provide ample warning and support to employees as they make the transition, companies should ideally have a full year, said Ms. Darling.

"If you were planning to do it in January 2008, it's probably too late," Ms. Darling said, "but if you want to make that change for 2009," it can be done.