Lola Butcher
Health Plan Design

As the design approaches its seventh year in the marketplace, some wonder if it will ever be more than a niche product

Lola Butcher

Despite all the interest in consumer-directed health plan design by employers, health plans, and government officials, this "revolutionary" design is sputtering.

Towers Perrin, the giant consulting company, reports that employees in account-based health plans are significantly less satisfied with their health benefit than peers who are enrolled in traditional plans.

"Any consumer product that scored as low as [account-based health plans] do in terms of customer satisfaction and understanding would be significantly retooled or pulled from the shelves," Dave Guilmette, managing director of the company's health and welfare practice, said in a prepared statement.

Wake-up call

Calling the survey findings a wake-up call to employers and health plans, Guilmette implored them to address employee concerns: "Otherwise, the promise that [account-based health plans] hold will not be realized."

Meanwhile, a different kind of red flag is being waved by the Conference Board, the international business research organization, which lamented CDHP enrollment trends.

CDHP enrollees miss out on savings opportunity

"It is possible that we are going to see further increases," says Jon Gabel, a senior fellow at the University of Chicago's National Opinion Research Center (NORC) and author of the Conference Board report. "But, if we don't see a change in the take-up rate in another year or two, it tells me that consumer-driven plans are not going to be mainstream players. They are going to be niche players."

As the CDHP design approaches its seventh year in the marketplace, the industry is eager for it to start delivering what it promised: cost savings to employers and behavior change in plan enrollees. For that to happen, enrollment in the plans must be significant.

Enrollment problems

It's too early to know whether CDHP enrollment is lagging to the point that the concept is threatened or whether observers are just impatient to see some big numbers. Back in 2005, Forrester Research forecast that CDHP enrollment would grow incrementally through 2007 and then take off, zooming to about 25 percent of the commercially-insured market by 2010.

That trajectory has not yet been blown off the track, although enrollment needs to pick up speed soon if the forecast is to be proven correct.

Large employers add consumer-directed health plans

NORC found that 3.5 percent of nonfederal employees with job-based insurance were enrolled in a CDHP in 2005. Watson Wyatt Worldwide, another benefit consulting company, conducted a survey of 573 large companies and found that 8 percent of workers were enrolled in a CDHP in 2007, 14 percent higher than the previous year.

The studies found different rates because they studied different populations, but researchers in both studies came up with the same word to describe enrollment levels: low.

Employers, however, are undaunted. Watson Wyatt reports 38 percent of the large employers were on board with a CDHP offering in 2007, up from 33 percent a year earlier. An even more significant vote of confidence — or at least hope — in the merits of CDHP design: 5 percent of those employers offered CDHPs on a total replacement basis and another 4 percent plan to do so in 2008.

Dramatic range

Employers are encouraged because CDHPs can curtail cost increases, as promised. The range of experience in employers with CDHP offerings, however, is dramatic, according to the Watson Wyatt survey:

  • Employers with at least 10 percent of their covered lives in a CDHP held health care cost increases to a lower level — 6.5 percent average — than other employers in 2007.
  • One fourth of CDHP-sponsoring employers surveyed reported median health care cost increases of 2.5 percent in 2005 and 2006.
  • The overall average health care cost increase for employers offering a consumer plan was 8 percent.
  • The poorest performers saw costs increase by an average of 11 percent.

That range shows that just offering a CDHP plan does not guarantee success. It is clear that there are many wrong ways to introduce consumer plans to an organization's workforce.

For one thing, Gabel thinks that CDHP plans, as a group, do not make their financial benefits immediately obvious.

"My theory is that health plans have priced these products too conservatively and they should have been priced lower," he says.

In a presentation to large employers in the Midwest, he pointed out two facts:

  • To employers, the cost of coverage is similar to traditional plans.
  • To employees, monthly contributions are similar to traditional plans, but adjusted deductibles are considerably higher.

Total cost of coverage to employers in consumer vs. traditional plans

In return, consumers have greater freedom in how they spend their deductible — and the opportunity to save for future medical expenses in a tax-favored account.

Poor communication

Gabel and others think that consumers are shying away from CDHP plans because of inadequate communication. In the Conference Board's announcement, Gabel issued a warning: "If employees find the information they're offered about CDHPs too confusing, the programs will fail. Employees are unlikely to switch to plans that they don't understand."

Gabel believes a good communications strategy can motivate 25 percent of an organization's workers to accept the consumer plan, while a poor effort will yield only 5 percent enrollment.

"There is a general agreement by everybody that there has been underinvestment in communication," Gabel says. "It is a sea change you are asking for."

Indeed, it is that sea change that is on the mind of Jay Savan, a principal at Towers Perrin. Research by TP shows that people enrolled in account-based plans have low satisfaction rates — and they are not saving in their health savings accounts, thereby missing the huge tax benefits that make CDHPs work.

Coincidence? He doesn't think so. "Why don't they understand them? Because they are not being educated."

High hopes

He is not worried about enrollments or the "how-to" lessons for using a CDHP as much as the "why it works" inspiration that can motivate people to value their health as a financial asset, care for their health differently and, in so doing, transform the health care industry.

Savan is alarmed that only 12 percent of CDHP enrollees are paying for their current health care expenses out of pocket rather than letting the HSA build value over time. To him, that says that plan participants have the mindset of "renting" their health insurance — and their health — rather than taking ownership.

"It comes down to employers taking this really seriously,'" he says.

Lola Butcher, a frequent contributor, covers employer issues and consumer-directed health.

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