Consumer-Directed Care

Featured Health Business Daily Story September 21, 2007

New Products That Combine an HRA With an HMO Are Gaining Traction in California

Reprinted from INSIDE CONSUMER-DIRECTED CARE, a biweekly newsletter with timely news and insightful analysis of benefit design, contracts, market strategies and financial results.

Since being launched in June, a product that pairs an HMO with a health reimbursement arrangement (HRA) has been gaining sales traction in California, according to Health Net of California, Inc. The managed care company's Optimizer HMO is among a growing number of products that combine the features of an HMO or point-of-service (POS) plan with a health account. Unlike PPO-based CDH plans, Health Net says its product does not include a deductible.

In early 2005, Kaiser Permanente piloted an HSA-compatible HMO in Colorado. In June 2006, it made the product available in California and later that year introduced an HSA-qualified HMO. Such plans are referred to as consumer-driven HMOs (CDHMOs) or "hybrid" health plans. Health Net says premiums for its Optimizer product can be as much as 18% lower than for its more traditional HMOs.

"The adoption of CDH has been much slower in California than in the rest of the country. The delegated [HMO] model here still works and works well," says Mark Morgan, commercial officer at Health Net. "While adoption is slow in California, the concept of CDH is sound. So we decided to combine the best elements of CDH with the best of HMOs." Morgan declines to offer specific enrollment projections for the new product.

Unlike more common CDH plans, the HRA in hybrid plans isn't used to offset a large deductible. Rather, it is used to cover smaller out-of-pocket expenses such as copayments. With no deductibles in these plans, employer HRA contributions tend to be small, Morgan says. Office-visit copays, for example, can range from $10 to $50 depending on the plan design selected by the employer. Enrollees also have to pay up to a $100 deductible for a brand-name drug if a generic equivalent is available.

In addition to the employer's HRA contribution, Optimizer enrollees can receive an extra $100 HRA contribution if they complete a "health risk questionnaire" and another $100 contribution for contacting a health coach within six months of a hospitalization. Those incentives are limited to one adult member per plan year, Morgan says. "Employers are interested in consumerism, but they might not be interested in jumping off a cliff by moving from $10 copays to a $2,000 deductible," he adds.

CDHMOs Are Growing, Not 'Groundbreaking'

Jay Savan, a benefits consultant at Towers Perrin, says such blended health plans seem to be a growing trend, though not an entirely groundbreaking concept. "We're generally talking about incorporating tax-favored health accounts into more well-known HMO designs," Savan says. Merging HMOs with consumer-directed features seems to be the most popular route employers and insurers choose, he says. "Such approaches, if well orchestrated and well communicated, infuse the personal responsibility and accumulation opportunity of CDH with the familiar network and care management elements of an HMO."

CareFirst, Inc.'s HMO unit, CareFirst BlueChoice Inc., launched an account-based option for the individual market in October 2006 and made it available in Maryland, northern Virginia and Washington, D.C. The plan, called BlueChoice HSA, includes an enrollee-funded HSA, with funds that roll over from year to year.

The hybrid benefit design offers "a high-deductible HMO paired with savings options," according to a company statement. "Enrollment has increased dramatically in our HSA-compatible health plan offerings," says CareFirst spokesman Michael Sullivan. "Since last fall, our enrollment in such offerings has grown from approximately 14,000 members to more than 56,000 by the end of March." CareFirst attributes much of this growth to the consumer-directed HMO products, Sullivan says. "We were the first insurer in the market to offer a consumer-directed health plan that combines lower-premium and higher-deductible HMO offerings with the tax-advantaged savings benefits of HSAs."

Aetna, Inc. says it offers HMO-based CDH plans in some states with deductibles ranging from $500 to $1,000. The plans are offered predominantly in the small-group environment, says Dave Queller, president of Aetna's national accounts in the southeast region.

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