Consumer-Directed Care

Featured Health Business Daily Story April 1, 2009

Down Economy, Continuing Health Care Cost Increases Spur Large Employers to Offer Consumer-Directed Health Plans

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

By Michael E. Carbine, Managing Editor, (mcarbine@aispub.com)

Annual health care benefit cost increases running at twice the rate of inflation, coupled with an economy in freefall, are pushing a growing number of large employers to offer consumer-directed health (CDH) plans, the forthcoming 14th annual National Business Group on Health/Watson Wyatt Employer Survey on Purchasing Value in Health Care finds. Many of these employers will be offering their employees incentives to join these plans during 2009. And large employers that are offering CDH plans are now showing promising cost trending results.

While the full report with all the details won't be released until March 12, ICDC spoke with Ted Nussbaum, director of group and health care consulting for Watson Wyatt and a report co-author, about the findings. His overall impression: "While large-scale changes [in benefits strategies] are unlikely this year, the current financial crisis is leading employers to adopt strategies that put greater emphasis on personal health accountability for their employees."

The survey of 489 companies collectively employing 7.8 million employees finds that these large employers expect to see a 6% increase in health care costs this year, the same as they saw in 2007 and 2008. But while the increase is holding steady, that increase, plus "a recession in full swing," is prompting companies to look for ways to contain their health care benefit costs. "A 6% increase is a far cry from the double-digit increases of several years ago," Nussbaum says. "But it's still double the rate of inflation, and this is a problem in a down economy."

According to the survey, the majority of companies surveyed either have already revamped their health care strategies or plan to do so during 2009. Nussbaum says he doesn't expect companies to depart in any radical way from what they've been doing to control benefit costs over the past two to three years. But he says some employers will "take a bit more of an aggressive posture and implement total CDH replacement strategies." And some companies definitely will offer stronger incentives for their employees to join existing CDH plan options. "But what I get from the data is that most large companies are fundamentally comfortable with the strategies they are implementing or have already implemented," Nussbaum adds.

The survey shows that 51% of large employers now offer at least one CDH plan option, up from 47% last year. Another 8% say they will adopt a CDH plan by 2010. These plans, the survey finds, are helping employers control their costs. The report summary, released Feb. 19, says that companies with at least half of their employees enrolled in a CDH plan are showing a two-year cost trend of 4.6%, 25% below that of employers without CDH plans (6.1%). While Nussbaum wouldn't discuss the actual numbers, he says that "what you'll see in the full report is considerable cost trend differences for companies with 10%, 20%, 50% and over 50% CDH enrollment rates."

Nussbaum doesn't foresee a significant number of large employers moving to full CDH plan replacement strategies. "Last year we reported about 6% of companies offering total replacement, and another 6% say they will switch to a full replacement strategy this year. But that's less than 10% of the entire survey population," he notes. What Nussbaum does expect is more large employers to offer significant premium differentials to incentivize employees to move into CDH plans.

The overall result, Nussbaum says, will be substantial growth in CDH plan enrollment. "And enrollment is critical to producing the reduced [benefit cost] trending and ROI [return on investment] these types of plans can produce for employers."

Topping the list of challenges employers say they face in their efforts to maintain affordable health benefits: poor employee health habits. In fact, 67% of employers reported poor health habits as their biggest challenge in managing their health care costs, a figure far above underuse of preventive services (42%) and high-cost catastrophic cases and end-of-life care (36%).

Among other findings in the report: Average health care expenditures for employers per employee in 2008 were $7,173, and this is expected to increase to nearly $7,400 this year. Employees, meanwhile, paid an average of 20% of their total medical premium costs in 2008, and employers say they expect that number to stay the same during 2009.

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