Consumer-Directed Care

Featured Story December 21, 2007

Employers Report Higher Consumer-Directed Plan Enrollment From This Fall’s Open Enrollment Season

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

Employers say their efforts to promote consumer-directed health (CDH) plans paid off this open-enrollment season with higher enrollment and better-educated employees.

Employers with increased CDH enrollment after the first year or two have become the rule, not the exception, reports Tom Hricik, a Pittsburgh-based principal for New York-based Buck Consultants.

"We expect enrollment in CDH plans offered with either a health reimbursement arrangement [HRA] or HSA to double this year," Hricik says. Most large employers that are modifying their plan designs are incorporating HSAs, HRAs and other incentives, he adds, noting that "HSAs are somewhat more popular than HRAs." But he notes that many employers like the plan-design flexibility of HRA-based plans.

CDH plans typically have lower premiums, which leads to some cost savings for employers. Employers that spoke with ICDC say they intend to take any savings and plow it back into the company in the form of wellness programs and additional financial incentives to enhance their CDH menus.

A year ago, Smithfield, R.I.-based Sperian Protection (formerly Bacou-Dalloz) got 23% of its 1,400 eligible employees to enroll in an HSA-based plan that was offered alongside more traditional PPO and HMO plans, says Michael Vittoria, director of human resources. Another 60% joined the company's HRA-based PPO option, and the remaining 17% opted for HMOs where they were available, primarily in the Buffalo, N.Y., and southern California markets.

With maybe 100 employees left to complete enrollment for the 2008 plan year, Vittoria tells ICDC that enrollment in the HSA-based plan jumped to 29%, while the HRA-based PPO increased to 57% of eligible employees. Enrollment in HMOs will likely come in at around 14%, he says. "We're starting to see some migration in the second year to the HSA, and that runs a little counter to some of the things you hear in the media," Vittoria asserts. "You see surveys of people in CDH plans who say they'd go back to traditional coverage if they had the choice. We're not seeing that. We're not seeing a flood, but when you're in year two and you have 29% enrollment and ongoing migration, that's a positive sign."

Because the CDH plans are so new, Vittoria says questions from employees tend to be pretty basic. "The biggest question we get is, 'Which [option] is right for me?'" he explains. "Making a choice requires employees to assess the size of the deductible, the difference in the payroll deduction and the company's contribution to the HSA. In one form or another, the response is, 'Help me do the math.'" That's a marked improvement, he points out, over the typical question a year ago, "What's a CDH plan?" The company responded with an education program that included employee meetings and printed materials.

Burger King Reports 'Deeper Knowledge'

Susan Kunreuther, vice president, total rewards, for Miami-based Burger King Corp., sees similar evolution in the kinds of questions employees ask as they get acquainted with CDH. "The queries we get truly demonstrate a deeper knowledge of how those plans work," she tells ICDC. "They've gotten more technical around the mechanics of the accounts."

Initially, she says, employees were hesitant to enroll in the plans because of misunderstandings. Employees with "the HMO mentality would rather pay more for premiums and avoid high copayments," she explains. "So we've educated employees on the total cost of care and on taking a longer view of benefits planning." Some are already asking how to leverage the financial resources Burger King offers to start planning for their health care costs in retirement. The company's benefits strategy involves closer integration of health care dollars and 401(k) retirement plans and other types of financial vehicles.

The firm offers options that include either an HRA or an HSA. Enrollment in those plans skyrocketed during the fall enrollment period, but that's largely because the company eliminated its more traditional PPO option and moved to a full-replacement CDH strategy. In a couple of locations, an HMO is still available, but enrollment in those plans dipped for the first time this year. "That tells me that folks who were forced out of traditional [PPO] coverage didn't jump into an HMO, but into a CDH plan," Kunreuther says. Participation in the HRA is up from 48% of employees to 56% for 2008. Participation in the HSA is up from 10% to 16% of eligible employees.

The company also made financial changes to the plans this year. Burger King contributes $500 a year to employee-owned HSAs, covers the first two months of premiums and pays 90% of coinsurance (up from 80% in 2007) once the deductible is met. The enhancements were paid for with the savings Burger King has seen since it launched a CDH strategy in 2004. "We've managed our costs beautifully year over year," Kunreuther says. "And the costs we manage, we add back to the plan to enhance it."

CDH Enrollment Hits 75% in Vegas

The City of Las Vegas says enrollment in its CDH option grew 7%, to 75% of employees for the 2008 plan year. Another 10% of employees are enrolled in a PPO, which has similar premiums, and the remaining 15% are in an HMO that boasts "significantly lower" outlays. Under that plan, employees' personal coverage is free, and they pay 50% of the incremental cost of dependent care. "If you have several children, family coverage is significantly lower cost through the HMO," notes Vicki Robinson, manager of insurance services there, "and you never have a coinsurance responsibility."

Overall, Robinson says, employees are pretty savvy about the CDH program. "They seem to genuinely understand it," she says. The municipality changed third-party administrators this year, so the most common questions from employees this year were related to that. "We get primarily benefit questions regarding whether a specific item is covered or when open enrollment starts," she says. "We get very few questions on how the CDH works."

The city of Las Vegas says its health coverage costs over the past three years have been essentially flat. Savings realized through the CDH plans have been used to pay for full-time wellness coaches. "They interact with employees on a daily basis and assist them in wellness efforts, including smoking cessation, weight management and fitness training," she explains.

Wendy's Gets Employees Involved in Health

Getting employees involved in their own health is a priority at Dublin, Ohio-based Wendy's International Inc., says Lynn Cauman, director of employee benefits. One of the company's goals, she explains, is to motivate employees to become more engaged in their health care decisions. CDH plans "allow them to take more ownership." Indeed, upwards of 95% of plan members carry HSA balances forward from year to year. The company also reports 61% of prescriptions filled by CDH plan enrollees are filled with generics. "We're seeing people get more involved in their choices," Cauman says.

Enrollment in the company's HSA-based options runs at a steady 70% to 72% among eligible employees — about the same level of participation Wendy's saw in the more traditional PPO plans before it switched to a full-replacement CDH strategy. "We haven't seen total replacement affect the [enrollment] numbers," Cauman reports. Plan members can choose from five [HSA-based] programs with a range of deductibles and premiums, and have considerable freedom to move in and out of them as their anticipated upcoming expenses dictate. Wendy's contributes about 60% of the deductible in HSA contributions.

Lack of Transparency Limits CDH Potential

Scarborough, Maine-based Hannaford Brothers Company says it has seen enrollment in its HRA-based plan run a steady 30% for the six years that it has been available. Peter Hayes, director of associate health and wellness at the grocery store chain, says he would like to see enrollment grow, but is frustrated by the limitations of CDH.

"HSAs are still problematic because of the up-front high deductible that also applies to the drug benefit," he says. "We have first-dollar coverage of [prescription drugs], and an HSA would be a take-away from that perspective." Besides, he adds, "this is really a farce. We do not have any consumer-directed plans because the consumer still does not have complete transparency around quality and cost. Until we have that in the marketplace, we will never get the true leverage of a true consumer-directed option."

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