Consumer Driven Healthcare

A Mixed Bag... or an opportunity to preserve consumer choice?

Mark H. Prudowsky, Executive Consultant

Discussion Highlights

• CDHC Overview: Options, Options, Options• The Purchaser's Point of View• The Responding Marketplace

– CDHC Benefit Considerations– Acceptance “to date...”

• Challenges for the “Best” Choice plan design• “We've chosen...now what?” • A Case in Point...Putting theory into practice.

CDHC by Item

“Your Menu, Sir...”

Chez CDHC Select Whines

The “FSA”... served lean for overtwenty years. Cheap!

The “HRA”... the best option whensomeone else is paying. $$$

The “HSA”... you decide how muchand when.Let's negotiate!

Famous Pairings

§ 125 Plan ... a great option whenyou wish to save tax dollars...fineprint applies!

HDHP ... pairs best with the HSA orHRA. FSA pairing may cause distress.

HR vin 2004 : “ Too risky, too complex to appreciate the value!”

CFO vin 2007 : A great value, butmay cause indigestion when the billarrives.

EE (no vin, consistent blend) : glaringovertones of doubt...buyer may experience sticker shock.

Broker vin 2010 : Big, brash notesof overconfidence yielding little depth.

Tri Parte Admin : Vintner commitsto any pairing despite of products actual limitations...suggest one tastesbefore buying the bottle.

“So...What are the differences?”

CDHC Program§ 125 EE Fund ER Fund Bal. Rollover

FSA Y Y Y NHRA Y N Y Y – ER ONLYHSA Y Y Y Y – EE ONLY

LP FSA Y Y Y NPD HRA Y N Y Y – ER ONLY

*

* May require coupling with a HDHP.

“...have the different programs made a difference?”

< 2004

2004

2005

2006

2007

FSA/HRA enrolments limited to 14-22% of EE's...Health Plan costs continue to escalate.

More EE's/ER's offering/adopting CDHC ... More ER's offering LP FSA's/PD HRA's with HSA's. Expectations falling short due to failed EE education, poor planning and a program design lacking creativity.

HSA enrolments begin...7% of EE's opt for HDHP...Health Plan costs increase by single digits.

FSA/HRA enrolments continue. Jumbo ER's prefer HRA; sm/med ER's adopt HDHP/HSA at an accelerating rate...Health Plan increases slow to 5%.

HSA Accounts surge to over 5MM. ER's now offering HDHP's with EE coinsurance and maximum OOP ...Health Plan cost increases are the lowest...ever.

Understanding the Purchaser

Now that health plan PMPM costs are significantly decreasing.

Employers think...

Bonus !

Bonus !

Bonus !$

$

$

“What are Employers saying?”

“Either I increase the employee's Health Plan contribution or eliminate coverage all together.”

“If my employees are unwilling to adopt healthier lifestyles, then I will eliminate financial incentives.”

“My employees are increasingly suspicious of my ability to continue to provide health benefits.”

“I can't trust my employees to use HRA/HSA money wisely enough to drive plan savings.”

“Participation in CDHC programs, generally, is low. Most employees elect the most expensive coverage anyway.”

Now that their health plan deductibles/coinsurances are significantly increasing.

Employees think...

Sure wish I had been kissed first!

“What are Employees saying?”

“It's the employer's responsibility to provide health care benefits for me and my family...pay for it too!”

“Why is my company trying to put me into these Wellness programs? They're trying to get rid of me!”

“My health plan is too complicated...just give me my ID card and Co-pays.”

“50 percent of employees in consumer driven plans were satisfied that their coverage protected them against the risk of major health care costs, versus 65 percent of those in traditional plans.”

“44 percent of employees in consumer driven plans think their health plan helped them find quality doctors and hospitals, versus 63 percent in traditional health plans.”

“What is the Industry saying?”

Banks (trustees): “...finally, some ROI for the insurance services division we started and a chance to develop relationships with large, multi-national customers!”

Producers: “if it wasn't enough that Carriers were reducing my commissions, now I have to sell a new product, for a lower premium and reduced commissions!”

Administrators: “We can manage a CDHC program for our customers with little or no training or adaptation to our technology.”

Consultants: “More opportunities to develop RFP's, conduct surveys, assess the marketplace and draw the employer closer to me!”

Supply and Demand?

The Marketplace is responding to customer needs, but...

* On-line Prescription drug comparison tools.

* 120 newly licensed health insurers offering HDHP's in all fifty States.

* Twenty-seven percent of all HDHP enrollees had no prior health care coverage.

* Transparency applies to cost and quality data

* Prevention/Wellness benefits offered in more health benefit plans.

* Consumerism Tax legislation introduced in January, 2007 increases tax advantages for consumers.

* Technology vendors expand Auto-Adjudication and Transparency capabilities.

* State Governments introducing consumerism incentives to Medicaid Budgets.

The Marketplace is responding to customer needs, but...is the Industry meeting specified goal(s).

“OK ... I saved thecustomer a ton of $$$. What aboutnext year?”

€

“How do I evaluatethat consuming behavioris changing?”

Results and Projections to 2012

Designing the Plan

Products, Programs, Technology, Information...too painful to adopt?

• How do I assess my Customer's readiness for a CDHC program?

• How crucial is strategic planning?• What is my Customer's ultimate goal?• What are the costs to the plan,

employee morale and/or other employee benefits?

• What are the costs of not offering an expanded CDHC program?

• Which technologies will help ensure success and employee satisfaction?

• What analyses should be conducted pre- and post-implementation?

• Are there voluntary benefits available that will add value and allow employees to assume more responsibility?

“What are some of the typical CDHC plan features?”

• HDHP/HSA Benefit(s) offered as an option to other medical plan(s)• Avg. Deductible $2,668 (S); $5264 (F)• Avg. OOP max $3,449 (S); $6,881 (F)• Ann. PMPM costs avg. $2,855 (S); $6,995 (F)• Most commonly provided (first dollar) Preventive Health Programs were Diabetes (91%), CAD (90%), COPD (80%), CHF (89%) and Asthma (87%)• HRA's more popular with large ER's (vs. HSA's)• Medical FSA's, while prevalent, continue to have low participation • Limited Purpose FSA's and Post- Deductible HRA's becoming more popular as HDHP's include participant coinsurance and max OOP.

“Is CDHC just a matter of yes or no questions?”

A CDHC programin place?

(Y/N)Offering aHDHP?

Are Savings orEmployee Moralemore important?

Yes

No

Design MFSAwith HRA &

EE Education

Offering aHDHP?

Design HDHPwith HRA/HSA

Rev. HDHP planHSA/HRA

Enrollments &Education

Design HDHPwith HRA/HSA

Yes

No

Morale

Savings Rev. Claims tooffer Wellness

Benefits

Consider offeringHealth Incentive

Accounts

Rev. VoluntaryBenefits offering

to expandparticipation

Use $avings to incent EE's and

pay for Preventivecare.

“What other resources are purchasers placing in the hands of their health plan participants?”

“I've have a plan...where do I go from here?”

Key earmarks of a successful CDHC program

* Assess Corporate Culture – Many ER's build paternalism into their benefit programs;

* Review previous CDHC attempts/programs – Learn from prior mistakes;

* Ultimately, the goal should be a full replacement CDH model...but the customer will dictate the pace of evolution;

* Don't use boilerplate plan designs (watch out for the Carriers)...tailoring the right approach will insure success;

* Involve the participant in preventive/wellness programs from the beginning;

* Always use derived plan savings to “pay” for the CDHC program...you'll be offering the customer a “budget neutral” renewal.

Key earmarks of a successful CDHC program

* Design and implement EE education according to each benefit class (i.e., Exempt, Non-Exempt, Bargaining Unit, Exec's earning > $150K);

* Multi-site ER's will require on-site education, and if Voluntary Benefits are offered, they will also require enrollment assistance;

* Conduct post-enrollment/education evaluation(s) to assist with designing next year's benefit offering and CDHC program enhancements;

* Communication with the customer is crucial. Make sure meeting are scheduled to keep all necessary parties “...in the know.”

Ready to see the Light?

A Case in point...a time to apply what we have learned

ER Profile

You have been requested by Ed Bitness, Broker for I B Widgets, Inc., to provide a CDHC solution. You have worked with Ed before and know that if mistakes are made, whether yours or not, you will be held responsible. You review Ed's email request, give a big sigh, cuss a little, and respond in the affirmative. Ed coordinates a conference call with IBW. You learn the following about the customer's health benefit plan:

1). The ER has 11oo EE's across three job sites (2700 plan participants); annual health plan expenditures of $6.05MM...EE's pay 25% of health plan costs (as a contribution);2). Ed is moving the customer from a SI-PPO to a full replacement SI-HDHP with deductibles of 1200/2400 and 100% coinsurance due to continued double-digit renewals (this year's increase 18%, budgeted 13%);3). IBW has had an FSA for the last eight years with no more than 13% of the EE's participating;4). Avg. EE profile is Female, < 35 yrs, married, ann. Income ≈$30,000.00, education at least two years of college;5). Dx's driving claims: HTN, Diabetes, CAD, Asthma, Obesity, Complicated Pregnancy;6). ER leads the industry in applied technology, all EE's are computer literate and have asked in the past for preventive care programs.

Your mission...

Formulate the best, in your opinion, CDHC solution for Ed and IBW. Be sure to include your plan/program design and implementation. Remember to include planned communication, CDHC recommendations including technology for education, healthcare prevention and transactional access. Employee education will be crucial to your plan's success...determine how you will educate them. And, lastly but most importantly, include your plan for post-enrollment evaluation keeping an eye on the following year's plan enhancements.