Employers Are at the Wheel in Consumer Driven Plans
by Mark Reynolds
Too often, we read about problems with consumer-driven health plans. Patients with high deductible health plans are showing up for expensive procedures with no money to pay. This creates an obvious problem for providers and patients. But, it also gives legislators a chance to offer their solutions, which may be an even bigger issue.
Is the employee the real consumer in the consumer driven model or is the employer, which decides on employee benefits and pays the largest portion for the benefits? The popular view is that the consumer is the employee or dependant. They visit the doctor's office, use the lab, get diagnostic tests, and pick up the prescription.
Let's explore why putting employees in the driver's seat has become a perilous ride for the healthcare industry and has not been the appropriate solution to the healthcare crisis. Consumer driven healthcare is founded on the assumption that employees will make better lifestyle choices, become better shoppers, and spend less if they get incentives and control over their healthcare benefits.
But, how can we expect consumers to spend their healthcare dollars wisely and budget for their HSAs when many cannot handle their own finances. The Federal Reserve states that credit card debt totals more than $900 billion in the United States. About 60% of cardholders carry an average balance of more than $15,000 requiring a minimum payment of $250 to $300 a month just to cover interest.
In addition, the smallest portion of employees incurs the largest portion of healthcare expenses. It is unlikely that employees with catastrophic or chronic diseases will be won over by incentives to reduce their health plan spending. Fifty percent to 70% of employees incur very little or nothing in healthcare costs each year, regardless of group size, according to a Watson Wyatt study. How can the majority who spend very little to nothing have an affect on healthcare costs?
It is unreasonable to expect to train consumers to negotiate healthcare access and financing in such a short period. Consumer behavior cannot be changed overnight, at least not in time to make a substantial impact on the healthcare crisis. Since 1974, consumers have been trained to go to the doctor, pay their co-pay or nothing at all, and expect someone else to pay the balance.
Leave the Driving To Employers
The solution is to redefine the consumer. Employees can help control healthcare costs in the long term. But, for immediate results, we need to view the employer as the consumer of today's consumer driven health plans. The employer decides to create an employer sponsored health plan and chooses the agent or broker, carrier, benefits, eligibility, and employee contributions. The employer also pays the largest portion of the health plan costs. So, wouldn't it make sense to view the employer as the consumer?
The main reason to sponsor a health plan is to attract and retain good employees. For this reason alone, we should define the employer as the consumer since it is in their best interest to maintain the most favorable and efficient employee benefits package. The solution to containing costs may be to view the employer as the consumer and provide viable options to health plan design and financing. It may also be the desired alternative to a state-run healthcare system.
A New Model
The employer driven health plan model has proven to lower plan costs by 30% while improving benefits. It does not shift costs from employer to employee, as would a defined contribution model. It is not a gap plan that would add to premium costs. Employers can maintain the desired coverage while lowering the cost of the plan.
In the employer driven health plan model, employers purchase a fully insured group plan with deductibles from $1,500 to $5,000 or higher. Under these deductibles, the employer can administer co-pays for office visits, prescriptions, and co-insurance under a Section 105 health reimbursement account or medical expense reimbursement plan. In certain cases, employers can even implement a limited-use flexible-spending account. Here are just a few results:
¥ Lower plan cost by over 30% a year.
¥ Maintain or improve benefits for all covered members.
¥ Gain control over future cost increases.
¥ Increase membership of non-covered employees.
¥ Increase accountability of all members, providers, and carriers.
¥ Begin training for the next generation of health plans, such as employer driven mix and match or multi-plan offerings using more high deductibles.
¥ Increase future HSA enrollment through training, education, and accountability.
¥ Save for future healthcare costs with HSA enrollment.
While driven by the employer, this concept re-educates employees on how to access and evaluate their healthcare needs, which helps control healthcare costs. Lower costs, better benefits, re-education, and accountability are influential reasons to define the employer as today's consumer.
We may be solving the crisis facing every American business by offering employers appropriately priced high deductible plans and administration through qualified third party administrators. The solution to this crisis will require perseverance and vision, a focus on members' needs, and cooperation by every party involved. It will require learning to do things in new ways. Employers are tired of the old ways. They are ready to be the consumers of today's employer driven health plans. Let's put them in the driver's seat.
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Mark Reynolds is CEO and president of California based BEN-E-LECT, a leading third party administrator (TPA) and innovator of Employer Driven Health Plans, which has been providing solutions to brokers since 1996. A registered health underwriter (RHU), Reynolds has played a leadership role in the industry for years, serving as a founding member of the Inland Empire Association of Health Underwriters and past president of the Health Care Administrators Association (HCAA).
