Consumer-Driven Health Care: Tangible

Employer Actions
Beauregard, Thomas R . Benefits Quarterly ; Brookfield  Vol. 20, Iss. 2,  (Second Quarter 2004): 43-48.

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ABSTRACT
 
In response to double-digit health care cost increases, leading employers are aiming aggressive strategies at
changing participant and provider behaviors-strategies that go well beyond the narrow idea of a new cost-sharing
design. This article describes the elements of a comprehensive consumer-driven health care strategy and provides
examples of tangible consumer-driven health care initiatives in the areas of design, pricing, contracting, support
and public policy. Employers that are introducing more complicated design, pricing and contracting strategies are
supporting employee risk tolerance decisions with advanced tools that estimate medical expenses across the
available options and assist participants with detailed coverage category and flexible spending account election
decisions. Many employers that are focused on avoiding broad federal mandates in health care are supporting
public policy changes that would support consumerism.

FULL TEXT
 
Headnote

In response to double-digit health care cost increases, leading employers are aiming aggressive strategies at
changing participant and provider behaviors-strategies that go well beyond the narrow idea of a new cost-sharing
design. This article describes the elements of a comprehensive consumer-driven health care strategy and provides
examples of tangible consumer-driven health care initiatives in the areas of design, pricing, contracting, support
and public policy.
As employers endure the fourth consecutive year of double-digit health care cost increases, there are signs of
growing desperation. In a 2003 employer survey conducted by Hewitt Associates, 17% of large employers
indicated interest in a universal health care model administered by the federal government and only 51% indicated
that this model was of no interest. If we contrast this result with the overwhelming majority of large employers that
strongly resisted a federal solution in 1993, we see evidence of private sector strategy fatigue. There is clear
recognition that cost increases are being driven by multiple sources that lack simple solutions. With this
discouraging backdrop, we are seeing the academic concepts of consumer-driven health care being translated into
aggressive employer strategies that are aimed at changing participant and provider behaviors. This article will
describe the elements of a comprehensive consumer-driven health care strategy and provide some examples of
tangible consumer-driven health care initiatives.
DEFINING CONSUMER-DRIVEN APPROACHES
The opportunity to transform the health care market with consumer behavior is still debated in multiple forums.
Critics
Critics of consumerism make the following principal arguments:
* Employers on the consumerism bandwagon have a short-term, cost-shifting focus and limited long-term market
transformation goals.
* Consumer choice in health care will lead to adverse selection costs at the plan level and no beneficial behavior

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change at the provider level.
* Consumer-driven health care will not change the price or utilization patterns of high-cost claimants who drive the
majority of the total health care expense.
* Provider price and quality transparency, key tenets of consumerism, are difficult to organize in consistent and
credible ways.
Proponents
Proponents of consumerism argue that innovative designs are becoming more popular at the employer and
participant level and that these designs are attracting average cost claimants who are moderating their utilization
in select health care categories. A recent study at the University of Minnesota concluded that consumer-driven
options are not enrolling a disproportionate share of young, healthy participants. The plan studied (Definity Health)
was found to enroll higher income families with an average age range of 35 to 44. The study further concluded that
the catastrophic design with a health reimbursement arrangement (HRA) did not conclusively reduce overall health
care costs.
I believe that this entire debate is off point, as it stems from an overly narrow view of consumer-driven health care
as a set of new design alternatives that can be offered at lower contributions relative to traditional managed care
options. Consumer-driven health care has largely been pigeonholed as a strategy that introduces a catastrophic
health care option with an HRA or a movement from copayment designs to coinsurance designs.
In fact, consumerism is much broader. It is an economic concept (not a health plan) that requires multiple strategy
facets and that is aimed at changing participant and provider behavior.

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A comprehensive consumer-driven health care model will incorporate new design, pricing, contracting, participant
advocacy services and public policy change with a focus on stimulating competition between providers within
communities based on price and quality differences. There is little opportunity for a flash cut to this
comprehensive model, but many employers are developing and executing long-term strategies in each of these
critical and interrelated categories.
An achievable long-term consumer strategy will provide participants with design choice at the point of enrollment
and provider choice at the point of care with meaningful economic incentives and credible provider quality
information ... but this will need to occur over a three- to five-year time frame and in a specific order. As we
consider the current low health care knowledge of the average individual and the slow but critically important
progress of private sector initiatives to bring provider data forward on patient safety and clinical quality (e.g.,
Leapfrog, Bridges to Excellence, Consumer-Purchaser Disclosure Project), a natural employer strategy order
presents itself. Employer strategies in consumer-driven health care should follow the expected consumer learning

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curve by starting with a set of coverage and access decisions, moving to provider selection decisions as credible
price and quality data emerge and concluding with more advanced models that support patient/provider treatment
decisions (see figure).

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We need time to train consumers on all aspects of health care purchasing and to drive public dissemination of
physician and hospital cost and quality information. The insured employee population generally understands the
broad health care cost and the access crises that exist in the United States, but it is not prepared to make detailed
provider or treatment decisions on the basis of price or immature provider quality data. A well-organized employer
commitment to consumer-driven health care will follow the required individual learning curve and focus on
2004/2005 design, pricing, plan contracting and coverage decision-support models.
TANGIBLE DESIGN INITIATIVES
In a recent Hewitt employee survey that included 21 large employers representing a broad array of industries, we
researched employee tolerance for specific cost-management strategies. Key design preference findings from this
study were as follows:
* Only 5% of employees would support ongoing premium and plan design changes (deductible and copayment
increases).
* 23% of employees would support a catastrophic design with an HRA.
* 46% of employees would support individual customization of coverage opportunities.
Employees in this study demonstrated an improved understanding of the U.S. health care cost problem and
stronger support than we have historically seen for approaches that will require more detailed individual decision
making. From a coverage perspective, employees are most interested in customized design opportunities where
they can make their health plan decisions based on explicit coverage and premium cost trade-offs. They are least
interested in a minimal strategy change scenario that includes annual, incremental contribution increases and plan
design reductions. In an environment where more cost sharing is inevitable, employees want some level of control.
Customized health care design or multiple options with a wide range of price points make cost sharing more
palatable and can evolve well over time as employee knowledge and related decision-making skills advance.
Customized design models effectively give employees decisions at the point of enrollment in a number of critical
cost-management categories. Employers that are currently introducing customized designs are generally starting
with straightforward deductible, copayment and out-of-pocket decisions (similar to flexible benefit choices that
were offered in the 1980s). This form of customized design is the right starting point as we attempt to educate
consumers on coverage vs. premium trade-offs after the managed care era. We expect to see customized designs
evolve beyond these decisions in the next one to two years to more complex access and medical management
categories (see table).
These examples of more aggressive employee decision opportunities will emerge as individuals come up the
learning curve and as new provider data becomes available.
Many employers are also conceptually interested in designs that arrange providers by tier based on cost and

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quality differences and then steer consumers at the point of care to the most efficient provider with lower plan
copayments or deductible levels. While this is a potentially attractive concept, we are seeing very limited real
activity in this arena as provider quality data is not readily available and employers are not generally comfortable
with a design that uses tiers based on one-dimensional price measures. Another current barrier to tiered designs is
health plan conflicts with providers if they begin to segregate or refine their networks based on price and/or
quality. Health plans without a significant enrollment share in a community risk losing key provider groups if they
tier networks today.
TANGIBLE PRICING INITIATIVES
Emerging pricing strategies can be distinguished between tactical cost-sharing initiatives and strategic attempts
to promote consumerism.
* On the tactical side, we are seeing average employee contribution increases of over 20% in 2004 and more basic
dependent cost sharing.
* On the strategic side, many employers are developing pricing methods that spread the cost of coverage more
equitably based on actual family size (e.g., a unit price for every family member) and real-pricing differentials
based on controllable health risks without running afoul of the Health Insurance Portability and Accountability Act
discrimination provisions. An example of this includes organizations that are establishing significant pricing
differentials based on smoker vs. nonsmoker status and obesity measures.
The most aggressive consumer-driven pricing strategy is one that allows active employees to convert a portion of
their annual health care subsidy to a retiree health care savings account. In this case, employees are given an
explicit opportunity to choose a low-cost option as an active employee in exchange for a related employer
contribution to a retiree savings account (typically an unfunded HRA). This pricing strategy is intended to meet
two important objectives:
1. More rapid employee migration to lower cost options as employees have a larger and longer term incentive (i.e.,
retiree health care savings) to elect low-cost options
2. Revealing the need for employees to save for retiree health care. In general, employees do not understand their
projected health care obligations at retirement. The disconnect that exists between employee expectations for
retiree health care and employer reductions in this category is a significant social blind spot. Some leading
employers are more aggressively revealing this financial gap and simultaneously offering employees an active
pricing mechanism that provides a partial savings solution. This strategy is somewhat limited today as employers
do not generally fund or vest these accounts, which will limit the appeal to short-service employees.
TANGIBLE CONTRACTING INITIATIVES
The ultimate goal of a consumer-driven health care strategy is to stimulate provider price and quality competition
for market share. Current large employer health plan contracting strategies limit this goal by distributing employee
populations across multiple health plans with similar underlying provider networks that are reimbursed on a
discounted fee-for-service basis. Within this traditional managed-competition model, provider leverage over health
plans grew as physicians and hospitals contracted with multiple carriers. Health plans have been left with
inadequate leverage to negotiate provider risksharing models, introduce effective chronic condition management
programs or reveal provider price and quality data. Proponents of managed competition models today continue to
suggest that employers should contract with multiple health plans that have distinct provider networks and should
distribute ultimate premium payments based on the average health status of the population that elects each
plan/provider system using emerging risk adjustment models. I would agree with the academic tenets of this
refined managed-competition model but argue that it is not available in most U.S. markets, given the fragmented
nature of the provider community, the resistance to any change that promotes provider competition and the lack of
existing health plan leverage to organize legitimate competing provider delivery systems.
With this perspective, many large employers are moving toward regional, consolidated plan contracting strategies.
More exclusive regional contracting strategies can take advantage of significant existing discount differences
between health plans that are closely correlated with market share. As employers move to regional contracting

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models, they are not exclusively focused on discount levels. Other leading criteria for these regional, exclusive
arrangements are as follows:
* Health plan partners' current activity and future commitment to innovative plan designs and participant decision-
support services
* Longer term commitment to reveal provider price and quality variations as market share is consolidated and
health plan leverage is gained
* Willingness to offer concentric provider networks or tiered networks based on price and quality variations
* Opportunities to drive a shift from a selfinsured slice underwriting environment, where health plans logically
avoid risk, to an insured model, where plans and ultimately providers are financially rewarded for managing both
acute and chronic conditions. Without more exclusive employer contracts, health plans avoid real insurance risk as
employees/participants are shifted between competing plans with similar provider networks through annual
employer-pricing strategies. Multiyear employer commitments to health plans will provide underwriters with
incentives to accept risk and broader economic incentives to manage care with viable medical management
programs.
More consolidated health plan contracting is an essential element of a long-term consumer-driven strategy.
TANGIBLE DECISION SUPPORT INITIATIVES
As consumer-driven health care strategies attempt to bring individuals up a steep learning curve, we need
decision-support strategies that follow the curve from coverage to provider to treatment decisions.
Employers that are introducing more complicated design, pricing and contracting strategies are supporting
employee risk tolerance decisions with advanced tools that estimate medical expenses across the available
options and assist participants with detailed coverage category and flexible spending account election decisions.
These coverage selection tools are moving from models that estimate expenses based on a participant's future
utilization assumptions (e.g., expected number of office visits and prescriptions by family member) to models that
bring individual claims data forward from the previous year for more refined predictions.
There is a very strong correlation between the degree of change at the employer strategy level and the participant
utilization of tools. As individuals' level of financial risk goes up, they utilize available tools to make more refined
decisions. Beyond coverage selection, many employers are linking to provider quality databases (e.g., the Leapfrog
site) and offering a variety of clinical decision-support models. The least advanced decision-support initiatives are
simple links to general health care content sites for independent participant research. The most advanced are
clinical advocacy models that give individuals the opportunity to consult with a relevant specialist provider that
has no link to the health plan/coverage.
TANGIBLE PUBLIC POLICY POSITIONS
It is unlikely that private sector attempts to create a consumer-driven health care system will succeed without
some changes in public health care policy. While existing private sector strategy innovation in this area is
impressive, it is likely to move too slowly without federal policy changes. The risk of a complete federal mandate in
health increases every year as private sector costs and the uninsured population grow. Many employers that are
focused on avoiding broad federal mandates in health care are supporting two public policy changes that would
support consumerism:
* Pretax health care employee savings opportunities. Giving employees an opportunity to fund future active or
retiree health care expenses with pretax payroll deductions in the form of a portable savings account would align
well with multiple design and pricing strategies that are being introduced to drive consumerism. As employers
offer lower cost-active coverage options and related retiree health care accounts, employees will need new tax-
effective savings opportunities. Federal legislation that supports a limited triple crown in health care (i.e., pretax
savings, tax-free earnings and tax-free withdrawals for health care purchases) will give individuals a fighting
chance to cover active and retiree health care cost-sharing expenses and drive aggressive consumer behavior with
providers as individuals attempt to efficiently spend health care savings.
* Public funding and dissemination of provider quality data. An absolute requirement of consumerism is provider

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performance information. Private sector purchasers are creating designs and health plan performance contracts
that attempt to extract this data from the provider community, but it will emerge too slowly without legislation that
mandates disclosure and provides some public funding for this effort. More specifically, many organizations are
focused on a system that defines national provider performance measures, develops computerized clinical records
and publicizes data that compares individual providers.
Both of these public policy positions will logically drive change in our health care system but both will face
significant political and funding barriers.
CLOSING
Our existing health care system is tremendously inefficient from a cost and an access standpoint, and it suffers
critical gaps from a patient safety and quality-of-care standpoint. With this recognition, leading employers are
developing and executing consumer-driven strategies that go well beyond the narrow idea of a new cost-sharing
design. The opportunity for reversing this spiral exists within the next three to five years as large employers focus
on integrated design, pricing, contracting, decision support and public policy change.
Sidebar

"Many employers are also conceptually interested in designs that arrange providers by tier based on cost and
quality differences and then steer consumers at the point of care to the most efficient provider with lower plan
copayments or deductible levels."
AuthorAffiliation

The Author
Thomas R. Beauregard is a national health care practice leader at Hewitt Associates. he has had more than 15
years of experience in health care and benefits, working with companies to design and deliver programs that
reflect their specific business needs. he is a graduate of Hobart College and earned a master's degree in business
administration from the University of Connecticut.

DETAILS

Subject: Consumerism; Health care expenditures; Health insurance; Strategic management

Location: United States US

Classification: 6400: Employee benefits &compensation; 9190: United States; 2310: Planning

Publication title: Benefits Quarterly; Brookfield

Volume: 20

Issue: 2

Pages: 43-48

Number of pages: 6

Publication year: 2004

Publication date: Second Quarter 2004

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 Section: Defined Contribution Health Plans

Publisher: International Society of Certified Employee Benefit Specialists

Place of publication: Brookfield

Country of publication: United States, Brookfield

Publication subject: Business And Economics--Management

ISSN: 87561263

Source type: Scholarly Journals

Language of publication: English

Document type: Feature

Document feature: illustrations tables

ProQuest document ID: 194945145

Document URL: http://library.capella.edu/login?qurl=https%3A%2F%2Fsearch.proquest.com%2Fdocv

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Copyright: Copyright International Society of Certified Employee Benefit Specialists Second

Quarter 2004

Last updated: 2015-06-29

Database: ProQuest Central

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