With consumer-driven healthcare, companies leave the driving to their employees
By Dave Lindoff
Steve LeMieux, a district manager of Staples Inc. stores in Connecticut, didn't have to think twice when the $13 billion industry leader in office supplies offered him and other employees the option of switching from their increasingly costly BlueCross/Blue Shield insurance plan to a new "consumer-driven" plan. Granted, the 43-year-old married father of two teenagers would have to pay out of pocket for the first $2,400 of his family's health expenses. But under the new plan, Staples would place exactly that amount in an account for LeMieux, and if he went over, the company's regular insurance plan would kick in—at an annual cost less than the plan without a $2,400 deductible. While there would be savings for both employee and employer with this option, what attracted LeMieux was the idea of being in charge. "I felt I'd have more control over my healthcare dollars," he says. And if he were successful at holding down his out-of-pocket costs, he would get to keep, and roll over for next year, whatever part of the $2,400 that went unused.
THE NEXT SILVER BULLET?
LeMieux and Staples are part of a new national experiment, still only a few years old, in holding down health insurance costs by making the actual consumers of healthcare more directly aware of the costs of each procedure or medicine. Called consumer-driven healthcare, the model uses some combination of a cash account and a high-deductible, lower-premium insurance policy. Like HMOs in the 1980s, consumer-driven healthcare has become the latest corporate attempt to rein in pervasive healthcare inflation and even eventually cut costs. But the task is daunting, and in this past year alone, per-employee costs rose another 7.5%, to an average of $6,679, according to a survey by Mercer Human Resource Consulting.
By last year, about 20% of U.S. employers were already offering a consumer-driven option to their workers, a figure that is expected to rise to 30% this year. So far, between three million and four million workers have opted for the coverage. Like Staples, companies with consumer-driven health on the menu have high hopes for eventually cutting employee health benefits costs. Staples projects a possible 10% savings per year, but first the company needs to convince its 40,000 U.S. employees to join LeMieux and start thinking about costs themselves.
Toward that end, Staples has been introducing a consumer-driven health option as one of the choices in its employee benefits cafeteria plan and pricing it "as if it were our primary plan," says Nancy Lazgin, director of global benefits at the Framingham, Mass.–based company. Staples also has included consumer-driven features in more traditional PPO and HMO options.
With Staples' consumer-driven option—which is administered by Lumenos Inc., one of several specialty providers offering consumer-driven programs—employees are also able to develop their own personalized plan by using a Web-based model that lets them select different deductibles and co-pays and then weigh these against the resulting premiums to decide a comfortable balance of risk and costs. Still, growth in participation has been slow, going from 15% of employees in the plan's first year, 2003, to 18% in 2004 and 20% this year.
The basic idea behind consumer-driven health is simple: Employees in traditional health insurance plans are unable to be good consumers of healthcare because they don't have any sense of the real cost of their care or any clear stake in cutting costs. For example, if a health plan typically charges the employee a $10 co-pay for a visit to the doctor's office, the employee sees that as the full cost of going to the doctor, though the plan itself may be paying $75 for that visit.
Unfortunately, while the concept is simple, the plans are often anything but. Typically, in a consumer-driven plan, employees are each given a health reimbursement account (HRA) that is funded by the employer. (Some plans use pre-tax-dollar health savings accounts, or HSAs , which were recently changed to allow for rollover and portability so that they would work with consumer-driven plans.) From that account, employees pay for their healthcare until they reach their plan's relatively high deductible, when a traditional HMO or PPO kicks in. The traditional plan carries a relatively low premium, which both employers and employees welcome, because of the high deductible, which employees are not so happy about. The catch that sometimes frightens employees: There is often not enough money in the HRA to cover their required out-of-pocket expenses. On the other hand, the carrot that frequently entices those who do not anticipate sizable medical expenses is the fact that they get to roll over into the next year unused HRA money.
For gourmet health food retailer Whole Foods Market Inc.—a company that has the advantage of a high percentage of young, health-conscious employees—embracing the consumer-driven approach was a no-brainer. A few years ago, Whole Foods had to bail out its HMO and comprehensive plans to the tune of $7 million because healthy workers were opting for a high-deductible catastrophic plan, leaving sicker, older workers in the other two plans. The company was facing the prospect of a 35% premium jump. Instead, in 2003, Whole Foods made a total conversion to a consumer-driven plan.