Rhetoric vs. Reality: Employer Views on Consumer-Driven Health Care
Issue Brief No. 86
July 2004
Sally Trude, Leslie Jackson Conwell
Because of rising premiums, employers are investigating new health insurance
approaches that maintain workers’ broad choice of providers while raising awareness
of health care costs through increased patient financial responsibility. Employers’
knowledge of new health plan products, including consumer-driven health plans
and tiered-provider networks, has grown considerably in recent years, according
to findings from the Center for Studying Health System Change’s (HSC) 2002-03
site visit to 12 nationally representative communities. But employers are concerned
that consumer-driven health plans would take considerable effort to implement
without much cost savings. They also are skeptical that tiered-provider networks
can adequately capture both cost and quality information in a way that is understandable
to patients.
Little Interest in Consumer-Driven Health Plans and Tiered Networks
s health insurance premiums continue to rise, employers are searching
new long-term strategies to hold down their health benefit costs. Employers
are interested in approaches that offer broad choice of providers but raise
cost awareness by shifting more financial responsibility to workers. Consumer-driven
health plans and tiered networks are the two new health benefit designs currently
receiving the most attention, although employers more often have simply increased
patient cost-sharing requirements in existing health plan designs.
Consumer-driven health plans typically refer to high-deductible health plan
products tied to spending accounts, or health reimbursement accounts, funded
by employers.1 Once the consumer has exhausted the spending
account, there is a gap in coverage—for example, $500—where the consumer must
pay for all care before the high-deductible policy kicks in and provides coverage.
Consumer-driven plans also offer consumer information on provider price and
quality.
Tiered-provider networks typically categorize hospitals or physician groups
by price and quality and assign lower premiums or patient cost sharing to consumers
who opt for the preferred tier.2 In a tiered-hospital network
product, for example, health plans label some hospitals as "preferred."
Patients pay less out of pocket if they choose a preferred hospital than if
they go to a nonpreferred hospital in the network. Tiering improves health plans’
bargaining leverage with hospitals because hospitals in the nonpreferred tier
will lose some patient volume.
Both consumer-driven health plans and tiered networks are considered a step
beyond simply raising patient cost sharing because they aim to combine financial
incentives with information that supports cost-effective patient decision making.
Few of the employers in the 12 communities had adopted or planned to adopt consumer-driven
health plans or tiered-provider networks, according to findings from HSC’s 2002-03
site visits (see Data Source). HSC researchers interviewed
a variety of local health care market stake-holders to gain an overall view
of health benefits in the 12 communities. In particular, researchers asked health
benefit managers for large public and private employers to describe their perspective
of consumer-driven health plans and tiered-network products and reasons for
choosing to implement or not implement these approaches. Consultants and brokers
were asked about the products’ role in local health markets, their opinions
about consumer-driven health plans and tiered networks and how they are advising
their clients about these products.
Awareness Higher
Employers were more knowledgeable about consumer-driven health plans—in stark
contrast to three years ago when few knew of the concept and those who were
aware gave widely varying definitions of the concept, ranging from cashing out
of health benefits to moving to a fixed-dollar contribution.3
Only a handful of respondents did not know about consumer-driven health plans.
At the other end of the spectrum, some health benefit managers had used their
health care claims data to estimate the potential cost savings from moving to
a consumer-driven health plan or had conducted employee surveys to assess feasibility.
Of the handful of employers who reported implementing or planning to implement
a consumer-driven plan in the near future, all planned to offer the product
as one option among other health benefit offerings.
Employers knew more about tiered networks in markets where health plans offered
or were developing tiered-network products. In a few instances, employers were
involved in the development of tiered networks. In contrast, some employers
did not view tiered networks as being substantially different in concept from
the preferred provider organizations (PPOs) they currently offered, where employees
pay extra to use out-of-network providers or where employers offer a range of
health plans such as health maintenance organization (HMO), point of service
(POS) and PPO options with different costs to employees.
Show Me the Money
When considering consumer-driven health plans, employers doubted the approach
would slow the growth of their health care costs. One key concern was that by
providing a spending account to all employees, employer payments might increase
for their healthy workers. One employer noted that 70 percent of the firm’s
covered employees had health care costs of less than $1,000 a year. Concerned
that a spending account would encourage healthy workers to use more services
despite being able to rollover unused funds to the next year, this employer
expected that a $1,000 spending account would raise costs, not lower them.
Another employer said that 30 percent of its workforce did not take up the company’s
health insurance, reportedly because the predominantly female workers were covered
under their spouses’ insurance. But a personal spending account option might
prompt more workers to opt for coverage and increase the firm’s costs.
Another concern was that consumer-driven health plans had no better high-cost
case management tools than other managed care options. Employers believed there
were more opportunities for cost savings by managing high-cost cases rather
than reducing utilization among the majority of workers who already use little
care. In addition, many noted that spending accounts did not provide a "high-end
user" with any incentives to control costs because individuals with catastrophic
illnesses typically are fully covered by the health plan after the deductible
and any out-of-pocket maximums are met.
Employers also weighed the trade-off between choosing a consumer-driven health
plan offered by a national firm and their current HMO or PPO from a regional
health plan. A few employers noted that provider discounts under a prominent
national consumer-driven health plan were not as large as those available through
local health plans, so potential savings from lower utilization might be offset
by smaller provider price discounts.
Some employers, however, did expect consumer-driven health plans to slow their
cost growth. The key advantage of consumer-driven health plans, according to
these employers and their representatives, is their potential to increase consumers’
financial stake in their health care, to improve their understanding of the
cost of care and to reduce utilization. Some hoped that consumer-driven health
plans would help employers move away from first-dollar coverage and minimal
copayments. With a health spending account, a worker still has first-dollar
coverage but pays the full amount of the discounted bill for care instead of
a copayment.
Although employers, consultants and brokers who favored consumer-driven health
plans hoped that spending accounts would lead to lower costs through lower utilization,
some thought the greatest cost savings would result from employers moving to
a fixed-dollar contribution and stabilizing future employer contributions. In
addition, with a "build it and they will come" viewpoint, a few respondents
expected a move to consumer-driven health plans to increase provider competition
and lead to the development of easily accessible and relevant consumer information
in the health care marketplace.
Putting the Consumer in Consumer-Driven Health Care
Employers also were concerned about the amount of education they would have
to provide to their workforce to implement a consumer-driven health plan. In
particular, health benefit managers assumed that it would take a substantial
effort on their part to educate workers about how consumer-driven health plans
function, especially spending accounts, as well as to provide decision-support
tools for choice of provider and treatment options. Indeed, employers gravitating
toward consumer-driven approaches invested considerable effort in developing
employee communication and education plans well in advance of offering the new
plan.
Some employers also were concerned that regardless of the amount of education
they provided, spending accounts were too complicated and their workforce "not
savvy enough." Employers in markets such as Orange County and Miami described
how difficult it would be to educate their workforce about coinsurance and personal
spending accounts given their workers’ long history and familiarity with HMOs
and copayments. Some health benefit managers pointed to workforce demographics,
predicting that workers with less education, language barriers, and lacking
access to computers or the Internet at work or home would be unable to benefit
from a consumer-driven health plan.
Tiered Networks Face Skepticism, Too
Tiered-provider networks were described as a "design running ahead of
information," with employers questioning whether health plans had the information
needed to identify higher-quality, lower-cost providers. Many employers assumed
that health plans would design tiered-provider networks to save money and predicated
their enthusiasm for tiered networks on whether the delineation of tiers would
be based on both cost and quality information or on cost alone.
Furthermore, there was confusion across employers about whether consumers would
have to pay more to see high-quality providers. Some assumed the ideal: That
the preferred tier would include the highest-quality, lowest-cost providers.
Employees choosing the preferred tier would get better care at a lower cost,
and employees choosing a less efficient provider in the nonpreferred tier would
pay more. However, some employers assumed that higher-quality providers would
invariably charge more and patients would have to pay more for the tier with
for the highest-quality providers. These employers questioned the fairness of
tiered networks if high-quality providers would only be available to those with
the resources to pay for them.
Views about the type of quality information that might be required varied considerably.
Some employers thought that current claim information was sufficient, while
others believed tiered networks would require standardized outcomes data. Others
were concerned about the type of quality information available and questioned
how employers could evaluate the tiers. They also questioned whether health
plans would reveal their methodology for developing tiers and whether providers
would cooperate.
Health plans considered tiered networks as a valuable tool for gaining leverage
on provider payment rates and for encouraging provider efficiency. In contrast,
employers considered tiered networks as a tool to shape employees’ choice of
provider. Employer decisions about whether or not to adopt a tiered network
reflected current health plan offerings not their potential. Employers, therefore,
wanted assurance that tiered networks adequately reflected both quality and
cost before moving in this direction.
While employers viewed education about tiered networks to be the role of health
plans, some did question whether this would be feasible. A few were wary that
without adequate information about quality, consumers might equate high cost
with high quality and, therefore, be more inclined to choose the high-cost tier.
Some mentioned the challenge of communicating tier choices to employees, especially
because the tiers would not be static as top-performing providers changed over
time.
Implications
Contrary to vendors who tout their products as single solutions to rising costs,
employers described a broad range of pluses and minuses of consumer-driven health
plans and tiered networks. Given the diversity of employers and their workforces,
it is unlikely that any single solution to rising health care costs will suffice.
Large national firms with numerous sites will more likely prefer an option that
can be offered nationally, while a firm with a single location may prefer a
local option. Similarly, one option might appeal to a company with a highly
educated workforce but be rejected by firms with less-skilled workers.
Rather than lemmings to the sea, most employers scrutinize their own particular
workforce characteristics and company circumstances to assess potential cost
savings of new product offerings rather than base decisions on other employers’
actions.
However, the debate around these new product designs, especially consumer-driven
health plans, continues to emphasize a single solution to rising costs, suggesting
a tipping point where the remaining employers will follow the actions of "innovating"
employers. Regardless of whether employers widely adopt consumer-driven health
plans, there will continue to be a need for additional new cost-containment
tools, including, for example, improved management of high-cost, medically complex
patients and better ways to measure quality of care at the individual provider
level.
Policy makers have sought to encourage employers’ adoption of new products,
for example, by revising regulations for spending accounts and developing tax
incentives for high-deductible health plans. However, the diversity of employers
and workers suggests that employers will scrutinize products through the prism
of their own costs and that the health insurance market may require a range
of innovative products rather than a single solution.
Notes
| 1. |
Christianson, Jon, Stephen T. Parente and Ruth Taylor, "Defined Contribution
Health Insurance Products: Development and Prospects," Health Affairs,
Vol. 21, No. 1 (January/February 2002). |
| 2. |
Mays, Glen, Gary Claxton and Bradley C. Strunk, Tiered-Provider Networks:
Patients Face Cost-Choice Trade-Offs, Issue
Brief No. 71, Center for Studying Health System Change, Washington,
D.C. (November 2003). |
| 3. |
Trude, Sally, et al., "Employer-Sponsored Health Insurance: Pressing
Problems, Incremental Changes," Health Affairs, Vol. 21, No.
1, (January/February 2002). |
Data Source
Every two years, HSC researchers visit 12 nationally representative metropolitan
communities to track changes in local health care markets. The 12 communities
are Boston; Cleveland; Greenville, S.C.; Indianapolis; Lansing, Mich.; Little
Rock, Ark.; Miami; northern New Jersey; Orange County, Calif.; Phoenix, Seattle;
and Syracuse, N.Y. In 2002-03, HSC researchers interviewed health benefit managers
of large companies of 500 or more workers, health benefit consultants and brokers
about consumer-driven health plans and tiered-provider networks.
ISSUE BRIEFS are published by the
Center for Studying Health System Change.
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