Consumer-directed health plans slow to catch on

Laura Moretz

The Business Journal Serving the Greater Triad Area



Consumer-directed plans still could end up being a revolutionary approach to the way employers offer health insurance, but the uprising has not yet gained a foothold.



Such health plans offer employees a high-deductible policy in return for lower premiums and the establishment of some form of tax-preferred savings account. The idea behind the concept is that if employees have more control over their health care spending, they will be more interested in helping cut costs.



But so far, only about 1 percent of North Carolina's employer-sponsored health plans are consumer directed, according to a recent Mercer Health and Benefits survey that gathered information from 79 employers.



That's a small percentage, but the rate of growth is helping the concept gain momentum, according to those who are selling such products.



Douglas "Slade" Lewis, director of small groups sales in North Carolina for UnitedHealthcare, said that 15 percent of his sales this year were for consumer-driven plans. He expects that number to grow to 30 percent by the end of next year, thanks in part to the company's acquisition of Definity, which had a national footprint in offering such products.



Even so, there were surprises in the first year of sales, Lewis said. He was told the plan would sell only to the smallest groups, with one or two members. But several groups that bought the plans had as many as 14 members.



Lewis had also heard that only the healthy and wealthy would buy consumer-directed plans. But 30 percent of Definity's sales are to clients who earn $50,000 or less, he said.



Still, it pays for employers to go slowly, and at least initially offer a consumer-directed plan as one of two or more choices, Lewis said.



"What we recommend is that the employer fund the employee cost for both plans," he said. "We recommend that the employer prefund the (savings) account with savings on premiums."



When you minimize the employee's initial risk, they are more likely willing to try, he added.



A long-term strategy

Blue Cross and Blue Shield of North Carolina recently rolled out a consumer-directed plan for individuals.



John Roos, vice president of sales and marketing for Blue Cross, said the plan already comprises 10 percent of sales to individuals. The company is offering a consumer-directed plan for small groups, too, but it won't know what the group totals are until next month.



Keith A. Kiser, a regional employee benefits manager and senior vice president for BB&T Insurance Services, said that employers who want to move to a consumer-directed plan should have a three- to five-year strategy.



It's key to give employees a choice, he said. For example, an employer might pay the premiums for a consumer-directed plan, then allow those who want less risk to pay the difference for the traditional policy.



"The communication and the education is absolutely critical, and we think you have to start that 12 to 14 months before you start plan," he said.



Lisa Caldwell, the vice president of human resources for Reynolds American Inc. and its subsidiary, R.J. Reynolds Tobacco Co., said that her company retooled its benefits this year. It offers four levels of premiums and deductibles for both a traditional indemnity plan and for the company's HMO, Winston-Salem Healthcare.



"We probably embarked on the most comprehensive communications plan that we've ever done to really educate employees as well as to communicate the changes," Caldwell said.



The company named the levels Platinum, Gold, Silver and Bronze. The Platinum plan offers the lowest deductible, the highest premium and the richest benefits.



"Quite frankly, the platinum plan places less risk on the employee," Caldwell said. "Preliminary results say just a few tiptoed into the higher deductible plans. But it is an indication that there are employees interested."



Educating the masses

Steve Graybill, an analyst at Mercer, said the adoption rate of consumer-directed plans is slow because the concept needs to be taught to employees:



"I think people have become lazy. They say, 'I've got a $20 co-pay.' Price is not a decision factor for them. It's only time."



But when Mercer offered Graybill the choice of a consumer- directed plan with a health savings account, he decided it wasn't for him. He chose a traditional plan because he has a child with asthma and expects regular doctor visits.



"I looked at the additional liability that I was taking on. But the important thing is that I went through a thought process that I wouldn't normally have done."



Paul Goldbeck, a senior vice president at Aon Consulting's office in Winston-Salem, said employees in his office chose between a preferred-provider plan and a high-deductible plan with a health reimbursement account.



Many of his co-workers took a scientific approach, he said. "People sat down and created spreadsheets. They went into a lot of detail about what they were going to get back, the per-pay-period cost."



It was a simpler process for Goldbeck.



"I looked at it in terms of 'How much am I going to save on payday?'" He chose the consumer-directed plan because it increased his take-home pay.



"It was a significant difference. I couldn't not do it. I took most of what I saved on the premium and threw it into my flexible spending account," he said.



Goldbeck compares the decision process to that of buying car or house insurance. "It's all connected to risk aversion," he said. "There are those who would prefer to pay more on payday, and those who would prefer to save more on payday."



Trendlines developing

Eddie Vaughn, an actuary and managing consultant for Findley-Davies in Greensboro, said he's seen larger employers adding consumer-directed plans to their offerings more quickly than smaller employers.



But when Mercer offered Graybill the choice of a consumer- directed plan with a health savings account, he decided it wasn't for him. He chose a traditional plan because he has a child with asthma and expects regular doctor visits.



"I looked at the additional liability that I was taking on. But the important thing is that I went through a thought process that I wouldn't normally have done."



Paul Goldbeck, a senior vice president at Aon Consulting's office in Winston-Salem, said employees in his office chose between a preferred-provider plan and a high-deductible plan with a health reimbursement account.



Many of his co-workers took a scientific approach, he said. "People sat down and created spreadsheets. They went into a lot of detail about what they were going to get back, the per-pay-period cost."



It was a simpler process for Goldbeck.



"I looked at it in terms of 'How much am I going to save on payday?'" He chose the consumer-directed plan because it increased his take-home pay.



"It was a significant difference. I couldn't not do it. I took most of what I saved on the premium and threw it into my flexible spending account," he said.



Goldbeck compares the decision process to that of buying car or house insurance. "It's all connected to risk aversion," he said. "There are those who would prefer to pay more on payday, and those who would prefer to save more on payday."



Vaughn can't talk about specific clients, but his company offered him a consumer-directed plan this year.



"We have six people in Greensboro. Half of us have elected to go with it," he said. "It was structured in a way that it presents pretty good savings for the individual."



Vaughn chose the consumer-directed plan for his family. "For us, it ends up being less expensive. Even with two kids -- 13 and 15 -- they may need to go in for two visits a year. Generally speaking, for those whose casual use of health care is light, it tends to be a better deal."



His company makes a quarterly contribution to employees' health savings accounts, but, he said, large families or people who have chronic medical conditions will be better served through a traditional plan.



According to a recent survey by the Employee Benefit Research Institute, consumer-driven plans may drive some consumers away from seeking medical care.



About 35 percent of those with consumer-directed plans reported delaying or avoiding medical care, compared with 17 percent of those with comprehensive health plans.