Plans To Manage Healthcare Costs
EMPLOYEES OF THE OTTAWA Area Intermediate School District in southwestern Michigan can check their blood pressure in faculty lounges, attend lunch-and-learn sessions on health topics and get free over-the-counter allergy and heartburn medicines. Their raises depend in part on how well they collectively manage their health care claims costs.
In the Palm Beach County School District in Florida, a full-time wellness coordinator organizes activities ranging from a "biggest loser" weight loss competition to on-site mammograms and screenings for osteoporosis and blood pressure. Starting this month, employees with heart-related health risks will be targeted for an 18- month Healthy Heart education program to encourage people with heart disease risk to take steps to better health. The program is co-sponsored by pharmaceutical giant Pfizer. Participants will earn $90 in financial incentives and giveaways each month. When it's over, Pfizer coordinators will inform the district if participants improved on certain Healthy Heart benchmarks.
To encourage employees with diabetes to take part in a disease management program, the Houston Independent School District offers employees incentives, such as a free cell phone that also functions as a pedometer and measures blood sugar. And the district contributes up to $300 quarterly into the health reimbursement accounts (HRA) of participants in its consumer-directed health plan (CDHP), which is a high-deductible plan paired with a tax-advantaged health spending account, where the pretax money resides, acting like a 401k program.
As health insurance costs continue to consume a growing chunk of school spending, districts like these in Michigan, Florida and Texas are reigning in costs by investing in programs that encourage employees to make healthy lifestyle choices and become more cost-conscious consumers. To a degree never seen before, districts are analyzing factors that drive their health care costs and attacking them on two fronts: with financial incentives that motivate employees to choose and use benefits wisely, and with wellness and disease management programs that help prevent and control the most prevalent and costly chronic health conditions.
"Information on health costs allows a district to target health risk areas, such as hypertension, and implement wellness plans designed to catch risk factors early, and hopefully correct them before the condition becomes chronic," says Darcie R. Birkett, assistant superintendent of business services for the Ottawa district in Holland, Mich. "Data also allows the work force to become more educated regarding the true cost of health care services and products, so that thoughtful decisions regarding health care become the norm."
Just as they had in 2003 and in 2004, officials reported in an Association of School Business Officials (ASBO) International Strategic Issue survey in 2005 that the rising cost of health care was the biggest concern they faced in their job, and more than two-thirds say it negatively affected their district's ability to provide academic services to students.
And it's no wonder. Health insurance premiums continue to grow far faster than district revenues. While health insurance premiums increased 9 percent in 2005 and nearly 8 percent in 2006, according to the Kaiser Family Foundation and Health Education and Research Trust, school district revenues increased just about 2 percent. For years, administrators have tried to cope with rising premiums by tweaking their health benefit programs-primarily by forcing employees to contribute more to premiums and by increasing deductibles and co payments for medical services. But this approach is limited. In the ASBO survey, nearly 70 percent cited cost shifting to employees through higher deductibles and copays as the most promising solution, but only 48 percent said that would be seriously considered in future contract negotiations. "In bargaining with union groups, you can't just keep raising prices and changing benefits," says Dianne Howard, director of employee benefits and risk management for the Palm Beach district, which is spending $132 million for health insurance this year. "We are very much hoping our proactive wellness and disease management programs will result in reduced costs and benefit our employees."
The most effective wellness and disease management programs focus on the high cost conditions that can be prevented or controlled with lifestyle changes. The medical care costs of people with chronic diseases-such as heart disease, cancer and diabetes-account for more than 75 percent of the nation's $1.4 trillion in medical care costs, according to the U.S. Centers for Disease Control and Prevention. And about 80 percent of coronary heart disease cases and 90 percent of Type- 2 diabetes could be prevented if people ate better, exercised and didn't smoke, says the Harvard School of Public Health.
Large corporate employers have taken the lead in investing in health promotion programs, and school districts are beginning to follow. A survey of 573 large employers conducted by Watson Wyatt Worldwide and the National Business Group on Health found that 72 percent offer health risk appraisals and 42 percent are implementing programs that focus on reducing obesity among employees.
Consumer Health Plans
The hottest topic in health benefits today in business is the CDHP, or consumer- directed health plan. These plans are designed to encourage employees to change their health care buying practices given that they have more of their own money on the line. The high deductible- typically $1,000 or more per individual- encourages people to purchase only the health services they really need, according to Marie R. Dufresne, a Hay Group consultant. Health education and Web-based information about health care and claims costs also help employees make more health- and cost-conscious decisions.
The percentage of employers offering a CDHP based on either an HRA or a Health Savings Account (HSA) tripled in 2006 from 2 percent to 6 percent, according to the 2006 National Survey of Employer-Sponsored Health Plans, conducted by Mercer Health & Benefits. For schools, Texas seems to be leading.
HISD and neighboring Katy and Aldine districts are among the estimated 5 percent of districts with more than 500 employees that offer a high-deductible health plan in conjunction with an HRA, says Mercer consultant Susan Prochazka, who works with the Houston district. (About 3 percent of districts offer high deductible health plans with an HSA, an increasingly common variation because employers don't have to fund them and because they are portable when an employee changes jobs.)
One of the most effective messages was this: Two-thirds of employees spend $750 or less per year on health care, and that's exactly how much the district was putting into employee-only HRAs each year.
HISD offers two CDHP plans, one more generous but with a higher premium than the other. When employees go to a doctor for non preventive care beyond routine physicals or immunizations, they pay the full cost until they hit the deductible, which can be $1,000 or $1,500, depending on the plan. After meeting the deductible, the plan pays 75 or 80 percent of the cost. Employees can use the money from their HRA to pay those remaining costs. Just like other health plans, the employees' out-of- pocket costs are limited to $2,500 or $3,000. Participants also get up to $1,000 worth of preventive care for free. Employees pay a higher percentage for office visits to doctors out of network, compared to doctors in network.
In Houston, administrators contribute $750 annually to every employee's account plus some additional deposits to the HRA each year, and the accounts can grow as unused HRA money rolls over into subsequent years. Starting this year, the district is contributing another $250- $300 quarterly into HRAs if employees or dependents diagnosed with diabetes are in a disease management program.
Houston's decision to offer CDHPs was the culmination of steps to manage health care costs when, after three years of guaranteed rates, the district faced a large increase in premiums in 2000. The first step was to become self-insured. Organizations that self-insure set aside reserves to pay claims up to a certain level and buy reinsurance, or stop-loss coverage, to pay catastrophic claims above that point. Then HISD introduced programs to get employees involved in improving their health, including classes about chronic illnesses such as hypertension, asthma and diabetes. "We had hundreds of people sign up to take those classes," says Melinda Garrett, HISD chief financial officer.
In the next phase, with the introduction of CDHPs in 2004, employees learned about cost. "Employees did not have a clue what the cost of health care really was because they were in their HMOs for so long," Garrett says. "Any little sniffle, they'd go to the doctor and think it cost just $10," when it actually cost the district much more, she adds.
In the first year Houston offered its 17,500-covered employees two CDHP options, 36 percent enrolled. The percentage jumped to over 50 percent this year. "For a population who had never received an Explanation of Benefits, paid a deductible or coinsurance, or had to consider going out of network, it was a major change," says Prochazka. The Mercer survey shows that for districts that offer an HRA-based CDHP as one option, 26 percent of employees enroll in the CDHP. That number is 10 percent for HSA-based plans.
In 2004, the difference in average claims costs between the CDHP and other plans was astounding-$1,971 per person vs. $4,526. And this is because a smaller number of healthier people with lower claims were more inclined to try the lower-cost option, leaving employees with more health problems and thus higher claims in the HMOs-a phenomenon known as "adverse selection."
The gap has closed as the appeal of the lower-cost CDHP plans widens beyond healthy employees to the broader population. In 2006, the district paid $2,301 for each participant in CDHP plans vs. $4,109 for the other plan. "There was some real consumerist behavior going on here," Prochazka says. "People were more thoughtful about how they spent the HRA money because they thought of it as theirs."
CDHP plans are attractive because of their cost: premiums are almost half that of the district's open access HMO. But HMOs still hold great appeal for many people. "People who live paycheck to paycheck and have a hard time saving often avoid the CDHP option because they fear the deductible, even though their overall cost is likely to be higher," Prochazka says. "Also, people who prefer the simplicity of a copay and no paperwork for office visits avoid CDHP plans."
For the district, the bottom line has been stabilized claims costs, says benefits manager Brad Bailey. For employees, it has been fl at premiums over three years, and more benefits, such as free generic medications. "We're always out there looking for the new idea that will be a benefit to our employees," Garrett says.
Part of the success of Houston's CDHP is due to the communication strategy that helped employees understand how the health insurance and HRA plans work and how to figure out what is appropriate for them. The consumer-directed plan "encourages the preventive care because it's free, and it encourages people to use other care wisely," says Lynne K. Parrott, a principal in Mercer's Houston office.
Terms to Know
ADVERSE SELECTION: A phenomenon that occurs when people who sign up for an insurance plan have costs that are greater than the expected costs of the plan used to calculate the premium.
CONSUMER-DIRECTED HEALTH PLAN (CDHP): A benefit plan that combines a high-deductible health plan (HDHP) with a tax-advantaged health reimbursement arrangement (HRA) or health savings account (HSA) that enrollees can use to pay for a portion of their health expenses.
DISEASE MANAGEMENT: A system of coordinated health care interventions and communications for populations with conditions in which patient self-care efforts are significant.
HEALTH MAINTENANCE ORGANIZATION (HMO): A health care system that assumes or shares financial risks and delivery risks associated with providing comprehensive predetermined medical services. The individual must use a specified network of providers and select a primary care physician to monitor and control medical care.
INDEMNITY PLAN: Health insurance that reimburses health care providers on the basis of a fee for each service provided to the insured person with no provider network or negotiated discounts.
HEALTH REIMBURSEMENT ACCOUNT (HRA): A health-spending account funded and owned by the employer to cover employees' out-of-pocket expenses in conjunction with a qualified high-deductible plan.
HEALTH SAVINGS ACCOUNT (HSA): A pretax account funded by employees and/ or employers to cover out-of-pocket expenses with a qualified high-deductible plan. Unused funds may be carried forward to future years and a new employer.
POINT OF SERVICE PLAN: A health plan that allows members to choose to receive services from a participating or nonparticipating network provider, usually with a financial disincentive for going outside the network.
PREFERRED PROVIDER ORGANIZATION (PPO): A type of medical plan where coverage is provided to participants through a network of selected health care providers. Enrollees pay a greater percentage of the cost of coverage for care outside the network.
SELF-FUNDING: A benefit plan funding method in which the employer carries the risk for any claims.
STOP-LOSS PROVISION: A provision in a self-funded plan that is designed to limit an employer's risk of losses to a specific amount. If claim costs (for a month or year per claim) exceed a predetermined level, an insurance carrier will cover the excess amount.
Then there are self-insured districts that tend to limit costs. This year, union groups in the Ottawa district received a 1.5 percent increase in their base salary because their health claim costs last year were better than the average for the West Michigan Health Insurance Pool, a group of 29 districts that self-insures some or all health benefits. Had their claims been higher than average, their raise would have been only 1.25 percent. "This increases recognition that we are on a total compensation plan, that benefits are part of your compensation," says Birkett. "We did this specifically so that our employees would become more aware of how they are using benefits and use them wisely."
Without data on the district's claims, it would be challenging if not impossible to monitor changes in the use of benefits. "Most school districts in Michigan don't have any claims data to determine what their program should look like," says Doug Derks, former assistant superintendent for business of the East Grand Rapids Public Schools and now area vice president for employee benefits consultant Gallagher Benefit Services of Michigan Inc.
The Ottawa district became self insured in 2004 for just that reason, and the following year it helped form the West Michigan Health Insurance Pool. "We wanted to become self-insured because we wanted data to create a wellness program and we wanted people to be more knowledgeable and vested in using benefits wisely," says Birkett, who chairs the pool. "Self-insurance is not the pill to solve all of our health care problems, but it's a good step because data-driven decisions are better than paying the bill and not knowing what you are getting for it."
In the West Michigan pool, reinsurance kicks in after claims hit $100,000. As the pool gets larger, it will be able to retain more risk, which generally lowers costs. Self- insured organizations often contract with an employee benefits consultant to design the program, a third party administrator to process claims, and a network of doctors and hospitals to provide medical care at discounted prices. Self-insurance works best when it allows for pooling the risk of a large number of employees, generally over 1,000.
The West Michigan pool was made possible due to a law passed seven years ago allowing Michigan school districts to buy health insurance as regional groups. A proposal to create a mandatory statewide insurance pool for school employees has not advanced in the legislature.
Now in its second full year of operation, the West Michigan pool has grown from 900 employees in nine districts to 1,800 employees in 29 districts-about 20 percent of the districts in the region. While all the covered employees in Birkett's district are insured through the pool, in most participating districts, nonunion employees are in the pool but union members still maintain coverage through the health insurance program sponsored by the state teachers' union. "We have that hurdle of educating all employees that this is a viable option for them," says Derks, whose firm manages the pool.
The districts in the pool have saved about 7 percent while maintaining the same level of benefits that were offered previously, Derks says. Pool members can review their medical and prescription claims trends and see how they compare with other districts in the pool and with trends in the private sector.
Wellness Programs and Cost Control
Joining the pool has allowed the Ottawa district to slow the rise in the cost of health benefits. The district's average increase in cost was 5.5 percent over the past two years, while a fully insured plan averaged an 11 percent increase for very similar benefits, Birkett says. And if actual costs run below the premium charged, the districts retain the savings in the pool's reserves, where an insurance company would keep the savings as profits.
The Ottawa district has also helped employees reduce their risk of heart attack and stroke. The district put blood pressure monitors in rooms in its four main buildings, where employees could use them discreetly. The district has invited the American Heart Association to do presentations and has provided wellness programs on managing stress. And many employees have taken medications to control their blood pressure and reduce cholesterol.
And even that has gotten cheaper. Claims data reveal that employees consistently bought costly brand-name drugs when generics were available. The district now encourages employees to take appropriate generics, and the pool has boosted the copay of brand drugs from $20 to $30 while keeping generics at a fl at $10. "We're looking for ways to structure the prescription plan not to take away benefits, but to encourage people to take the lower cost generic so we can retain a high level of benefits over time," Birkett says.
As further evidence of that philosophy, the pool began paying 100 percent of the costs of Claritin and Prilosec, two drugs that had required prescriptions but now are sold over the counter. Early on, claims data revealed that when Claritin became available over the counter, 70 percent of those who took the prescription version switched to Zyrtec, another brand-name prescription drug, instead of buying their old medication off the shelf. At the time, employees paid just $5 for prescriptions, but a 30-day supply of Claritin would have cost them far more, giving them an incentive to get a new prescription.
The pool decided to offer Claritin to employees for free. Instead of paying about $102 for a month's supply of Zyrtec, the district pays $12 for a month's supply of Claritin. By giving employees Claritin for free, the district still comes out $90 ahead. "It's a win-win, and a small example of where you can look at data and make a good decision," Birkett says.
Birkett gives kudos to Superintendent of Schools Karen McPhee and a groups of employees who recognize that the district's ability to manage long-term health care costs is critical to ensuring that they continue to receive a high level of total compensation. Any changes to the benefit plan are introduced for administrators first and then incorporated in the employees' benefit plans the next year. "The key to successfully implementing change is to educate employees as to the how and why behind the proposed change," Birkett says. "Once educated about the high costs and what we can all do to keep a lid on that, most employees are very willing to give it a try."
With 21,000 employees, the Palm Beach district is the county's largest employer, so when it decided to insure itself, it did not need to pool with other districts. But in its approach to managing health care challenges, it shares similarities with the small districts in western Michigan in that it is engaging in partnerships with other employers, investing in wellness and disease management, and using financial incentives to encourage employees to make cost-effective health care decisions.
Palm Beach works closely with other large employers through the Florida Healthcare Coalition and with United- Healthcare, an insurer that provides the doctor network, processes claims and coordinates disease management programs, says Howard, the district's director of employee benefits and risk management. In a novel arrangement, United- Healthcare returned $100,000 of the district's premiums to fund a dedicated onsite wellness coordinator, who focuses on health promotions- nutrition programs, health screenings, exercise programs and the Healthy Heart with Pfizer-for the employees. The district also challenged United Health care to target three of the district's most common high-cost conditions- breast cancer, heart disease and diabetes-for disease management programs. Disease management strives to prevent complications using evidence-based guidelines and strategies that empower patients to practice "self-management," such as monitoring blood pressure and blood sugar. Collaboration between doctors and patients, monitoring patients, and measuring outcomes are key components of disease management programs.
UnitedHealthcare reduced the district's premiums based on expectations that the disease management program would cut claims costs by 2 percent, which could amount to more than $2 million. "We're banking on disease management to make a difference," Howard says.
The Downside of Some Plans
Consumer-directed plans get a bad rap in some surveys, as in The Kaiser Family Foundation National Survey of Enrollees in Consumer-Directed Health Plans. It found that such plans cherry-pick the healthiest and wealthiest employees, who are less likely to require expensive medical care. But those with higher medical costs stay in more traditional plans. With more sick people in traditional plans, without the premiums of healthier people to spread the risk, the costs of those plans tend to spiral upward, and premiums increase accordingly.
And reports find that patients are dissatisfied when they don't have sufficient information to make informed health care decisions. Other reports, however, say that employees are satisfied with CDHPs that pay for preventive care and offer adequate support and education. A Mercer survey found that 57 percent felt more positive than negative about their CDHP.
Even HISD experienced some early confusion, such as when some doctors used to bill employees for the full cost of care before the deductible was met, instead of waiting for payment from the HRA. That kink has been cleared up. Overall, say Bailey and Garrett, HISD employees have been positive about the program, and the district is considering ways to improve their experience. Next year, Aetna, the plan administrator, will provide price comparisons on the top 20 procedures and in the future hopes to offer more information about the quality of care offered at different hospitals.
Prochazka continually sees signs that employees are "getting it." A teacher got a second opinion when her doctor could not explain why she needed a $1,500 test that she would have to pay for after her HRA funds were exhausted. The second opinion determined the test was unnecessary. Parents who used to take their kids to the doctor at the first sniffle now wait longer to see if it's just a cold or something that requires medical attention.
Just as in buying a house, a car, even a dishwasher, Prochazka says, "consumerism is about getting people to be educated consumers about health care purchases."
Leslie Werstein Hann is a freelance writerbased in New Jersey.