Health benefits Featured

6:50am EDT September 21, 2006
Rising health care costs have demanded that employers find cost-efficient ways to provide quality health care to their employees. Today more costs are passed on to the employees, forcing them to make smart consumer decisions when it comes time to seeing a doctor or buying the best prescription drug.

“As costs have gone up more companies are taking a closer look at the benefit design,” says Graham Smith, director of marketing and product development at Care Choices in Detroit.

Smart Business talked to Smith about how benefit design can help employers provide the best possible benefits to their employees.

Can health care benefit design help control health care costs?
By increasing co-pays, coinsurance or deductibles employers are generally able to reduce their premiums. In order to slow ever increasing medical cost trends we need to ensure that members are guided to cost effective care. A good example of this is the co-pay amount for office visits, urgent care visits and ER visits and the spread between them. If you have a $20 office visit, $30 urgent care and $40 ER co-pay, the spread between the co-pays associated with each may not be enough to drive a consumer to a less expensive setting such as a physician’s office or urgent care facility. With a larger spread it is more likely that a consumer will give more thought to which setting is the most appropriate for their current condition. Instead of a $75 trip to the ER for a common non-emergency ailment they are more likely to opt for a $20 visit to their physician’s office.

Are there other less traditional changes in benefit design that can be made to reduce medical costs?
By designing benefits that steer members to more cost effective settings we can have a positive impact on reducing costs. A traditional co-pay, the office visit, can be broken down further with higher co-pay’s for visits to specialists than Primary Care Physician’s (PCP). Structuring an inpatient hospital admission co-pay at $250, outpatient hospital surgery co-pay at $150 and free standing ambulatory surgical facility co-pay at $100 make’s members aware of the cost differentials between these settings and provides them with an incentive to choose a more cost effective setting if medically appropriate.

What effect do Consumer Directed Health Plans (CDHP) have on medical costs and can they keep people from seeking the care they need?
Since there can be significant out-of-pocket costs to those who enroll in CDHP’s, having a plan design that takes into account preventive or chronic conditions is key to containing costs and maintaining members health. CDHP plans with a high deductible push a significant portion of initial costs back to consumers. If those members do not seek preventive care or care for chronic diseases, there can be significantly higher long term or even short term costs. Because of this it is important that these plan designs allow members to access preventive care or treat chronic conditions prior to having to meet a high deductible which might prevent them from receiving that care. With a combined deductible for medical and pharmacy costs for HSA compatible plans, the deductible impact on drug costs has become more significant. Plan designs have begun to take this into account and can provide members with chronic conditions such as diabetes with maintenance drugs as preventive benefits for which the deductible is not applicable.

With ever-rising pharmacy costs what benefit designs can help control those costs?
Traditionally pharmacy benefit designs have focused on tiering drug co-pays, which address costs differentials for generic, brand name and preferred brand name drugs. Additional measures such as step therapy, prior-authorization and quantity limits can further control costs while providing safe and effective care. Step therapy is a viable approach when there is more than one drug used to treat the same condition and none of the drugs have been proven to be clinically superior to the others. Quantity limits represent the drug quantity allowed over a set period of time, and are usually based on clinical evidence to take advantage of parity pricing or to conform to Food and Drug Administration-approved dosing and current treatment guidelines. Prior authorization requires that the health plan have an opportunity to review and approve certain medications before a prescription can be filled. These types of benefit designs are becoming more prevalent in PPO plan designs that traditionally have had few such cost controls. They are of particular interest to employers in self-funded arrangements that can directly benefit from the bottom line pharmacy claims savings.

Graham Smith is director of marketing and product development at Care Choices. He can be reached at (248) 489-5080 or