Health care cost increases are rising at twice the rate of inflation for many companies, but not all. Watson Wyatt’s 13th Annual National Business Group on Health Study regarding employer-sponsored health care benefit programs reveals that the median two-year health care cost increase (for 2007 and expected for 2008) for all 453 surveyed employers in 2007 is 6.2 percent. While the poorest performing companies have a cost increase of 10 percent among the survey’s participants, the best performing companies experienced a two-year median cost increase of only 1 percent. What’s their secret? Consumer-directed health plans (CDHP) and programs that encourage employees to take control of their health.
“Employers can sustain a low cost increase trend by combining programs such as CDHPs with effective employee communication and appropriate financial incentives,” says Moji Saavedra, consultant for the Group and Health Care Practice at Watson Wyatt Worldwide. “Our research definitely shows that skeptics who are standing by on the sidelines and not adopting these strategies are missing out on significant cost savings.”
Smart Business spoke with Saavedra about how companies can benefit by adopting a consumer-oriented health care model.
What are other key findings from the survey?
What makes the survey results so significant is that the data continue to reinforce the findings from prior studies and the results are pretty compelling in terms of documented cost increase stabilization. The information shows that both CDHP adoption and enrollment rates are increasing; 47 percent of companies will offer a CDHP in 2008, which is up from 39 percent in 2007, and 42 percent of the companies offering a CDHP now have at least 20 percent of their employees enrolled in the plan. This trend is producing more stability in cost increases. In addition, the best performing companies are offering employees lower premiums for choosing CDHP plans, which is driving increased enrollment.
Why are CDHPs so effective?
A CDHP usually features a high deductible, such as $1,200 for employee-only coverage, along with a personal savings account that can be used to pay a portion of the medical expenses not covered by the plan. But, it’s not just the higher deductible that’s generating the cost increase control; the key is that the plans encourage employees to take responsibility for their own health and become better health care consumers by scrutinizing the treatment proposed by providers and making better informed choices. Many employers provide 100 percent coverage for preventive care before deductibles are met and go even further to offer financial incentives that encourage employees to proactively manage their health.
Are there compatible resources that drive CDHP effectiveness?
If employers want to realize the savings from a CDHP, it’s vital that they provide employees with the tools they need to be accountable for their own well-being. Offering a high deductible plan without the other components just isn’t as effective it’s like giving someone with no driving experience a car but no driving lessons.
Your first goal is to have employees maintain their health, and your second goal is to have those with chronic diseases manage their conditions. CDHP companies offer high-performance networks or tiered provider networks, based on price and quality, and online quality comparison tools that direct employees to high-quality providers. One of the interesting findings in this year’s survey was the increase in employers that offer on-site health centers, which help coordinate care and promote greater productivity.
The bow that ties up the consumer-directed package is effective communication. The best performing companies are clearly communicating goals, benefits, program information and educational resources to their employees through an ongoing communications program that uses multiple mediums.
Are financial incentives effective?
All incentives are effective, and they are a vital component to a results-driven consumer-oriented health care model. Consider offering incentives for smoking cessation and weight management programs or cholesterol reduction plans. The incentives can be customized to fit the culture of each company, so whether you structure the incentive as a contest or offer cash or gift cards for everyone who achieves his or her goal, there is data to show that they are all effective.
What else do you suggest?
Use data to document your return on investment. Certainly, you want to begin by measuring your internal rate of return as you migrate toward a consumer-oriented health model, but also consider benchmarking against other companies by sourcing information from data warehouses. You’ll be able to compare your company’s key metrics, such as CDHP employee adoption rates, and expose where your savings opportunities might lie. The data now exist to prove that consumers can effectively manage their own health care when given the right tools and incentives. So CEOs should pay attention to the results because this might just be the long awaited health care cost management tool they’ve been seeking.
MOJI SAAVEDRA is a consultant for the Group and Health Care Practice at Watson Wyatt Worldwide, San Francisco. Reach her at (415) 733-4210 or email@example.com.