As health-care costs eat up a growing share of employers budgets, a relatively new strategy for controlling those costsinvolving the use of consumer-directed health plans, or CDHPsis gaining popularity.


In a national survey of employer-sponsored health plans conducted by Mercer Health & Benefits, employers identified the use of CDHPs and care-management programs as their top two strategies for dealing with rising health-care costs. Spokane-area employers have been slower to adopt those strategies than their counterparts elsewhere in the U.S., but increasingly are showing interest in such plans, brokers here say.


Its happening slowly but surely, and its a trend that will continue to grow, says Mark Newbold, a consultant with Spokanes Moloney+ONeill Benefits.


Consumer-directed health plans typically combine a high-deductible medical insurance plan with a health reimbursement account (HRA) or health savings account (HSA), and focus strongly on illness prevention and consumer education. HRAs and HSAs enable employees to pay for their health-care expenses with tax-free income. Unused balances in the accounts typically can be accrued for future use.


Once an enrollee spends enough on health-care costs, including from their HRA or HAS, to meet the high deductible of the insurance plan, coverage kicks in on a percentage of additional costs and a cap eventually comes into play on total out-of-pocket expenses. CDHPs also typically provide online programs and other tools to help employees navigate the health-care market, in the hope they will buy health-care services carefully, holding down their own costs and the plans costs.


CDHPs still represent a small percentage of the plans that employers choose, but are the only plans that are growing in popularity, according to the Mercer survey, which was released in June. The survey, a much-watched barometer of the U.S. health-care market, is conducted by Mercer Health & Benefits, a unit of Mercer Human Resources Consulting, a global consulting firm.


The percentage of covered U.S. employees enrolled in CDHP plans grew to 3 percent in 2006, up from 1 percent in 2005, the survey found. In comparison, the percentage of employees enrolled in preferred-provider organization (PPO) plans remained flat, at 61 percent last year, while the percentage of employees enrolled in health-management organizations (HMOs) declined to 24 percent last year from 25 percent in 2005.


A lot of employers are trying to figure out a different strategy, instead of asking employees to pay more each year for health care, Newbold says.


Batty-Erlandsen & Associates PS, a Spokane accounting firm that employs 10 people, made the switch to a CDHP to get its spiraling health-care costs under control, says Jim Erlandsen, a principal at the firm. Batty-Erlandsen had been hit by double-digit health-insurance rate hikes for about six years, and when the premiums rose 20 percent two years ago, it was time to do something different, he says.


In 2005, the firm switched from a traditional PPO plan with Premera Blue Cross to a high-deductible HSA plan with Asuris Northwest Health, Erlandsen says. The plan has a $2,500 deductible for individuals and $5,000 deductible for families. The company contributes its savings on premiums to employees HSAs, he says.


Thus far, the changeover has gone smoothly, he says.


We would prefer to be on the other plan, but its a matter of cost, Erlandsen says. We put everyone on notice that you have to participate in your own health care, because we just cant do it all.


The adoption rate of CDHPs is fastest among small employers, Mercers study shows. Among businesses with 10 to 499 employees, 5 percent offered CDHPs in 2006, but 14 percent said they were likely to offer such plans this year, and 16 percent expected to offer them next year, the survey says.


Meanwhile, health-care costs rose fastest among small employers, too, the survey said. The total health-care benefit cost per employee for businesses with 10 to 499 employees rose 7 percent, to $7,140, in 2006, while per-employee costs for mid-size and large employer rose 5.8 percent to $7,926 and 6.5 percent to $7,764, respectively.


Thus, small employers keen interest in CDHPs makes sense, given their rising costs and CDHPs reputation as the cheapest type of health plan, says Kathy Prosser, Mercers Portland, Ore.-based regional manager. The average cost per employee under a CDHP plan grew 5.3 percent, to $5,770, in 2006, while the per-employee cost of PPOs grew 7 percent, to $6,932, and the cost of HMOs climbed 6.5 percent, to roughly $6,600, according to the survey.


The adoption rate is faster among smaller employers because theyre more cost sensitive, Prosser says. They dont have the human resources to dedicate to managing benefits and a health plan.


Larger groups, although not as quick as small employers to jump on the CDHP bandwagon, have been more willing to do so than mid-size businesses, and offer consumer-driven plans in addition to traditional plans as an option to dip your toe in, Prosser says. Other employers are taking a wait and see stance, and watching to see how CDHPs work for early adopters before they decide to switch over, she says.


One reason CDHPs have taken awhile to gain momentum here is that the money they would save in premiums by switching to a higher-deductible plan hasnt been enough to fund an HRA or HSA account adequately, Newbold says. An employers ability to bridge the gap between a traditional plan and a CDHP by placing money in an HRA or HSA is especially important for employees who are frequent users of health care, he says.


No doubt these plans are going to cause high utilizers to pay more for their health care, but thats not necessarily a bad thing, because medical plans will cap the amount a person pays in a given year, he says.


Newbold says hes starting to see enough of a premium rate difference between traditional plans and CDHPs to give employers a financial incentive to choose a CDHP. As a general rule of thumb, he says he likes to see a 30 percent to 40 percent premium savings before he suggests to clients that theres enough money saved to fund an HRA or HSA.


Prescription drugs


The pill that most employers and employees have a hard time swallowing with CDHPs is that they dont cover prescription drugs until the enrollee has met the deductible, which for such plans often ranges between $1,500 and $2,500, brokers say.


Thats when employees push back from the table during discussions about CDHPs, says Robert Harley, former president of Fidelity Associates and owner of R.W. Harley Enterprises LLC, a Spokane-based independent brokerage.


Also, implementing a CDHP is difficult, because its a different concept than consumers are accustomed to, Harley says. For years, enrollees have been insulated somewhat from the upfront costs of health care because theyve just had to pay co-pays for doctors visits and prescription drugs, he says. CDHPs put more of the responsibility for managing health-care costs on the employee, he says.


If youre in the CDHP and its your money, youre going to be forced to educate yourself, he says. People are taking onus of their own health and looking for quality and inexpensive care.


Thats why many CDHPs include tools for helping enrollees gather information about their health-care market, Prosser says. In some markets, consumers can research costs online so they can compare different physicians and hospitals and choose drugs based on cost, she says.


Care management


Care-management programs, also called wellness programs, are another tool typically used in conjunction with CDHPs, she says. Such programs usually include health-risk assessment tests, disease-management programs, and a nurse advice line that enrollees can call to get answers about their health problem without going to the doctor, she says.


Although wellness programs are the new, hot buzz word, Harley says, employers must be ready to make long-term investments in changing the mindset of their employees, because employees and their dependents need incentives to participate, or the programs will fail. The Mercer survey lists such things as cash rewards and lower premium contributions as possible incentives.


In Washington state, all small businesses are lumped together in the same health insurance ratings pool, in which age and demographics determine premiums, Harley says. Thus, small employers have less incentive to help improve employees health when improvements dont translate into lower premiums, he says.


For some employers, though, the advantages of wellness programsimproved employee health, reduced absenteeism, and a reduction in claimsis worth the investment, he says.


One question that remains to be answered is whether CDHPs and care-management programs will produce better consumers or will cause people not to seek necessary care, Prosser says.


Some initial studies that insurers have conducted show that CDHPs are achieving their desired aim. According to the Mercer survey, a study Aetna conducted last year found that members of CDHPs continued to receive necessary preventive care and prescriptions, and utilization of care dropped while use of generic drugs rose.


A 2006 study conducted by Cigna found that medical costs under CDHPs were 12 percent lower than for traditional plans, and prescription drug costs were 5 percent lower.


Contact Emily Proffitt at (509) 344-1265 or via e-mail at emilyp@spokanejournal.com.