 Consumer-Driven Health Care:
Overcoming Employee Inertia
Through Full Replacement
Despite a brief respite in the mid-1990s, the cost of managed care and indemnity medical plans has increased at double-digit annual rates for more than 25 years. Current thinking suggests that this inflationary trend is likely to continue unless something significant takes place to interrupt it.
 Many insurers, economists and actuaries believe that consumer-driven health plans (CDHPs) can significantly lower medical trend rates for the next several years, and predict that CDHP premiums will grow at roughly half the rate of traditional managed care plans. While that assessment may be optimistic, there are few other employer-based remedies with the potential to influence medical plan costs to that degree and as quickly as a CDHP. This has generated considerable employer interest in CDHP.
Sibson Consulting’s 2006 Survey of Consumer-Driven Health Plans reports that 36 percent of large employers currently offer a CDHP, and that more than 50 percent will offer a CDHP in 2007. Of the 36 percent currently offering a CDHP, almost all do so as an option to traditional managed care plans.*
Despite this fairly rapid rate of employer adoption, employees have proven less eager to accept CDHPs, with enrollment typically falling within 10 to 25 percent when offered as an option. To overcome employee inertia, a few organizations have implemented “full replacement” of traditional managed care plans with CDHP. Employer interest in that approach appears to be growing.
Why the Employee Reluctance to Select CDHPs?
Many employers offering a CDHP as an option to traditional managed care plans have attempted to make it a compelling choice by highlighting it in communications campaigns and offering coverage at significantly lower contribution rates. So far, most employees have resisted the overture.
Certainly, some inertia is to be expected; after all, employees are being asked to potentially bear more of the cost of their health care. However, a deeper evaluation suggests that other influences may be at play. These influences begin to come to light when one considers the true financial consequences of CDHP. Specifically, claim studies undertaken by Sibson Consulting on behalf of several large employers have shown that roughly two-thirds of employees experience lower total cost-share under CDHP than under traditional managed care plans.
So then, why the reluctance to change? Viewed from the individual perspective, the answer seems rooted first and foremost in a lack of understanding of CDHPs. This, in turn, drives a not-so-vague distrust of the plans, which ultimately stimulates the human tendency to avoid risk and change. These are among the chief reasons why effective communication is so crucial when introducing CDHP.
Looked at more broadly, the difficulty in changing attitudes may also lie within the current employer-based health insurance system. With employers in the purchaser role, employees have come to expect generous coverage and to resist increased financial exposure. Yet at the same time, many have elected higher deductibles under automobile and homeowner’s policies in order to lower insurance premiums. Proponents of a health insurance “voucher system” argue that shifting employees into the purchaser role would lead to similar decisionmaking, and would also drive greater competition among health insurers.
Regardless of the causes of inertia, employers who believe in CDHP and its potential to reign in unrestrained medical plan costs will generally want to see a rapid shift to the plans. A full-replacement model obviously responds to that objective.
The Shared Responsibility Strategy
From the periphery, employers implementing full replacement with a CDHP may appear to be undertaking a draconian strategy designed with only one objective in mind: shift more cost to employees. In reality, the organizations leading the way to full replacement are generally quite balanced in their perspective. Specifically, they tend not to view a CDHP as the panacea for runaway medical plan costs, but instead believe in a “shared  responsibility” strategy that promotes healthy lifestyles, quality care and efficient purchasing of medical care. A CDHP is merely the financial lever that compels behavior change.
Under the “shared responsibility” strategy:
- Employees assume greater responsibility for their health and health care purchasing decisions;
- The organization offers tools and resources that enable employees to improve their health and more successfully navigate the health care delivery system;
- Employees have a greater financial stake in the purchasing decisions they make and are rewarded financially for good behavior, and
- The organization continues to shoulder the large majority of health care expense protecting employees from financial hardship.
For most organizations, this approach requires a significant shift in how employees think about the employer’s role in providing medical benefits. The focus is on improving health and maximizing the value one receives from medical care. The organization’s role shifts from parent to partner, sharing the burden of managing health care risk, demand and cost with employees. Employers must communicate these messages clearly and extensively, so that employees fully understand the expectations of their new role.
In a way, CDHP brings “pay for performance” into the realm of health care consumption. The rewards of favorable performance come in several forms: lower payroll contributions, potentially lower out-of-pocket expenses and financial incentives for healthy behavior. Traditional managed care plans, particularly health maintenance organizations (HMOs) and point-of-service (POS) plans with very rich in-network benefits, shield employees from the financial consequences of poor health care decisions. Unfortunately, this lack of accountability often encourages ineffective, over-priced and even unnecessary care.
If fostering a culture of shared responsibility is the goal, an organization can inadvertently obscure the message by offering traditional managed care plan options. On the one hand, the organization expresses its firm intention that employees take an active role in improving their health and in spending benefit dollars more wisely; on the other, it offers plans that significantly insulate employees from the outcome of vacating that responsibility. Full replacement demands that employees take notice of a new dynamic in the organization’s delivery of health care benefits.
Protecting Lower Paid Employees
A common concern regarding full replacement is whether lower paid employees can tolerate the additional financial exposure that comes with it. In reality, traditional managed care plans do not alleviate financial exposure, so much as control its variability. Protection against low to moderate medical expenses is truly more finance than insurance. But is that temporary safeguard really worth the cost of potentially ineffective, overpriced and unnecessary care?
In considering this question, it is important to remember that total employee cost-share for medical expenses equals the copays, deductibles and coinsurance attributable to health care consumption plus payroll contributions. In most organizations, a CDHP increases potential total cost-share by $1,000 to $2,000 annually per employee and about twice that for families. These amounts can be reduced for lower-paid employees by adjusting payroll contributions. Also, organizations can assist employees in financing any additional expense through vehicles such as interest-free loans repaid through payroll deduction or credit unions.
Regardless of income level, a thoughtfully designed CDHP typically lowers total cost-share for healthy employees and does not significantly alter costs for the chronically or critically ill. It is the moderate users of health care who stand to gain or lose from the change in plan design, and these tend to be the users most able to control their spending through behavior change.
Why Shifting Gradually to CDHP Is Not an Ideal Approach
As an interim step toward CDHP, some employers have decided to offer a plan as an option, but at dramatically lower payroll contributions. Anecdotal evidence suggests that regardless of how large the contribution difference, employee inertia is extremely difficult to overcome. Yet, year-after-year, as traditional coverage becomes gradually less affordable, employees will become increasingly dissatisfied with the program. They will no doubt infer, and correctly so, that the organization is driving them into CDHP, rather than offering it as a legitimate option.
If that is true, an important philosophical question to consider is this: Is it better to go down the path of full replacement and ride out the likely negative response over several months, or have that negativity build over several years as other plans become unaffordable? While circumstances are clearly variable, some employers will prefer communicating the “bad news” all at once, anticipating that a new order will emerge, employees will eventually lose focus on the issue, and the organization can simply move on.
Final Thoughts
Sometimes, competing priorities drive middle-ground solutions and inhibit or delay decisive action. Companies undergoing a great deal of change in their business model or ownership structure, for example, may find that the timing is just not right for full replacement. On the other hand, if escalating medical plan costs seriously threaten profitability or curtail essential business investments, a shared responsibility strategy featuring CDHP, and focusing employees on better health and health care decision-making, may be the way to go.
For more information about this topic, please contact John Asencio
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