CDH is Lowering Health Care Costs, but How?

A new survey released this week by Buck Consultants, an ACS company and one of the world’s leading human resource and benefits consulting firms, showed that costs for the most popular types of health care coverage are projected to increase at double-digit rates through the remainder of 2007 and into 2008.

The survey analyzed responses from 79 health insurers, HMOs, and third-party administrators to project average annual increases in employer-provided health care benefit costs. Insurers providing medical trends for the survey are said to cover a total of approximately 91 million people.

The survey participants expect the rate of increase for preferred provider organization (PPO) plans to rise to 10.7% in 2008, from 10.6% this year, while Health Maintenance Organizations (HMO) rates are projected to 11.14% in 2008 from 11.11% in 2007.

The one bright spot in the forecast is that the rate of increase for plans that incorporate health savings accounts (HSA) or other personal health accounts are projected to actually fall to 10.4%, from 11.1%.

Could this be the “trend bend” that advocates of consumer-directed health care (CDH) have been predicting?

Speaking of consumer-directed health care, Sander Domaszewicz, a Senior Consultant with Mercer Human Resource Consulting published an interesting article this past summer that can be read on the Workforce Management website. In a piece entitled Consumerism in Health care: A Reality Check, Domaszewicz comments on the growth of consumer-directed health plan (CDH) offerings rising from 5 percent in 2005 to 11 percent among employers with 500 or more employees, and from 22 percent to 37 percent among jumbo employers (20,000 or more employees). Consumer-directed health plans, he noted, also delivered substantially lower cost per employee than either preferred provider organizations or HMOs in 2006.

However, Domaszewicz warns that there is another CDH out there that is threatening to blunt the momentum of consumer-directed health care — he identifies the other CDH as cost-driven health care as opposed to consumer-driven health care.

Domaszewicz goes on to describe the all too common situation where a benefits manager is forced to do the “consumer-directed health thing” in pursuit of quick cost savings. “As a result,” he writes, “an HSA-compliant plan typically is added to the benefits menu along with current plan offerings, but with little or no company contribution to the HSA, little or no investment in tools, information or support for participants in the HSA, and no long-term education or communication strategy for the program.”

Sound familiar?

The results of cost-driven health care he says can “include very low adoption by workers or, if the offering is forced, significant employee relations issues.”

The point of the article is that consumer-directed health care seems to be an effective tool to lower the rate of health care cost increases. The problem is, as with any tool, if used improperly, it can cause damage. In this case, an employee backlash against such plans as we saw happen with HMOs in the 1990s.

True consumer-directed needs to be done right with communications, education, support tools, and so on. Employers who are willing to do it right will reap the benefits, unfortunately others will not be so smart and will contribute to the bad rap that CDH is already getting from some segments that it is nothing more that cost shifting.

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