Consumer Driven Healthcare Hlthaff.w4.210v1

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Employers Contradictory

Views About Consumer-DrivenHealth Care: Results From ANational SurveyDespite reservations among employers, enrollment in health

reimbursement arrangements is poised to grow strongly.

by Jon R. Gabel, Heidi Whitmore, Thomas Rice, and Anthony T. Lo Sasso

ABSTRACT: Based on a random national sample of 1,856 employers, this paper examinesemployers knowledge, perceptions, and present and future plan offerings for consumer-

driven health care plans. Employers of all sizes are more familiar with consumer-driven

health care than with organizations that promote quality of care. Many employers remain

skeptical about its ability to control costs and improve quality, while a majority believe that

health reimbursement arrangements (HRAs) are likely to attract healthier workers. Interest

in HRAs is greatest among the largest U.S. employers. The percentage of covered workers

who can choose an HRA plan should grow dramatically during the next two years.

F

o r t h e p a s t t h r e e y e a r s major newspapers, professional journals, andbusiness magazines have pronounced that a new era of health benefits,

termed consumer-driven health care, is beginning, as the curtain falls onthe last generation of health benefits, managed care. With the cost of employer-sponsored health benefits rising at double-digit rates, employers are seeking newstrategies to control costs.1 Despite widespread interest and discussion, the termconsumer-driven health care itself is a source of confusion to many.

The term refers to plan design. It generally entails greater choice of health plansand providersand greater financial riskfor employees. A critical element ofconsumer-driven health care is exposing consumers to the actual prices of medicalcare services. Web-based medical information tools are considered essential inmaking employees more informed and active consumers.2

Here we briefly describe three types of consumer-driven health care plans.3 In

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DOI 10.1377/hlthaff.W4.210 2004 Project HOPEThe People-to-People Health Foundation, Inc.

Jon Gabel ([email protected]) is vice president, Health Systems Studies, at theHealth Research andEducationalTrust (HRET)in Washington, D.C. Heidi Whitmoreis deputy director, Health Systems Studies, at HRET. ThomasRice is a professor in theDepartment of Health Services,School of PublicHealth, University of California, LosAngeles. Anthony Lo Sasso is a research associate professor at theInstitute forHealth Services Research andPolicyStudies, NorthwesternUniversity, in Evanston, Illinois.


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the first group, health reimbursement arrangements (HRAs), a spending accountis established for employees to draw upon for health care purchases. When the ac-count is depleted, the employee must pay for services out of pocket until the de-ductible is met, at which point the HRA plan becomes a traditional major medicalplan. At the employers discretion, unspent funds can be carried over to the nextyear. Typically, HRA plans deductibles exceed $1,000. They are not portable fromemployer to employer and cannot be used for nonmedical expenses. Employeesmay not contribute to the spending account.

A second class of plans, termed personalized or design-your-own plans, al-lows employees to design their own networks and benefit packages. Using aWeb-based tool, employees select individual physicians and hospitals along withtheir benefit package. These choices determine the cost of each persons plan. Em-ployers contribute a fixed amount for the cost of the plans, and employees bear thefinancial risk for their choice of providers and benefit packages. Only a few U.S.

employers now offer a design-your-own plan.A third class of plans, customized-package plans, allows employees usingWeb-based tools to choose from a predetermined selection of network offerings(for example, broad, medium, and narrow networks) and benefit packages (for ex-ample, rich, medium, or thin). From this hypothetical set of offerings describedabove, employees choose one of nine options. Employers contribute a fixedamount, and employees are at financial risk for their selection of plans. Healthplans offer customized plans primarily in the small and midsize employer market,and typically only one carriers products are available to the firms workers. 4

Consumer-driven health care is evolving during a period when employers areimposing greater cost sharing on employees, not just in consumer-driven plans,

but also in traditional plans such as preferred provider organizations (PPOs). As aconsequence of the managed care backlash, employers have turned to cost sharingas the major mechanism for controlling the cost of health care. Since 2000, PPOdeductibles and employees contributions for all firms have risen by roughly 50percent (Exhibit 1). In small firms, PPO deductibles have nearly doubled since2000, and employees contributions have increased roughly 50 percent for singleand family coverage since 2000 as well.

Pioneer consumer-driven health plans came to market only recently; few em-ployers offered any of the three models prior to January 2001. Consequently, re-search on consumer-driven health care has largely been qualitative to date. Thispaper presents findings from a national survey of public and private employers

with three or more workers about the state of consumer-driven health care. Ourobjective is to report employers knowledge, perceptions, offerings, and plans forthe future. To our knowledge, this is the first such national survey that uses a ran-domly selected sample and hence permits extrapolation to the national level.

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Data And Methodsn Data source. Data for this study are from a supplement to the Henry J. Kaiser

Family Foundation/Health Research and Educational Trust (Kaiser/HRET) 2003Survey of Employer-Sponsored Health Benefits. This supplement entailed fifteenquestions about firms offerings, future plans, and views on consumer-driven health

care. National Research LLC conducted telephone interviews during JanuaryMay2003 with employee benefit managers from 1,856 randomly selected public and pri-vate firms with three or more workers. Kaiser/HRET selected its sample from a list-ing of U.S. employers compiled by Dun and Bradstreet. The sample is stratified byfirm size (number of workers) and industry. The overall response rate was 50 per-cent, identical to those of the 2001 and 2002 Kaiser/HRET surveys. This study alsouses data from the 2000 survey, which entailed a sample of 1,939 firms and a re-sponse rate of 45 percent.n Study methods. Because firms in the sample are chosen randomly, statistical

weights can be used to extrapolate results to national as well as firm size, regional,and industry figures. We calculated weights by determining the basic weight, ap-

plying a nonresponse adjustment, and then applying a post-stratification adjust-ment. The nature of the sample and the weighting procedure allow us to convertstatements at the firm level to statements at the employee level. All figures in thispaper are worker-based.5

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EXHIBIT 1Cost Sharing In U.S. Firms, By Firm Size, 2000 And 2003

Cost-sharing feature

Small (3199

workers) ($)

Large (200+

workers) ($) All firms ($)

Deductible

In network, PPO plans

2000

2003

Out of network

2000

2003

210

419

383

783

157

209

319

459

175

275

340

561

Employee contribution

Single coverage

2000

2003

Family coverage

2000

2003

23

37

162

248

30

45

121

179

28

42

135

201

SOURCE: Henry J. Kaiser Family Foundation/Health Research and Educational Trust, Survey of Employer-Sponsored Benefits,

2003.

NOTES: Differences are statistically significant between 2000 and 2003 at the .05 level. PPO is preferred provider

organization.


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FindingsFamiliarity with the term consumer-driven health care was extensive in 2003.

Approximately 66 percent of employees work for a firm where the employee bene-

fit manager is either very or somewhat familiar with the term. Among largefirms (200 or more employees), 82 percent of employees work for firms where theemployee benefit manager is very or somewhat familiar with the term con-sumer-driven health care, compared with just 35 percent of employees in smallfirms (3199 employees) (Exhibit 2). In spite of its relative novelty, in 2003 em-ployers were more familiar with this concept than with important organizationsin the quality arena, such as the National Committee for Quality Assurance(NCQA), the Health Plan Employer Data and Information Set (HEDIS), and theLeapfrog Group. The NCQA was the most familiar to firms, followed by HEDISand the Leapfrog Group. This gradient is echoed across firm sizes, and larger firmsregistered greater recognition across the board.6

Among consumer-driven plan types, employers were most familiar with high-deductible HRA plans (Exhibit 2). Nearly all benefit managers of jumbo firms(5,000 or more employees) were familiar with HRAs. In contrast, there was muchless familiarity with design-your-own plans and customized-package plans.This disparity may reflect the difficulty in describing the latter two plan types inthe survey questionnaire.

Enrollment in HRA and customized plans was virtually nonexistent in 2000.Enrollment figures for 2003 indicate that consumer-driven plans have grown con-siderably, although the percentage of employees in firms that actually offered vari-ous types of these plans remained relatively modest. Ten percent of employees



EXHIBIT 2

Employers Familiarity With Various Types Of Consumer-Driven Health Plans, By Firm

Size (Employee-Based Weights), 2003


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work for firms that offer a high-deductible health plan, defined as having a de-ductible of more than $1,000, and 2 percent of covered workers are employed infirms that offer a high-deductible plan coupled with an HRA (Exhibit 3). TheseHRA plans were about twice as common in large firms as in small firms. Amongfirms not currently offering an HRA, nearly half (45 percent) of employees workfor a firm that has been approached by a broker or health plan about offering thistype of coverage. For firms not offering customized plans, the percentage was ap-proximately 18 percent.

Employers reported mixed feelings about HRA plans effect on costs, quality,biased selection, and other areas.7 Only 10 percent of employees work for a firmwhere the employee benefit manager strongly agrees that HRAs will result inlower health care use and spending, although another 59 percent somewhatagree (Exhibit 4). A large majority strongly or somewhat agreed that HRAs willattract healthier employees, which would result in adverse selection into the

firms other health plan offerings. Fewer benefit managers believed that HRAplans will lead to more intelligent medical care purchases by employees and thatHRA plans will improve the quality of care. Similarly low percentages agreed thatHRA plans will be popular with employees, buttressing the claim that the termconsumer-driven health care may be somewhat of a misnomer.

When asked about the effectiveness of various strategies to control the cost ofhealth insurance, employers expressed little confidence in any strategydiseasemanagement programs, higher employee cost sharing, consumer-driven healthplans, and tighter managed care restrictions and networks (Exhibit 5). Employerswere most likely to cite disease management as a very effective cost containment

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EXHIBIT 3

Percentage Of Covered Workers Employed By Firms Offering High-Deductible Plans

With Or Without A Health Reimbursement Arrangement (HRA), By Firm Size, 2003


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strategy. Employers representing only 7 percent of covered workers rated con-sumer-driven health plans as very effective, and 14 percent did so for higher em-ployee cost sharing. Only 5 percent rated tighter managed care restrictions andnetworks as very effective.

Following three consecutive years of double-digit inflation, conditions are ripefor an alternative to todays mainstream health plan offerings. Survey data suggestthat offerings of HRA plans will increase dramatically. In 2003 benefit managersrepresenting 10 percent of employees stated that they were very likely to con-



EXHIBIT 4Employers Views On Health Reimbursement Arrangement (HRA) Plans, 2003

View

Strongly

agree (%)

Somewhat

agree (%)

Somewhat

disagree (%)

Strongly

disagree (%)

HRAs will result in lower health care use and

spending

HRAs will attract healthier employees

10

38a59

42a21

14a5

4

HRAs will lead to more intelligent medical care

purchases by employees

HRAs will improve the quality of care

HRAs will be popular with employees

19a

4a

2a

45a

27a

23a

24

44a

36a

8a

21a

35a


2003.

NOTE: Data are weighted at the worker level and are representative of the typical covered worker.a Estimate is significantly different from HRA will result in lower health care use and spending by agreement category at the

.05 level.

EXHIBIT 5Employers Opinions On The Effectiveness Of Selected Cost Containment Strategies,

2003


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sider offering an HRA-type plan in the next two years, and benefit managers rep-resenting 21 percent of covered workers were somewhat likely (Exhibit 6).Among jumbo firms, 16 percent were very likely to consider offering an HRA planin the next two years (data not shown). Slightly more than one-tenth of firmswere very or somewhat likely to consider offering a design-your-own or a cus-tomized plan in the next two years (Exhibit 6).

DiscussionIn 2003 U.S. employers were more familiar with the terms consumer-driven

health care and HRAs than with several important names in the quality arena:the Leapfrog Group, the NCQA, and HEDIS. This lack of familiarity is startling,because the NCQA and HEDIS have roughly a ten-year history, and the LeapfrogGroup has the nations largest employers as its sponsors and publicity agents,while consumer-driven health care is relatively new on the U.S. health care scene.

Employers retain considerable skepticism about HRAs ability to control costsand improve consumers decision making and quality of care. Very few employersthought that HRAs would be highly popular with employees. Nonetheless, oursurvey findings indicate that HRA enrollment may take off in the next two years.Approximately 2 percent of workers can now choose an HRA plan. Within thenext two years, 10 percent of employee benefit managers are very likely to con-sider offering an HRA plan, and another 21 percent are somewhat likely.

These figures may understate the percentage of employers considering offeringan HRA and other forms of consumer-driven health care. For the past two decadesthe largest U.S. employers have been catalysts of change. Firms employing 5,000 ormore workers were far more familiar with HRAs, twice as likely to offer an HRA

at the time of the survey, and more than twice as likely to indicate that they wouldconsider adding an HRA in the next two years. Managed care began with the larg-est firms and diffused to midsize and then small firms, and consumer-driven

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EXHIBIT 6Employers Likelihood Of Offering Various Types Of Consumer-Driven Health Plans InThe Next Two Years, 2003

Type of plan

Very

likely (%)

Somewhat

likely (%)

Somewhat

unlikely (%)

Very

unlikely (%)

HRA

Personalized planCustomized plan

Tiered provider network

10

2a

1a

2a

21

11a

13a

17

30

2631

39a

39

60a

54a

41


2003.

NOTES: Data are weighted at the worker level and are representative of the typical covered worker. HRA is health

reimbursement arrangement.a Estimate is significantly different from HRA by agreement category at the .05 level.


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health care is likely to follow a similar path. A best-case scenario for HRAs wouldhave roughly 30 percent of employees able to choose an HRA plan in the next twoyears. This figure would equal the percentage of employees that can choose apoint-of-service (POS) plan and would be double the number that can choose anindemnity plan.8 If 30 percent of employees could choose an HRA plan within thenext two years, and approximately 15 percent of workers choose an HRA when of-fered, then HRA enrollment will reach approximately 7.2 million workers in twoyears.9 By way of historical comparison, PPO enrollment grew from 1.3 million in1984 to 5.75 million in 1985, then to 16.5 million in 1986. 10

Other considerations suggest why the previous discussion is a best-case sce-nario. Among employers that are very or somewhat likely to consider offering anHRA plan, more than 80 percent believe that an HRA will control utilization andlower overall future costs. However, only 3 percent of these same firms believethat HRA plans are highly likely to be popular with employees, and another 38

percent rate them somewhat likely to be popular. Research has found that whennew health care products diffuse through the health care system, those productsare regarded as effective by purchasers prior to diffusing.11

Employers appear to be less familiar with or enthusiastic about tiered networksand customized package plans than HRA plans. This may reflect the difficulty de-fining these products. Tiered networks and customized package plans coveredmore employees than HRA plans did in 2003. We would expect the greatest en-rollment of customized plans and tiered networks to occur among the smallestfirms, the majority of which were unfamiliar with either product in 2003.

Employers willingness to offer HRA products may reflect the fact that con-sumer-driven health care is the only new game in town. Employee benefit man-

agers see it as having greater potential to control cost than narrow provider net-works or simple cost sharing, but less potential than disease management. Theirony is in the absence of a strong literature at the moment indicating that diseasemanagement programs save money (although they do improve quality of care).12

Will the growth of HRAs and other forms of consumer-driven health care begood for employers and employees? The first evaluations of its impact appear am-biguous. Researchers report contradictory results from evaluations of pioneer em-ployers at Humana and employers purchasing Definity plans.13 They found sub-stantial favorable risk selection for the HRA plan at Humana but ambiguousfindings for early employers that chose Definity, and sizable cost savings from theHRA plan for Humana but no such savings for Definity.

A new development adds greater uncertainty to the direction of consumer-driven health care. On 8 December 2003 President George W. Bush signed theMedicare Prescription Drug, Improvement, and Modernization Act (MMA) of2003, which authorizes the use of health savings accounts (HSAs). HSAs allowemployees or their employers to contribute on a pretax basis to an accountif theperson selects a high-deductible plan. Contributions may not exceed $2,500 per




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year for a single person or $5,000 for a family, nor may they exceed the size of thedeductible. HSAs are portable from employer to employer and are not subject toany taxation as the account grows and when it is used. Hence, HSAs have substan-tial tax subsidies that are not conferred for other health plans. Could HSAs re-place HRAs in the large- and small-group market, and could the tax advantages ofHSAs spur further growth? All this is to suggest that because employers hold con-tradictory views, the immediate future of consumer-driven health care is uncer-tain, from the magnitude of enrollment growth to the ultimate form of con-sumer-driven health care plans.

Theauthors thank theCommonwealth Fund forits generous financial support.

NOTES1. J. Gabel et al., Health Benefits in 2003: Premiums Reach Thirteen-Year High as Employers Adopt New

Forms of Cost Sharing,HealthAffairs 22, no. 5 (2003): 117126.

2. There is considerable skepticism among critics of consumer-driven health care that employees will usepatient information to guide their behavior, even with the right tools and information. The major short-coming of current information is quality rating of physiciansparticularly disease- and procedure-specific information.

3. Readers seeking a more complete description of each of the plan types may refer to J. Gabel, A. LoSasso,and T. Rice, Consumer-Driven Health Plans: Are They More than TalkNow? Health Affairs, 20 November2002, content.healthaffairs.org/cgi/content/abstract/hlthaff.w2.395 (19 March 2004).

4. An HRA could be one of the plans offered in a customized package.

5. Firms with 39workers comprise nearly 60 percent of firms but just 5 percent of coveredworkers. Firmswith 5,000 or more workers constitute about 40 percent of covered workers but less than 1 percent offirms. Consequently, figures calculated from employer-based weights would not reflect worker coverage,but rather, development among Mom and Pop firms. Hence, we use employee-based weights. Henry J.Kaiser Family Foundation/Health Research and EducationalTrust,EmployerHealth Benefits: 2003Annual Sur-

vey (Menlo Park, Calif.: Kaiser Family Foundation, September 2003), 4.

6. The questions about the Leapfrog Group, the NCQA, and HEDIS were part of the larger KFF/HRET sur-vey to determine the role of these quality organizations in employers purchasing decisions. The LeapfrogGroup is a coalition of 140 public and private organizations representing thirty-four million Americansdedicated to improving patient safety in U.S. hospitals. The NCQA is an accrediting organization forhealth maintenance organization, point-of-service, and preferred provider organization plans whose mis-sion is to improve quality of care. HEDIS is a set of standardized performance measures produced by theNCQA that measures the qualityof care and patient satisfaction at each participating health plan.

7. The Kaiser/HRET survey did not ask most firms about the potential impact of design-your-own plans,since they are so uncommon. While the survey did ask firms that offer customized plans a handful ofquestions on their views, the results are not presented here because the sample sizes are very small.

8. Kaiser/HRET, Employer Health Benefits, 63.

9. This estimate assumes 2.1 people per employee contract, a benchmark often used by healthplans.

10. T. Rice, J. Gabel, and G. de Lissovoy, PPOs: The Employer Perspective, Journal of Health Politics, Policy andLaw 14, no. 2 (1989): 367.

11. E.M. Rogers, Diffusion of Innovations, 4th ed. (New York: Free Press, 1995).

12. S. Foote, Population-Based Disease Management under Fee-for-Service Medicare, Health Affairs, 30 July2003, content.healthaffairs.org/cgi/content/abstract/hlthaff.w3.342 (19 March 2004).

13. Health Services Research plans to publish a special edition about consumer-driven health care in summer2004 that features these early evaluations. See S. Parente, R. Feldman, and J. Christianson, EmployeeChoice of Consumer Driven Health Insurance in a Multi-Plan, Multi-Product Setting; L. Tollen and M.Ross, A Consumerism Case Study: Humana Inc.; and A. Lo Sasso et al., Tales from the New Frontier:Pioneers Experiences with Consumer-Driven Health Care.

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