Rising Benefit Costs Steer More Toward Consumer-Driven Plan Consideration

June 19, 2003 (PLANSPONSOR.com) - The 13% to 16% projected rise in the cost of health benefit in 2004 is leading more and more plan sponsors to consider the consumer-driven health plan (CDHP) alternative.

Employers seem particularly attracted to the involvement employees have with the actual costs of health care, which could be as simple as increasing co-pay amounts for visits to specialists or replacing co-pays with coinsurance. Even though the strategy might save an employer only 3% it does help does engage the consumer in the cost of care, thereby making them more cognizant of what medical care really costs, according to report from Atlantic Information Services, Inc. (AIS), a publishing and information company in the health care industry.

This coinsurance level could be as high as 100%, 90% and 80% employer-paid levels, with perhaps slight migration from 100% to 90% programs, the study suggests.

The findings of AIS are further corroborated by an earlier Deliotte & Touche survey that found the one-year increase is up from 11% offering consumer driven plans the previous year, with another 8% saying they will definitely offer a CDHP within the next two years (See Consumer-Driven Plans Gaining Favor Among Employers ). Additionally, going forward, 35% are reviewing such plans and may offer one in the near future. Nearly half (45%) of the respondents believe that a CDHP will be part of most employer health plans by 2005.

Deliotte’s research also found the reason for the shift is primarily in the cost-benefit analysis. More than half (52%) of the companies surveyed agreed that CDHPs will result in immediate employer-cost savings, while slightly more than one third (36%) believe these new plans will reduce the long-term health care cost trend.

Reservations Required?

However, questions still remain in employer minds. One issue has been the idea that the health reimbursement account (HRA) portion of such plans basically provides first-dollar coverage if the funds are not depleted by the end of the year. Therefore, companies are considering adding a front-end deductible to pacify the concerns of the finance departments about giving employees the money up front. To that end, the study suggests a pre-HRA deductible makes the most sense when coupled with an employee-funded flexible spending account that can cover the deductible.

Not surprisingly, there is some hesitation to implement such a plan, primarily surrounding how to communicate such a plan to employees.