Bending the Health Care Cost Trend
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Some people with long memories may recall that Harvard Pilgrim dedicated its 2004 annual report to explaining how we were going to “Eat At Our Own Restaurant” by changing the way we offered and managed our health plan benefits AS AN EMPLOYER to reduce the increase in our health care costs over time. It’s now 2008, and we’ve got five years under our belt with this real life experiment. And I must say, it’s worked out much better than I thought it would.
Get this — since 2004, the first year we changed our contribution policy and plan designs, Harvard Pilgrim’s medical expense trend has averaged 8 percent per year. Our medical expense trend since 2005 is 6 percent per year. And that’s with only minor changes in benefit plan design since 2004. This compares quite favorably with medical expense trends across our service area, which have ranged from 10-14% over the same period of time.
What did we do? We created a mini-campaign called “You Decide,” gave our staff options and information, and then we let them decide. More specifically…
1) We moved from a percent of premium contribution to a fixed contribution. Instead of paying 80% of each plan we offered to our employees, no matter what the benefits and co-pays looked like — which is still, by the way, what most employers do in New England — we fixed our contribution at 80% of the mid-price plan. That meant employees who chose less expensive plans got the full value of the premium savings, and employees who chose more expensive plans paid the full price of the difference.
And if you chose one of the less expensive plans, we also gave you a Health Reimbursement Account, which paid for services up to half the value of the new deductible. In other words, HPHC would cover the first $500 of a $1,000 deductible, or the first $1,000 of a $2,000 deductible. We could afford to do this for two reasons. First, the HRA is a nominal account to to employer. We only pay out on the HRA if someone incurs services. So while the benefit applies to everyone who chooses a deductible plan, we only pay out when someone uses services. Second, by covering a fixed amount, we saved some money as an employer on the richer plan designs, which we could apply to those who chose a deductible plan.
2) We made a big deal out of open enrollment. We gave people side-by-side comparison information, offered up an easy-to-use cost estimator tool that could help people make the right decision for them, and we made clear that if you didn’t affirmatively choose a plan for the following year, you wouldn’t have one. No more automatic rollovers.
3) We opened up small fitness centers in two of our four locations, and encouraged participation. We offered fit friendly food in our cafeterias. And we offered up occasional health and fitness workshops at our locations each year.
So what happened?
1) In 2004, about 20 percent of our staff chose to move from a traditional HMO plan to a Best Buy HMO plan — meaning they chose a plan with a lower premium, but more cost-sharing. Almost everyone used the side-by-side comparison and cost estimator tool, and 9 out of 10 employees felt they had enough information to make a good choice. By 2008, over 65 percent of our staff had enrolled in one of our Best Buy plans. In short, people have voted with their feet — and their wallets — trading the premium savings for potentially higher cost-sharing.
2) Almost everyone used the tools we made available to compare plan designs and shop for the right plan. We also surveyed staff after open enrollment — and again later on in the year — to see how they felt about their options and their choices, and the feedback was overwhelmingly positive.
3) About 40 percent of our staff have signed up to use the Fitness Centers — and we can see they get regular use throughout the course of the day. Our on site health and wellness programs have been well attended, and our cafeterias continue to provide healthy options for people. We also saw a dramatic uptick in the use of Flexible Spending Accounts. FSA’s, as they’re called in the biz, are individual accounts into which people can allocate pre-tax wages, as long as they spend them on health care related services (braces, eyeglasses, chiro visits, etc.). The pre-tax feature makes them a great deal for workers, but at most companies, most people either don’t understand it, don’t try to understand it, or don’t think it applies to them. We were the same. Historically, about 10 percent of Harvard Pilgrim’s workforce put money each year in an FSA. But starting in 2004, that number began to climb, and today, almost 50 percent of our staff set up an FSA as part of open enrollment. We view this as a collateral benefit of having a more involved and engaged open enrollment process.
We’ve also been selected by the Boston Business Journal — for five years in a row — as a Best Place to Work in Boston, based on survey data they collect from our employees.
In short, it is possible to change contribution policies and plan designs without losing your team. It is possible to provide people with options and choices they can understand and manage. It is possible to support staff through a new way of thinking about their health and their health benefits. And it’s possible to take a medical expense trend that exceeded 12 percent per year for the four years before we implemented this change and reduce it to less than 10 percent per year for four years running.
Pretty good restaurant, I’d say.
Charlie, it has been said that people spend more time deciding what type of stereo to purchase than they do selecting a health plan. I was one of those employees back in ‘04 when the “Eat At Our Own Restaurant” campaign was kicked off. Your blog post mentioned making a big deal out the open enrollment, but perhaps the point of view from someone who was part of the targeted audience would be helpful. I would emphasize - and this includes no hyperbole - that the clear, consistent, and unrelenting “communication” made a huge difference (especially in year two if memory serves me correct). It was more than just hosting a health fair. It was more than just mailing a packet of information to our homes. It was more than the email reminders and web reminders and interoffice memorandums. What worked was the total communication strategy. HPHC’s gorilla marketing/information blitz of the EAOOR made a huge difference. If you paid even slight attention you had no choice but to gain valuable knowledge, which made the decision making process that much easier.
Charlie,
I agree that your strategy is a good one that should save money for self-funded employers. Employees with more skin in the game are likely to think two or three times before going to the emergency room for a non-urgent issue and may be more inclined to call the nurse hotline (if one is available) instead.
That said, I wonder if you could address the following issues: First, assuming no change in either the socioeconomic status or the age profile of your workforce before and after you implemented the changes in the employee contribution toward their health insurance as well as the available insurance deductibles and co-pays, to what extent did you experience adverse selection? That is, how often did people with high deductible plans switch to comprehensive plans once they or a family member needed significant medical services? Second, was their any difference in the year-to-year price changes on average for the healthcare services that your plans cover including hospital based care, physician fees and the cost of drugs and medical devices? Third, did you experience any change in the number of inpatient hospital days per thousand members after 2004? If so, was it significant? Finally, as more people began or increased their exercise regimen, how significant were the healthcare costs related to injuries that resulted from activities related to partipation in sports or fitness programs?
My general sense is that the changes in benefit design that you describe, while useful, are probably closer to a silver pebble in the fight to bend the medical cost growth curve than a silver bullet. The big dollars relate to events that take place in hospitals – both inpatient and outpatient. We need to find ways to drive those down before we can expect material progress on the cost front, in my opinion.
Hi Barry - good questions all. My answers would be the following.
1) We priced the offerings to limit, to the extent we could adverse selection, and believe we were somewhat successful at doing that. The demographics of the Best Buy population didn’t look that different from the rest of our group in the first couple of years, and at this point, we’ve got over 60% of our staff in Best Buy - which limits the possibility of adverse selection. And as far as I can tell, there hasn’t been much back-sliding from Best Buy to a more traditional plan design at all by people who’ve chosen Best Buy plans.
2) If I understand your question, the price changes are consistent with the changes that take place in annual back and forth we have with providers and suppliers. Nothing more or less than that.
3) Not much change in inpatient days. Pretty constant throughout.
4) Not much evidence of an increase in injuries. Great question though, and I’ll follow-up on it. My own anecdotal observation would be that a lot of people lost a lot of weight - which over time, would be a positive development from an injury management point of view.
And yes, plan design changes are only part of the equaition, but this challenge requires buy-side and supply sidse changes to be successul. Can’t do just one and expect to get from here to there. And it’s nice to know that a sustained effort on the buy-side can make some positive difference.