Guest Article

(From the February 6, 2006 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)

CDHPs Most Effective for Managing Costs, Deloitte Survey Finds

A consumer-driven health plan (CDHP) is the most effective plan design for managing costs and maintaining quality care, according to a plurality of employers participating in Deloitte Consulting's 2006 Survey on Reducing Corporate Health Care Costs. Forty percent of respondents identified CDHPs as the most effective plan design, followed by preferred provider organizations (35 percent), health maintenance organizations (18 percent), point-of-service plans (6 percent) and traditional indemnity plans (1 percent).

The Survey's data on cost increases for the various plan designs demonstrate this is not just a matter of perception. From 2004 to 2005, the average cost increase for CDHPs was only 2.8 percent -- significantly less than the 7.3 percent average increase for all plan types. And employers expect this trend to continue this year, as illustrated by the following table.

What Are Companies Doing to Control Costs?

As in previous years, cost-shifting appears to be the method of choice for controlling health plan costs. Almost half (49 percent) of respondents are either changing plan designs to increase deductibles or copayments, or simply to raise employee contributions. But three years ago almost two-thirds (65 percent) of respondents identified these as their strategies for controlling health plan costs. This change might have something to do with the fact employers are becoming worried about their employees' tolerance for additional cost shifting. (See related story beginning on page 15.)

Other popular cost control strategies include assisting employees in becoming better health care consumers (25 percent), including wellness and/or prevention programs/benefits (7 percent), and incorporating care/disease management programs (6 percent). These methods are consistent with the shift towards CDHPs. Also making the list are contracting with lower cost health plans (11 percent) and reducing health plan choices (1 percent).

CDHPs

Approximately one quarter (24 percent) of respondents currently offer a CDHP to some or all of their employees. There is no single CDHP design, but such plans usually feature a health care spending account (or "benefit bank") that participants use to pay out-of-pocket costs. There generally are two types of benefit banks: health reimbursement arrangements (HRAs) and health savings accounts (HSAs). HRAs must be funded exclusively with employer money, but employers have substantial flexibility to limit how employees can use the money. HSAs can be funded by employers and employees, but employers have no control over what happens after the money is in the employee's HSA. Also, HSAs must be paired with high-deductible health plans (HDHPs). HRAs can be paired with HDHPs, but do not have to be.

Of those employers currently offering CDHPs to some or all employees, 44 percent incorporate health reimbursement arrangements (HRAs) into their plan designs, and 44 percent use health savings accounts (HSAs). The remaining 12 percent offer a choice of either an HRA or HSA. However, those considering offering a CDHP appear more likely to use HSAs.

If you are currently offering a CDHP, are you utilizing a HRA or a HSA as the "benefit bank" component of the plan?

If you are considering offering a CDHP, do you plan to utilize a HRA or a HSA as the "benefit bank" component of the plan?

In order to make CDHPs work, employers generally must make extensive information about the plans available to employees. In addition to basic information about how the plan works, CDHP participants should have access to information that enables them to manage their health and make better decisions as health care consumers. Thus, the shift to CDHPs has been accompanied by a significant increase in the incidence of all types of employee education tools.

Employee Education Tools

Disease Management and Wellness Programs

The popularity of disease management and wellness programs also is on the rise. According to the Survey, 74 percent of respondents offer some form of disease management program, and 93 percent offer some sort of wellness program. The most common disease management programs are for diabetes, asthma, and cardiovascular disease. Flu shots are the most common wellness programs, but smoking cessation programs and diet and/or fitness programs also are popular.

Surprisingly, less than half (39 percent) of respondents provide incentives for employees to participate in disease management or wellness programs. This might be due in part to legal limits on the value of incentives that can be provided in certain circumstances, but cost could be a factor as well. The most common incentives are as follows:

The information in this Washington Bulletin is general in nature only and not intended to provide advice or guidance for specific situations. If you have questions or need additional information about articles appearing in this or previous versions of Washington Bulletin, please contact: Robert Davis 202.879.3094, Elizabeth Drigotas 202.879.4985, Taina Edlund 202.879.4956, Laura Edwards 202.879.4981, Mike Haberman 202.879.4963, Stephen LaGarde 202.879-5608, Bart Massey 202.220.2104, Diane McGowan 202.220.2077, Martha Priddy Patterson 202.879.5634, Tom Pevarnik 202.879.5314, Carlisle Toppin 202.220.2067, Tom Veal 312.946.2595, Deborah Walker 202.879.4955. Copyright 2006, Deloitte.