By Marie R. Dufresne, CCP, CBP, senior consultant, The Hay Group
Can a 3,000-employee, public sector organization really make consumer-driven health care work? The answer is a resounding yes!
In year two of a five-year transition plan, The City of Arlington, TX reduced its overall health care costs by 25 percent. In the last three years it has continued to maintain those same cost levels. Its first critical step was an initial redesign of its plan options, but sustaining these fabulous results is all due to continuing and extensive employee education that has driven behavior changes.
Initial plan design work involved designing options that actually incented and rewarded different consumer behaviors, for example, introducing a drug plan that reimburses employees on a co-insurance basis instead of the standard flat-dollar co-pay approach.
It was also critical that each of the options offered placed employee contributions in line with the benefit levels provided, and not on a basis based on what the employer thought they could charge for such an option.
In 2008, the City of Arlington actually offers a full-blown health savings account (HSA) option as one of four plan options, with a $1,500 deductible. More than 35 percent of its employees opted for this new approach. This result should continue to keep the City’s health care costs in check while providing employees with the option of a savings account for their retirement years.
Transition Plan
The city created a two-year timeline of gradual plan changes designed to force employees to make real choices and to think through what they and their families really need from the City’s health care plan each year, and what they were willing to pay for those benefits.
Next would follow more major design changes that would encourage movement out of the rich and expensive plan option, with the objective of eventually eliminating that option entirely. The city felt a slow change process would be the most successful with their employees.
The first year involved slight changes to the designs and the implementation of cost sharing for each of the three plan options that were available at that time. One option was a very rich, zero-deductible plan, with many first dollar benefits. The other two options had varying deductible levels that applied before any benefits were paid out and different coinsurance levels.
All of these options included first dollar preventive care that assured that a real focus on wellness and prevention was communicated to all employees and their families. During this initial period, basic employee wellness and prevention programs were established. This was done through using many local and national health care organizations that often offer free speakers and programs. The real key was that this was an ongoing process throughout the year, not just a once-a-year health fair.
Another preparatory stage was also underway as the City revamped its HRIS (human resources information systems) to be in a better position to not only track the various options but to handle annual enrollment online. Yes, I am still talking about a city with more than half of its employees not sitting at computers all day.
Could this be done? Yes, but plenty of planning and transition time was a critical factor. Communication and ease-of-information flow is critical to a successful consumer-driven program and the City was determined to make it work.
Major Plan Changes
While the initial year plan changes were minor, in the second year the City of Arlington introduced a major change in its drug plan by moving from a flat-dollar copay to a co-insurance approach. It also introduced a health history assessment for all employees and spouses.
The change in the drug plan was at first a concern for the human relations (HR) staff, but the actual implementation result was a resounding success. The first three months following the change saw employees calling HR to be sure that their co-pays were correct because generic medications cost as little as $1.23 or 88 cents depending on the prescription.
The next phase was easy because employees began questioning their physicians for preferred brand or generic drug alternatives. Real change in behavior had begun. The drug change was made carefully and included an annual out-of-pocket maximum to protect those on high-cost medications without alternatives. The intent is to change behaviors, not to penalize employees who happen to have more difficult illnesses.
Since that initial change, no further change to the drug plan (which applies to all plan options) has been needed. The result has been a 25 percent reduction in annual drug costs that has been maintained over the last three years. Other changes involved raising the deductibles in a few of the options and setting employer contribution levels based on one common option.
Initially, employer contribution levels were set based on the highest deductible plan. In 2008, with the addition of the HSA option, it is still based on the highest deductible option without an HSA. Thus, we have created a plan option with zero contributions required for an employee with single coverage if they elect the HSA option.
Education, Wellness, and Communication
One of the key factors often overlooked when implementing a consumer-driven health care (CDHC) program is the critical impact of employee information flow, and understanding the objectives. Without this process, employees often feel that the employer is just pushing costs on them.
By making education available, involving employees actively, and providing ways for employees to access all of the online information currently available about their plans, health, etc. easily, real financial savings ensue. The City’s communication and education process was a growing and expanding processbecause, as with all employers, additional cost is a problem, let alone hiring additional HR staff. But this city was very creative and worked out an arrangement with its third-party administrator (TPA) to provide the additional staff needed via its monthly TPA fee.
In 2008, it added a second full-time wellness staff in order to continue to expand the process and available resources. The City of Arlington followed a careful path that led to the successful implementation and acceptance of a well-designed CDHC program.
Cost Savings
One of the major reasons to implement a CDHC program is to gain some financial benefit. This benefit ideally can be an overall reduction in current health care costs or just a major reduction in annual cost increases. In this example, the employer benefited from both results and continues to stay significantly well below typical trend increases each year.
The Future is Bright
The City’s health care plan is no longer a drain on its general funds each year and employees are actively involved in understanding their health care needs and how best to utilize their coverage options.
Does CDHC work? Absolutely, and it works as much for employees as for the employer, but the path is long and one needs to think outside the box when looking for ways to implement it—through careful plan design—and communicate these programs on a regular, consistent basis throughout the year.
Marie Dufresne is responsible for business development in the Hay Group’s southwest region. She is involved in projects ranging from development of total rewardstrategies in multiple industries, to development and implementation of compensation and benefit programs in the United States and globally. Contact Dufresne at 469-232-3865 and Marie.Dufresne[at]haygroup.com.
