BENEFITS BUSINESS
The changing face of the health care insurance business
presents dizzying array of benefits possibilities
By Len Strazewski
...Insurers are beginning to market new plans that shift responsibility for health care mangement away from employers and toward employees.
Health maintenance organizations (HMOs). Preferred Provider Organizations (PPOs). Point of Service Plans (POS). Agents and brokers have had to learn about a wide range of increasingly complicated new health insurance products over the last 20 years as managed care and health care cost control began to dominate employee benefits marketing.
But unfortunately for agents, those health plans are going to seem simple and easy to sell compared to the new generation of so-called consumer-driven, defined contribution health care plans that may be exploding into the marketplace over the next few years to replace managed care.
According to Samuel Levitt, vice president of Conning and Co., an insurance industry consulting company in Hartford, Connecticut, the health insurance marketplace is poised for wholesale change, driven by rapidly escalating health care costs. To contain the spiraling costs, insurers are beginning to market new plans that shift responsibility for health care management away from employers and toward employees.
These so-called "consumer-driven" health plans that limit employer payments to a defined contribution split between a medical savings account and catastrophic health insurance, are not a very new idea. Several new entrepreneurial health plan providers, including Definity Health in Minneapolis; Destiny Health in Chicago; Lumenous in Alexandria, Virginia; and Myhealthbank.com in Portland, Oregon, have introduced their own versions of these plans over the past two years.
In September, Aetna in Hartford also became the first of the major health insurance carriers to jump on the bandwagon with the Aetna HealthFund that combines a PPO with an individual employee savings account.
Conning recently completed a wide-ranging study of the new health plan model, interviewing employers, insurers and health plan providers about the prospects of the new model in the health insurance marketplace.
"Nearly everything comes down to costs," Levitt explains. "Cost pressures led directly to the managed care initiatives of recent years. Managed care has been somewhat successful in restraining expenditures and prices, but it has also become a major source of dissatisfaction among employees and providers."
The backlash against managed care had led directly to the search for new models that give employees more freedom of choice and put less strategic pressure on employers. However, the industry has not settled on a consistent definition of defined contribution health care plans or a consistent way to deliver a package of consumer-driven health care services.
As a result, agents and brokers may have to become knowledgeable about a variety of new products that feature full and part of the defined contribution plan model and shift their sales pitches somewhat away from employer plan sponsors to individual employees who have more control over spending.
That also means more administrative time with individuals, serving as a single point of contact for traditional and nontraditional health services which are open to employee choices, he notes. Agents may also find a special opportunity in marketing to small businesses that are likely to be early adopters of the new coverage.
"Small businesses have been hardest hit by rising health care costs and are most likely to be interested in the alternatives," Levitt points out. "Agents and brokers who learn the details of this new model first are the most likely to be successful in marketing the new products," he says.
The study identified five specific new product designs:
*Full defined contribution. Employers have full discretion in determining their own contribution levels and employees use the contribution to purchase their own individual coverage. In this design, agents may have to work with employees as individuals to process employer vouchers for payment for plans purchased in individual or group insurance markets.
*Managed competition. Based on the Federal Employee Health Benefits Program, this design allows employers to make a single contribution to employees who shop for coverage from among a pool of employer-screened competitive health plans. An agent or an independent administrator may manage the pool.
*Electronic markets. A third-party vendor such as Myhealthbank.com or a high-tech agent or broker develops an Internet-based marketplace for health insurance and makes the marketplace available to employers who pass their administrative responsibilities on to the vendor. The employer chooses a roster of plans from which employees choose, using the Internet as point of choice.
*Direct contracting. A third-party facilitator contracts directly with health care providers and creates an ad hoc health care network. Employees pay for discounted services from this network or other providers with contributions made to a medical savings account.
*Medical savings accounts (MSAs). Originally an experimental program sponsored by the federal government, MSAs allow employers to create a personal account for each employee that can be used to pay for any health care expenses. The employer also provides catastrophic insurance that pays for hospital expenses after the MSA is exhausted.
New products may combine several of these approaches. In November, Destiny Health introduced a new defined contribution health care product, the Destiny Health Vitality Program that combines the insurer's personal health care account with a wellness incentive program.
The program allows individuals to earn frequent flyer miles, discounts at Bally Total Fitness Centers and vacation packages. Employees earn wellness points by losing weight, quitting smoking and documenting workouts at fitness centers among other wellness activities.
Frank Haywood, a producer with John Matsock Insurance & Financial Services in Naperville, Illinois, is excited about the new product. "It goes beyond simply giving members information and wellness tips and provides real rewards for following simple health and lifestyle guidelines. For me, that means another great idea that I can share with my clients to help them get their health care costs under control."
Are your clients ready for defined contribution and consumer-driven health plans? Probably not yet, says Levitt. As a result, agents may have to get ready to educate their clients about the upsides and downsides of the new plans as soon as they learn them themselves.
Defined contribution-based health plans may solve some financial problems by capping overall costs and cutting minor health care claims out of the most expensive levels of claims administration, but few employers are ready to make sweeping changes in the way they deliver and pay for health benefits, he says.
"The plans are attractive in theory because they cap costs while keeping employers in the benefits business, but not in the health care business," Levitt says. Employers would continue to receive recognition for their contribution to heath insurance benefits but not have to focus time and administrative effort on tracking health care quality directly with managing providers.
"The erosion of ERISA protection has made employers potentially more vulnerable to legal risks, something they don't want," Levitt continues. "Employers would like to step away from day-to-day health care decisions and the liability that could ensue."
However, employers who shift their employee benefits to a defined contribution plan model will lose the ability to directly influence the quality of health care their employees receive, Levitt notes. Because employees would make most health care purchasing decisions under the new plans, the insurance market will be less likely to respond to employer needs and if employees make poor decisions in managing their own health care, employers also may suffer some of the consequences of those decisions in ways other than decreased productivity, he says.
Employers could also suffer increased absenteeism and higher disability costs if employees ignore wellness activities and general maintenance health care to conserve cash in their medical savings or personal health funds. As a result, agents may have to take a direct hand in promoting wellness activities and health services along with coverage.
On balance, Levitt says employers would come out ahead, but the risks may be too great for some of them--at least until health care costs become unreasonably high. *
The author
Len Strazewski has been covering employee benefits issues for more than 20 years and is employee benefits editor of Human Resource Executive magazine. He has an M.A. in Industrial Relations from Loyola University.