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May 04, 2012
Plan Design Ideas Hold Hope for Medical Cost Containment

What’s new in health care coverage? We talked with Cheryl Larson, who is Vice President of the Midwest Business Group on Health ( about the hot topics of today in her industry, and of course, health care exchanges were part of the conversation. Yes, they are a hot topic. But as it turns out, there is a lot more on Larson’s mind.

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As has been the case for many years, health care cost containment remains at the top of the priority list. Larson believes that the best opportunities to save money will come in the form of value based benefits design, or VBBD. This is not the same as value based insurance design (VBID), which starts with an insurance company.

In the VBID model, insurance copays and deductibles are waived for enrollees who stick to the "best practices" course of treatment for their (usually chronic) condition. For example, a participant with diabetes will avoid copays and deductibles for services associated with that illness. VBID can be effective, Larson says, but access to it is limited for most companies.

On the other hand, VBBD is something any employer with health coverage can implement. “We’ve been doing a lot of research in this area for about seven or eight years now,” Larson says. “With value based benefits design, we’re not talking about what I call the ‘warm, fuzzy’ incentives you often see in a wellness program, things like a new water bottle and $25 for completing a health risk assessment. Instead, we’re talking about a focus on really strategic, benefit-integrated incentives, primarily using premium differentials.”

Larson reports that 74% of her organization’s members incorporate VBBD through the use of premium differentials. “In most cases, they’re using a disincentive in the form of a premium increase for tobacco use. Employers are getting much more aggressive in not tolerating tobacco use. But if an employee doesn’t want to quit, they will just have to pay more. I’m also seeing more employers than ever before using testing to track tobacco use, but primarily, it’s self-reporting through the health risk assessment (HRA).”

Employers bringing about change

Larson says that most of the true innovations they’ve seen in health care cost containment and benefits design have come from employers themselves, because they are the ones with the most at stake when premiums increase. Because lifestyle and behavioral issues are to blame for a majority of illnesses that impact employee performance and health care costs, employers realize they need to attack the problem at its source.

“Employers thirty years ago had to figure out a way to get people to change their behavior,” she says. “They did that with cash, prizes, and other things we consider ‘warm and fuzzy’ today. Things have moved to a much more strategic approach, with disincentives built into the benefit plan design. For example, one of my members gives employees $400 if they complete the annual screening and HRA. The annual screening is not a finger stick; it’s taking two vials of blood and looking for cancer, thyroid disease, the whole ball of wax.

““Ten years ago nobody wanted to do these clinical screenings because they thought it was too expensive, so they focused on HRAs. Those are nice, but they are self-report. You really need to have a baseline of the clinical profile of the workforce, so by using premium differentials and making them significant, you can make a difference.”

Incentives must be significant

Significant, it turns out, bottoms out at about $200. “We’ve learned that $200 is about as low as you can go and still get people to participate,” Larson says. “Some employers do less and get some penetration, but $200 seems like the number that motivates people to do something.” But sometimes the stakes are much higher. “There is one very large consumer products company out there that tells employees that if they don’t complete an HRA and a clinical screening annually, they are not eligible for benefits,” Larson says. “This is the direction things are going.”

VBBD has reached the point in its evolution where it is incorporating several earlier cost containment concepts, like wellness strategies and disease management. Larson cites the example of a company that offers a $400 annual premium differential to employees who not only complete an HRA and a health screening, but also participate in two health-related programs the company offers.

“If you are at risk for lifestyle issues, like tobacco, BMI or cholesterol,” she says, “one of your programs has to be lifestyle management. If you’re at risk for chronic disease, one of your programs has to be disease management.”

Basic plan or great plan with a $2000 difference

“One of the really exciting programs I’ve seen is a model where the incentive is benefits eligibility,” Larson continues. “They offer a standard plan, which is decent but not great. And they offer the Health Improvement Plan (HIP). The difference in premium between the standard plan and HIP plan is $2,000 per year. So if you go into the HIP plan, you pay $2,000 less for your health coverage.

“Every employee, spouse and dependent over the age of 18 gets to choose which plan they want. But there are conditions to joining the HIP plan: they have to designate a primary care physician, for one. I love that, because so many people haven’t declared a doctor, and they bounce around in the system when something is wrong with them. They also have to adhere to any medication they need. They have to at least try to quit tobacco. And they have to participate in onsite classes and health coaching.

“This particular company has created a 40- or 50-module online educational component, and every month people have to go online and complete one,” Larson says. The modules start with a topic she believes to be critical for everyone to understand: the basics of self-care. “Consumerism is an important trend,” she says, “so this is help for people to be able to navigate the health care system.&drdquo;

“It covers things like asking the doctor the right questions if you have to go into the hospital for tests or treatment or surgery; what to ask the pharmacist; whether or not you have a family member or friend who can advocate for you. In recent years we’ve kind of gotten away from this important stuff of self-care and self-responsibility, and empowering oneself with the right information.”

Larson believes this kind of approach is the key to reigning in health care costs. “We all need to partner together,” she says. “I encourage our members to include in their communications information about how much they as an organization pay for health care and how much the employee pays, and tell them that if everyone doesn’t work together, the company will have to keep shifting costs to employees. Many CEOs and HR folks don’t want to give them that message, because they get all kinds of complaints. But I think it needs to be said.”

Smaller companies can affect change, too

Of course, larger companies hold a lot of sway over insurance companies and other providers. But there are things smaller companies can do, too, Larson says. “For example, gather baseline information from an HRA and health screening so you know what your clinical risks are, and your lifestyle risks and the disease risks of your workforce. And remember that your corporate culture plays a huge role in encouraging health. If you have senior leadership that plays a part in rolling out your strategy, presenting the message that we’re all in this together, you have an advantage.”

Small and mid-sized companies are the ones most likely to pay the penalty for discontinuing health coverage and sending employees to health care exchanges under health care reform, Larson says. “It might be easy to pay the penalty and dump the employees in there. But if they do that, they will have no control over the health of their employees.” That may not mean an increase in insurance costs for the company, it will impact the company’s bottom line in the areas of productivity and the effects of an unhealthy workforce.

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