Hewitt Says We’re More Engaged in Selecting Our Benefits

by Clive Riddle, April 2, 2010

Hewitt Associates this week released data indicating that employees in 2009 were more engaged in selected their health benefits than in previous years. That being said, Hewitt concluded their choices weren’t all that different than before, they were just more involved in the process.

Here’s some of what Hewitt had to report on the matter: “Hewitt's analysis of 6 million U.S. workers, for whom Hewitt managed benefits enrollment in the fall of 2009, revealed the highest number of active enrollees since Hewitt began tracking the data in 2003. Nearly half (45 percent) of employees actively chose their benefits for 2010 instead of passively defaulting into the same coverage or no coverage at all. This is up significantly from the 2009 open enrollment period, where just 39 percent of employees actively enrolled. Despite employees taking a more active role in selecting their benefits, Hewitt's data shows very few workers enrolled in different health insurance plans.”

So what plans are employees enrolling in? Here’s a data table Hewitt shared indicating enrollment by plan type for the past three years (note that the survey involves large employers):

Enrollment by Plan Type

Open Enrollment Year	EPO	HMO	POS	PPO	Indemnity	HDHP
2008	1%	17%	11%	31%	15%	20%
2009	1%	17%	5%	34%	11%	18%
2010	1%	14%	8%	35%	13%	18%

So what does Hewitt make of all this? Sara Taylor, Hewitt’s Health and Welfare Strategy Leader tells us: "Employee inertia continues to play a large role in enrollment decisions—it's encouraging to see that people are more engaged in assessing their benefits, but that doesn't mean they are necessarily making different choices. If employers want workers to make different elections, they might need to adopt a more aggressive approach—whether it's changing or reducing plan options or offering plans with widely differing price points."

Comparing HDHP, HMO and PPO Value based on Employer Benefit Survey Data

By Clive Riddle, October 7, 2009

The Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 2009 was released a couple of weeks ago.  The annual survey is a must read for any professional interested in employer health benefit issues and is packed with data.

I thought it would be interesting to use the data to compare the value of HDHPs to HMOs and PPOs, realizing of course for any individual’s actual situation, you’d need to compare specific benefit and premium parameters of specific plans. Also, this doesn’t take into consideration if there were any employer contribution to an HRA or HSA account in conjunction with the HDHP, or tax advantaged employee contributions were made to the account. But the survey data can still provide an overall sense of the industry-wide value of each plan type on the basis of premium and deductible comparisons.

Here’s ratios of single premium by plan type, compiled from the survey data.

HMO Premiums 1.011
PPO Premiums   1.020
POS Premiums   1.002
HDHP Premium 0.826
Overall Average 1.000 ($402 per month)

So based on the survey data does the HDHP premium, at 82.6% of the overall average premium, justify itself when the deductible cost sharing is taken into account? Let’s compare, based on single premium and deductible data.

HMOs: The survey data indicates that 84% of HMOs have no deductible requirement, and that those who do have an average of a $699 annual deductible. This yields a weighted average (16% * $699) of a $111.84 deductible for all HMOs. The survey data indicates that the average HDHP deductible is $1,838. Thus the net annual difference in deductibles is $1,726.16.

For simplicity, assuming that the HMO and HDHP copay/coinsurance requirements, benefit limitations and maximums after the deductible is met are in the same ballpark (which of course often isn’t the case) we’ll compare the value of an HMO to HDHPs solely on premium versus deductible differential.

The total annual difference in premiums based on the survey data is $892 ($4,878 annual HMO premium versus $3,986 HDHP premium). If you were to consume the entire HDHP deductible amount, the HMO would save you $834 (the deductible difference of $1,726 less the premium difference of $892.

But another way of looking at it is the HDHP would save you $892 if your total annual health expenditures for the year were less than $111.84 (the average HMO deductible amount.) Assuming an equivalent coinsurance rate of 18% after the deductible is met, meaning that 82 cents of each dollar consumed after $111.84 (the HMO avg deductible) would be reduced from the $892 savings for the HDHP. This means that once you spent an additional $1,087.80 ($892 divided by 82%) the savings stop. This equates to total annual health claims of $1,199.64 ($1,087.80 + the $111.84 avg HMO deductible.)

So you’d have to gamble that your annual health claims would costs less $1,200, or 65% of the HDHP deductible requirement in order for the HDHP to save you any money compared to an HMO.

Traditional PPOs: Using the same methodology, the survey data indicates that 26% of PPOs have no deductible requirement, and those who do have an average $634 deductible, yielding a weighted average $469 deductible for all PPOs, and an annual net difference of $1,368.84 compared to the HDHP deductible. The total annual difference is premiums based on the survey data is $936 (the PPO annual premium is $4,922).

So if you were to consume the entire HDHP premium, the PPO would save you $432.84  ($1,368.84 less $936). The HDHP would save you $936 if your total annual health expenditures for the year were less than $469 (the average PPO deductible amount.) Assuming an equivalent coinsurance rate of 18% after the deductible is met, meaning that 82 cents of each dollar consumed after $469 (the PPO avg deductible) would be reduced from the $936 savings for the HDHP. This means that once you spent an additional $1,141.46 ($936 divided by 82%) the savings stop. This equates to total annual health claims of $1,610.46 ($1141.46 + the $469 avg HMO deductible.)

So you’d have to gamble that your annual health claims would costs less $1,610, or 87.5% of the HDHP deductible requirement in order for the HDHP to save you any money compared to a traditional PPO.

Medicare Drug Coverage and the Impact on Overall Health Care Spending

By Clive Riddle, July 8, 2009

An important paper reporting on results of an NIH funded study : “The Effect of Medicare Part D on Drug and Medical Spending”was posted online last week with the New England Journal of Medicine: [Volume 361:52-61 July 2, 2009 Number 1] and authored by Yuting Zhang, Ph.D., Julie M. Donohue, Ph.D., Judith R. Lave, Ph.D., Gerald O'Donnell, M.S., and Joseph P. Newhouse, Ph.D..

The pharma industry for decades has been a proponent that appropriate prescription coverage can have a positive impact on overall health care costs. Certainly Medicare policy advocates argued the point in the debate leading up to establishment of Medicare Part D prescription coverage earlier this decade. Now that time has passed, the opportunity has arisen to examine the actual data to address this issue.

The study examined over 35,000 Medicare members from Pennsylvania’s Highmark Blue Cross Blue Shield from 2004 through 2007. The study included a control group with employer based retiree drug coverage that did not change after Part D took effect, and had $10 to $20 copayments with no spending limits or coverage gaps. Three groups were also examined that had no or limited drug coverage before Part D, and then enrolled as in Part D plan as of January 2006. One group had no previous drug coverage, and the other two had previous drug benefits with quarterly spending limit caps.

The study found that the cost of introduction of Part D benefits for those with no or very limited prior coverage was approximately offset by savings in overall health care costs, but overall health care spending did increase for those with more generous prior coverage.

In comparison to the control group, after introduction of Part D, the average total monthly drug spending was $41 higher (74% increase) for enrollees with no previous drug coverage, $27 (27% increase) higher among those with a previous $150 quarterly cap, and $13 higher among those with a previous $350 quarterly cap (11% increase.) Furthermore, overall monthly medical expenditures (excluding drugs) were $33 lower in the group with no previous coverage, $46 lower in the group with a previous $150 quarterly cap, but $30 higher in the group with a previous $350 quarterly cap.

The study concluded that “The offsetting reduction in medical spending in the two groups with the most limited previous benefits was probably due to improved medication adherence among enrollees with chronic conditions.” The study also addressed the overall health care cost increase for the group with more generous prior coverage: “Why did medical spending rise in the group with a previous $350 quarterly cap (the most generous previous coverage among the three intervention groups), as compared with the no-cap group? The additional use of prescription drugs in all three groups probably included both overuse of some drugs and underuse of others, but the proportion of the increase that was overuse may have been highest in the group with the most generous previous coverage. Our finding that the use of oral antidiabetic drugs did not change significantly in this group is consistent with this hypothesis.”

The References section at the end of the report is well worth browsing, as links to various prior studies are provided. Beyond the References provided in the report, I found two other studies that proved to be of particular interest while researching this topic:

The AARP Public Policy Institute published “How Prescription Drug Use Affects Health Care Utilization and Spending by Older Americans: A Review of the Literature” by Cindy Parks Thomas, Ph.D., Brandeis University, Schneider Institute for Health Policy, in April 2008. Key conclusions from this 57 page report include: (1) “Prescription drug coverage can produce cost offsets from reductions in non-drug services, such as hospitalizations and emergency visits.”; (2) “Studies that incorporate increased longevity into spending projections suggest that cost offsets may diminish over time.”; and (3) “Strict benefit limits of all kinds decrease prescription drug use and increase use of other medical services, including acute and long-term care services.”

Baoping Shang, and Dana P. Goldman of the RAND Corporation; National Bureau of Economic Research (NBER) published results in 2007 from their study “Prescription Drug Coverage and Elderly Medicare Spending” (with preliminary results published in 2005) that examined Medicare Supplement (Medigap) enrollees with and without prescription coverage. They found that “Medigap prescription drug coverage increases drug spending by $170 or 22%, and reduces Medicare Part A spending by $350 or 13% (in 2000 dollars). Medigap prescription drug coverage reduces Medicare Part B spending, but the estimates are not statistically significant. Overall, a $1 increase in prescription drug spending is associated with a $2.06 reduction in Medicare spending.”

Dual Surge: Ineligible Dependents, and Dependent Eligibility Audits

by Clive Riddle, May 7, 2009

Managed Healthcare Executive Magazine, in its May Issue, quote us in an article by Tracey Walker: “Audit Reviews Keep Costs Down.”

The gist of the article is, that 5% or more of many employer’s covered members involve dependents that do not currently meet their employer’s eligibility criteria, and that eligibility audits are an effective way to reduce employer costs and exposure- directly if they are self-insured, and indirectly if they can improve their experience with their fully insured health plan.. It is noted that in the current economic climate, employer demand for such audits may be on the rise.

Our quote involved regulatory scrutiny of health plan disenrollment of such dependents:

“Employers and health plans do need to be cognizant of regulatory issues as they proceed with dependent eligibility audits. Employers would have ERISA regulatory protections from state regulators, according to Clive Riddle, president and founder of MCOL, a provider of business-to-business managed care resources. ‘But when self-funding is not involved, the health plans covering the dependents flagged in eligibility audits must be cautious in how they handle disenrollment and in particular, rescissions of any claims incurred,’ he says. States such as California have clamped down on rescission activities, and health plans have to follow very strict guidelines in numerous states when dealing with this issue.”

Mercer last month issued a release on this topic: “Mercer sees significant growth in health plan dependent eligibility audits.” Mercer pegs the percentage of ineligible dependents in a range of 3% to 8%, and the average cost of covering a dependent for plan sponsors at $1,900 per year. Thus Mercer calculates a plan sponsor with 10,000 dependents and 5% ineligible could save $950,000 annually through such an audit. It’s certainly easy to see why such audits are increasing in frequency. And of course, due to the impact of the recession with layoffs and unemployment, the number of potentially ineligible dependents continue to rise.

From a public policy standpoint, a surge in employers and health plans dropping coverage of greater numbers of dependents will of course only swell the ranks of the uninsured. One policy solution would be to mandate dependent eligibility be tied to IRS dependent status, at least up to a defined age, as opposed to the current patchwork of employer, plan and state specific criteria, which typically would disallow a 22 year old just graduated college student living at home with their parents while looking for a job.

What can we deduce about Deductibles?

By Clive Riddle

Mercer’s Study finds the median individual deductible jumps to $1,000

Mercer just released results from their 2008 National Survey of Employer-Sponsored Health Plans, with headlines declaring “$1,000 health plan deductible was the norm in 2008.” And this was just for traditional PPO plans, not counting consumer driven high deductible health plans. And this was the median figure, not the mean which is more susceptible to skewing upwards given the wide range of benefit design out there. And this was for individual, not family coverage.

Certainly the ongoing increase of consumer cost sharing built into plan design, and the growth in consumer driven high deductible health plans that has paved the way for the trend and acceptance in higher deductibles in traditional PPO plans as well. As Blaine Bos, of Mercer tell us, “The introduction of the HSA may have changed employers’ thinking on just how high a deductible can go without causing employees to revolt. Raising the deductible has become the fallback for employers faced with cost increases they can’t handle. It’s the easiest way to reduce cost without taking more out of every employee’s paycheck.”

But not so fast, there’s a little more to the deductible story than just $1,000 individual deductibles. Deductible amounts are quite different for small versus large employers. Mercer found the median deductible for large employers is just $300. Other surveys have borne this out as well. The Kaiser Family Foundatio/HRET Employer Health Benefits Annual Survey yielded lower deductible amounts for traditional PPOs, but with the same separation by size: a mean of $560 overall, but $917 for small employers and $413 for large employers.

It also shouldn’t be glossed over that the KFF/HRET study found the mean deductible at $560, a far cry from $1,000. Too bad KFF didn’t share what the median was, but they report the following distribution: 52% under $500; 30% $500 to $999; 13% $1,000-1,999; and 4% $2,000+.

The trend for first dollar coverage of wellness and certain value-based benefits should be noted as well. While deductibles are rising fast, more employers are adopting plans designs with first dollar coverage for specific wellness and "value based" items. This at least make a larger deductible a little more palatable, and allows plan design to influence desired objectives.