Consumer Driven Health Care Plans Gain Momentum

Consumer driven health care plans (CDHP) could be gaining new momentum.

Consumer driven, or self-directed health care plans are sometimes referred to as "Defined contribution" plans.

The recent acquisition of Definity Health by UnitedHealth Group for $300 million could signal a more mainstream "legitimization" of CDHPs in the health care industry.

According to the press release by UnitedHealth Group, "Definity Health Corporation is the national market leader in consumer-driven health benefit programs."

And further, "Following the merger, Definity Health customers will benefit from more affordable access to the network of 460,000 doctors and other care providers, along with more than 4,000 hospitals nationwide, offered by UnitedHealth Group and its alliance partners, as well as the account-based financial capabilities developed by UnitedHealth Group. The combined organization will expand on Definity Health's strong reputation and brand in the emerging consumer-driven health benefits marketplace, with Definity Health operating within the Uniprise business segment of UnitedHealth Group."

Some feel that this acquisition could encourage a wave of investment and consolidation because it is a sign that there is money to be made in the consumer-driven health care market.

Regarding CDHPs, DefinedCare.com Internet Website states:

"Defined Care is the model that describes the health care system with employer sponsored Defined Contribution, Consumer-Driven and Self-Directed health plans."

"Defined Contribution health plans involve employers and other traditional purchasers of care providing an allowance, that empowers consumers to purchase and select from a wide menu of benefit options that are arranged by the employer or a purchasing administrator. "

"Under Defined Care, the consumer is more empowered, informed and enabled, and consumer, provider, plan and employer roles and requirements change accordingly."

For more information on defined care see our earlier article in the
Braun Consulting Group Newsletter Here:
"Defined Contribution Health Care Plans"

You can also read our article with coverage of this issue here:
"The Changing Face of the Health Insurance Crisis"

General Health Care Plan Cost Increases Slow Somewhat

Group health care plan costs increased 7.5% last year - the lowest increase in the last five years.

The good news is that the rate of increase seems to be slowing; the bad news is that this is still a 7.5% increase. That show how bad things are in the health care industry, when a 7.5% increase is seen as encouraging.

Here is a quick breakdown: (based on a national survey of more than 3000 employers by Mercer Human Resource Consulting in New York).

1999 cost increase: 7.1%
2002 cost increase: 14.7%
2003 cost increase: 10.2%
2004 cost increase: 7.5%

And lastly, employers in the survey said they expected inflation to continue to ease, estimating that cost would increase overall by 6.6 percent in 2005.

Prescription Drug Costs Skyrocket

Prescription drug costs have climbed at a steady double-digit rate for the last 10 years, so increased costs this last year is not really any "news".

The latest increase is projected at 14.4% for the year 2004.

The 2004 Drug Trend Report produced by pharmacy benefit manager Medco Health Solutions found that:

 Spending on treatments for rheumatoid arthritis increased 80.6 percent, and utilization increased 71.2 percent in 2003. Overall, spending for rheumatologic conditions rose 64.5 percent in 2003, driven by a 28.8 percent increase in unit costs and new drug introductions.

 In 2003, specialty medications represented the largest proportion of total prescription-drug expenditures -8 percent- among children under 19 years of age. The 35-to-49 age group had the second-largest proportion of specialty spending, at 5 percent. Only 1 percent of the outlay for those age 65 and above was for specialty drugs.

 Spending on drugs used primarily to treat attention-deficit/hyperactivity disorder surged 369 percent for children under age 5.

It seems there are new and innovative ways to combat some of this cost increase on the consumer side, but overall this problem looms larger every year despite our best efforts.

Health Savings Accounts Interest Stalls

With a health savings account an employee can save money tax-free for health care expenses and roll over for the next year what they don't spend.

Bill Sharon, senior vice president at Aon Consulting says, "Employers are adopting them in small numbers. It takes a while for employers to evaluate anything that comes down the pike that's new," he says. "Employers aren't going to just jump on it right away. Some of them are going to want to see that these things have some shelf life, some sustaining power."

He estimates that about 5 percent of Fortune 1,000 companies are offering high-deductible plans with health savings accounts. Of that 5 percent, he estimates that only 5 percent to 10 percent of employees in those companies will choose such plans.

Alwyn Cassil, spokeswoman for the Center for Studying Health System Change feels that the accounts aren't appealing to the small percentage of the population that generates most of the health-care spending. "The health savings account, quite frankly, is attractive to healthy people," she says. "But 10 percent of the population accounts for 70 percent of health expenditures. These plans don't really do much of anything to address that."

Edward Kaplan, the Segal Co.'s national health practice leader says, "The biggest barrier of all (to employers adopting health savings accounts) is that many employers ultimately want solutions that dramatically reduce their health-care costs. These accounts are one potential solution, but they may not get employers to where they want to go. They're a pretty big change for employees, and it's potentially not going to save a ton of money."

As part of a group of options that are being offered to deal with the health care cost crisis affecting employers and employees alike, these health savings accounts may have a growing impact over time.

However, it seems they are a bit slower in spreading than was initially thought might be the case. Only time will tell, but for now their impact is small.

For more information about how to stem the rising costs of healthcare in your workplace, please contact us at Braun Consulting Group.