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CCH® BENEFITS — 8/7/07

Managing Catastrophic Conditions Saves Employers 18% On Health Care Expenditures

From Spencer's Benefits Reports: Managing catastrophic conditions, providing cash incentives, and improving administration and communications all contribute to lower health care benefit expenses, according to SHPS’s 2007 Health Practice Study: What Every Self-Insured Employer Should Know.

Louisville, Ky.-based SHPS is a private firm providing health benefits consulting and administration services to large and midsize employers. Responses from 115 firms with at least 1,000 benefits-eligible employees, representing a total of 3.8 million members, revealed substantial differences in per-employee annual costs, with differences ranging from $1,200 to $2,500. The average employer spent $7,713 annually per eligible employee.

The following health benefits strategies appeared to lower sponsors’ health care costs from the average:

1. clinically-based care management for catastrophic conditions, resulting in costs lower by an average of 18.2% or $1,400 per benefits-eligible employee per year;
2. cash incentives such as premium reductions, cash or other rewards, or employer contributions to employees’ health accounts, with a reduction of 15.1% or $1,165 per benefits-eligible employee per year; and
3. administration and communications, including centralized recordkeeping, accurate and current eligibility management, targeted benefits communications, and providing a seamless experience across benefits, which yielded costs that were 12.7% lower, or $960 per benefits-eligible employee per year.

Employer Actions That Increase Costs

In contrast, companies that concentrated on wellness and health promotion programs had health care costs that were higher by 17%, or $1,300 per benefits-eligible employee per year, while other “traditional practices” resulted in costs that were higher by 21%.

The “traditional practices” that SHPS reported as resulting in higher spending for plan sponsors that used them were as follows:

1. Managing provider quality through network “procurement,” used by plan sponsors that have difficulty distinguishing quality of care in their networks; 63% of responding firms cited at least some difficulty with distinguishing quality.
2. Offering employees multiple plan design options—sponsors must streamline plan design while offering multiple networks, the SHPS study recommended.
3. Using deductible and copayment levels to drive health behavior—these companies have 29% higher overall health care costs.
4. Using health care benefits to become an “employer of choice” 80% of respondents said that they did this, but only 57% indicated that this strategy was successful. SHPS cites studies that claim that benefits do not cause employees to stay or leave their employers.
5. Having inadequate turnover of employees, that is, too high or too low.

Although 39% of respondents offered a consumer-directed high-deductible health plan (CDHP) with a health savings account, the study found “no meaningful correlation between CDHP use and health care costs.” However, the study noted that effect of CDHPs is yet to be determined, as more experience is needed and participation rates are too varied.

The SHPS study also included the following highlights:

• The most prevalent care management programs were health risk assessment (80%), Web-based health portal (55%), employee assistance programs (54%), round-the-clock nurse hotline (50%), and disability management for chronic conditions. Much less prevalent were disability management, used by 37% of respondents, and on-site nurse or doctor, used by 21%.
• The great majority of firms (70%) use their primary health care plan, rather than a specialty provider, for care management and disease management.
• The most prevalent incentive practices were a gift certificate or merchandise or reduced premium (each used by 14% of firms); and cash payments (11.3%); while relatively few firms (7%) used employer contributions to employees’ health reimbursement or health savings accounts; or changes in deductibles, coinsurance, or copayments (5%).

“To manage health care costs, employers need to take a sharply-focused outcome-oriented and relentless approach to measuring and managing the prevalent clinical risks within their covered population,” said Rishabh Mehrotra, SHPS president and chief executive officer. “Employers need objective health analytics combined with administrative, clinical, and financial programs that support a culture of health. In companies where employee health is valued, the employer and employee both benefit.”

Health benefits sponsors must align health care procurement, including network discounts, provider coverage, and actuarial risk, with health care spending, including plan design, provider quality, clinical risk, individual behavior, and unit cost, the SHPS report concluded. “The key lesson of this study is that as a nation, we should not just focus on how to finance the cost of health care, but also figure out how to keep people healthy.”

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

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