Who’s Driving Consumer Driven Healthcare?

Analysis From Three Perspectives: Consumer, Employer and Broker

By Tom DalyJuly 4, 2005

Over the past couple of years, the most used phrase in the employee benefits industry has been consumer-driven health care. Though its broadest definition may refer to limited employer contribution or dual option plans, the term refers primarily to high-deductible health plans with tax-advantaged savings vehicles (health savings accounts, flexible savings accounts and health reimbursement arrangements).

As an employee benefits consulting firm, we have evaluated the financial and coverage distinctions of these plans on behalf of our clients. In this process, we have become intimately familiar with the rationale behind this approach as well as seen the significant behavioral changes that come from consumer-participants in high deductible plans.

On Dec. 1, 2004, our agency and our employees entered the brave new world of consumer-driven health care. At this year’s renewal we offered our 36 employees the choice between a traditional point of service plan–similar to the types of plans we have had for years–and a high-deductible (HSA-qualified) preferred provider organization plan.
Through the analysis, design, communication and administration of our plan, I have had the unique opportunity to evaluate the merits of this approach from three distinct perspectives–the employer, the consumer and the broker. This is my analysis of what I like and dislike about this approach from those three perspectives.

The employer:

Like many of our clients, our agency’s health insurance rates have increased by a total 64 percent over the last three renewals. This year, our renewal increase was 19 percent. The cost of our employee benefits, including statutory benefits like FICA, WC, etc., represent about 30 percent of payroll with health insurance making up 11 percent of that total.

The agency continued to pay for 100 percent of the cost of employee-only health insurance and decided to fund an HRA with about 70 percent of the deductible for those employees who elect the consumer-driven plan. HRA funds are coordinated with FSA funds and accessed by a MasterCard debit card. Employees are responsible for the additional cost for dependent coverage.

Employees who have an unused balance in their HRA at the end of the plan year are able to roll over 50 percent of that balance to the next plan year.

What I like. . .

  • The insurance premium reduction coupled with delayed HRA claim activity (from integration with FSA) improves cash flow in the early months of the plan year. Our worst-case scenario for HRA claims experience (with all employees spending all of their HRA funds this year) results in a total cost that is slightly less than our stand alone renewal.
  • We anticipate our renewal increase to be significantly reduced next year and into the future–as trends on this block of high-deductible plans have been 3 to 6 percent over the last four years (compared to 10 to 15 percent for more traditional plans).
  • We have much more control over the design and integration of our plan and plan benefits–in particular the interaction of HRA and FSA funds and eligibility of expenses.
  • We are able to educate our employees on our true costs associated with providing these benefits as well as the market and behavioral drivers of healthcare cost increases.
  • And finally, our employees seem to be more appreciative of what we do for them with respect to this benefit.

What I dislike. . .

  • The communication of coverage elements and coordination of accounts of the plan is very time-consuming.
  • We now need to monitor budget vs. actual expense more closely throughout the year–as they will vary based on claims experience throughout the year.
  • Since there were more decisions to make regarding plan design, more time was spent analyzing those design options.

The consumer:

I currently cover myself and my 2-year-old on my health plan. My wife and I are expecting another child in April–when he or she will join the plan as well. Though I have been covered on a traditional plan in the past, the percentage premium difference for me from the traditional to the consumer-driven plan (with employee plus child coverage) was about 30 percent. I elected to participate in the consumer-driven plan.

What I like. . .

  • My actual insurance cost (deducted from my pay) has decreased by more than 15 percent over last year.
  • The combination of premium savings and employer funding has covered about 85 percent of my aggregated family deductible.
  • All of my medical expenses (including those that were previously covered as copays–like office visits and prescription drugs) now go toward my deductible and out-of-pocket maximums.
  • The coordination and consolidated administration of HRA and FSA funds with one debit card has made the prospect of accessing funds and checking account balances much more streamlined. I feel like I am more in control of my health-care expenses and the claims process.
  • Our plan change has provided me with a financial incentive to:
    * Review all of my prior explanations of benefits to determine provider negotiated charges for services;
    * Review all of my prior years’ prescription drug utilization (drug type, cost, frequency, etc.);
    * Ask current providers for costs of additional services (like lab and blood work, X-rays, etc.); and
    * Evaluate the purchase of health-care services as I do anything else–comparing cost, features, convenience, etc.


What I dislike. . .

  • Being more involved in structuring my plan and account participation takes more time and energy. I need to be more diligent in maintaining receipts for medical expenses.
  • I need to make sure that the appropriate accounts are debited when expenses are paid and that only provider-negotiated charges are paid and attributed to deductible and out-of-pocket maximums.

The broker

Our agency has always communicated the benefits of FSAs as part of our clients’ annual benefits enrollments. In addition, for the last four years we have illustrated and compared features and benefits of high-deductible plans as part of our renewal analysis.

Over the years, we have written quite a few multiple-option plans and plans with options for individual deductibles in excess of $1,000. As more and more of our clients have moved to this approach, we have developed and tested some successful analysis tools and communication techniques to support these plan change enrollments.

What I like. . .

  • The number of the plan design choices and account combinations (HRA, HSA, FSA) provides a tremendous amount of flexibility and choice in meeting a client’s benefit plan design goals.
  • I enjoy educating employers and employees about this paradigm shift in health insurance and conveying the ownership mentality that is at the heart of making high-deductible plans and tax-advantaged accounts accomplish their goal of stabilizing insurance costs.
  • I also like assisting clients with the technology that supports both account administration and consumer education and shifting our focus from selling an insurance product to providing an employee benefit solution.

What I dislike. . .

  • Many carriers are trying to become a one-stop-shop by integrating with their own debit cards. Efforts to streamline the administration have eliminated some of the flexibility that would otherwise be available with those accounts.
  • In addition, more education about these plans is needed in the provider community–particularly physician office administrators and hospital billing departments. Negotiated network discounts for all medical services need to be clearly communicated and easily accessible to consumers.


All things considered, from all perspectives, I believe that high-deductible health plans are here to stay. I also believe that their proliferation will contribute significantly to the paradigm shift and ultimately reduce controllable health-care spending over time. I can already see the behavioral changes in our employees and in myself.

Employers, consumers and brokers all have new opportunities and new responsibilities during the change from managed to consumer-driven health care. However, consumerism has been our best weapon for keeping what would otherwise be escalating prices in check. Only time will be able to tell the true financial impact of these changes.

Tom Daly is the co-founder and managing principal of Hartwig Moss Benefits (www.hm-b.com), a full-service employee benefits consulting firm in New Orleans, La.

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