Treading Lightly: Plans go easy on product changes

In an economic environment that seems to get less stable by the day, most health plan executives continue to search for the Holy Grail: steady, profitable growth. One key is having the right products—PPOs, HMOs, high-deductible health plans (HDHPs), individual policies, Medicare and Medicaid.

Some shift in overall benefit design trends is expected in the near future, but until plans see what the imminent reforms will bring, don’t bet on plans making too many wholesale changes. Mostly, they will continue to buckle down on costs while they look at other options to improve overall health and wellness of their members, including implementing wellness plans and tinkering with the pharmacy benefit.

According to KPMG’s 2009 Healthcare Industry Report, most managed care plans enjoyed increased revenue from premium increases and membership growth over the last five years. But the profitability of large managed care companies still declined in 2008 as medical costs increased faster than premiums and investments could offset—a problem that’s likely to pick up speed as baby boomers hit retirement age.

PLAY IT SAFE

In recent years, plans have worked to lower their risk by choosing to pursue safer, albeit less-lucrative, options.

“Over the last decade, managed care plans have shifted away from HMOs, PPOs and point-of-service products and into more administrative-services-only (ASO) products with self-insured employers to reduce healthcare costs,” according to Terry Dreyer, senior vice president and national managed care practice leader with Marsh Inc., insurance brokers and risk advisors.

Michael Thompson, principal with PricewaterhouseCoopers Global Human Resource Solutions Group, agrees that cutting costs is the current focus for most plans.

“The general discussion is that anything that saves money is what’s in vogue during an economic downturn,” he says. “We’re in a period where companies are looking to save across the board. They are sharpening the pencil to reduce short-term costs. They are reducing benefits and shifting more costs to employees. The only area of health benefits that continues to see increased investment is wellness, because preventive care has the potential to reduce healthcare costs overall.”

But the conservative approach has a price, too. While plans have reduced the volatility of the risk they face, they also reduced the margin for profitability, according to Marsh’s Dreyer.

“Ten years ago, the ASO enrollment might have been 10% to 20% of an average health plan,” he says. “Today, it’s anywhere from 40% to 70% of enrollment. But there is only so much cost that brick-and-mortar companies can cut before the costs start to climb again for employers—phone services, computers, office space, etc.—and there’s not much anyone can do about that.”

The cost of care always has been an issue, but it’s more amplified today because healthcare no longer stands alone as an economic thorn in the country’s side. As much of a problem as excessive healthcare costs have been over the last 40 years, the problem became that much more dire when the rest of the economy tanked. It’s dramatically displayed in the way the cost of employee healthcare has impaired American companies’ ability to compete globally.

When building a car costs American companies $1,500 more than their foreign counterparts, and two of the Big Three automakers are on the verge of bankruptcy, it puts health benefit costs squarely in the national spotlight. It’s become clear under the Obama administration that change is coming, one way or another.

“Everything related to benefit design is now being viewed through the context of comprehensive healthcare reform,” says Robert Zirkelbach, director of strategic communications with America’s Health Insurance Plans (AHIP). “That’s the industry’s top priority. It’s been talked about for a long time, but with costs rising faster than GDP, inflation and people’s incomes, we know that the current trends are unsustainable. It’s gotten to the point where healthcare costs are negatively impacting American companies’ ability to be competitive in a global market.”

LOW-COST OPTIONS TAKE ROOT

According to the Kaiser Family Foundation (“Distribution of Health Plan Enrollment for Covered Workers by Plan Type, 1988-2008″), changes in the overall breakdown of plan types were relatively minor between 2007 and 2008:
• Conventional insurance dropped from 3% to 2% (down from 5% in 2004);
• HMO enrollment fell from 21% to 20% (down from 25% five years ago);
• PPO membership grew from 57% to 58% (up from 55% in 2004);
• Point-of-service plans dropped from 13% to 12% (15% in 2004); and
• HDHP numbers grew from 5% to 8% (up from 4% in 2005, the first year numbers were available).

While HMOs, PPOs and most other managed care products aren’t expected to undergo any dramatic shifts in enrollment, there is some potential for less-traditional options to gain a foothold. They might be able to attract members because of certain tax advantages they offer in addition to some other perks, but ultimately, their potential is largely predicated on their lower costs.

“It will be interesting to see what happens with those types of coverage that haven’t been able to find a lot of traction in the past, such as HDHPs, because this is the first time we’ve undergone a serious economic downturn since they were introduced in any quantity,” says John Fitzgibbon, national segment leader for healthcare payers with KPMG. “HDHPs were designed to make people purchase healthcare the way they purchase other goods and services—with an emphasis on their cost.”

But even that could backfire in the end. If consumers focus so intensely on costs that they fail to get the care they need, when they need it, not only will their health suffer but the more urgent care they require down the road will cost more than the savings they managed earlier in the process.

HDHPs offer portability and the opportunity to roll over the savings from year to year, but the emphasis is there because HDHPs are a low-cost product, Fitzgibbon says.

“They’re also a low-benefit product, but people are still buying them because they’re cheap,” he says. “I like them and think there are good incentives built in to reduce costs, so there will be some growth there. But some people are concerned that consumers might choose an HDHP just because they’re inexpensive, when they really should be opting for something that provides greater coverage.”

On the government side, PwC’s Thompson says recent years have seen significant growth for Medicare Advantage Plans, fueled in part by reforms implemented during the Bush administration to make Medicare more attractive, particularly in rural areas. Experts predict that reimbursement rates for the Medicare Advantage Plans will get cut back to fee-for-service rates, leading to increased premiums and reduced benefits for Medicare Advantage plans—and ultimately reducing the market share and prevalence of Medicare Advantage plans.

As the market for Medicare Advantage plans pulls back, payers are positioning themselves to be able to offer more traditional Medicare Supplement plans as an alternative.

However, changes in Medicare Advantage are only a small part of the bigger issue, Thompson believes.

“The Medicare program is bankrupt with entitlement promises far exceeding projected revenues,” he says. “We don’t know how Medicare will change, but we know it has to change. Because of that, some in the industry are dealing with a connector or a third-party, but what is needed from employers is a ’stewardship of benefits’—someone who stays current on how Medicare will change over time and seeks to optimize private-sector plan offerings as the markets change.”

Generally speaking, the outlook for Medicare and Medicaid will depend on health reforms. It’s a “wait and see” for both programs, he adds.

WELLNESS WORKS

One thing that won’t have to wait is an uptick in the number of wellness plans being offered as employers try to engage members and reward behaviors. According to the 2009 PwC Touchstone Survey, 67% of employers intend to expand and improve wellness in their U.S. operations. The prevalence of this strategy surpassed more traditional strategies, such as increasing employee contributions (42%) or increasing medical plan cost sharing (41%).

“Wellness plans are being offered by large plans and smaller, regional health plans, with the goal of improving employee health while cutting insurance claims and cost,” according to Sheri Sellmeyer, vice president of market analysis for HealthLeaders-InterStudy.

For example, she says, Blue Cross Blue Shield of Kansas City touted the growth of its wellness program, “A Healthier You,” in its 2007 annual report. Since its launch with four employer groups in 2005, A Healthier You has grown to include more than 100 large employer groups in Kansas City.

“BlueCross BlueShield of South Carolina’s HMO just launched an obesity program for children that provides a registered dietician for members above a certain weight, while Blue Cross and Blue Shield of North Carolina continues to encourage workplace wellness,” Sellmeyer says. “The North Carolina Blue plan was also among the first health plans in the country to introduce a comprehensive obesity program. It developed a program in 2004 that allows physicians to be reimbursed specifically for weight-management visits, establishes a credentialed network of dieticians and covers certain prescription weight-loss drugs.”

She adds that some companies also have turned to value-based pharmacy benefit design to better manage their costs.

“A number of employers and health plans around the country are experimenting with value-based pharmacy benefit design, which reduces cost barriers to medications deemed most effective in controlling chronic diseases,” she says. “Sometimes the price reduction for one drug is offset by the increase of another deemed less critical—such as putting statins on a free tier but putting a lifestyle drug, such as Viagra, on the most expensive tier.”

Aetna is offering its Aetna Healthy Actions Rx-Savings program, which involves more than 200,000 members from various self-insured companies. There is a reduced copay structure for drugs treating diabetes, asthma, high cholesterol, high blood pressure and heart disease.

THE DOOR IS OPEN

It’s too early to know what changes will begin in earnest in the next three to five years. There are some elements of President Obama’s plan that have broad support and others that don’t. Those elements that have broad support have already been passed as part of the stimulus bill, including wellness and prevention programs, SCHIP, comparative effective research, and electronic medical records; those that haven’t been passed are more controversial.

“There are a number of key issues being debated, but the general consensus is that some form of health reform will happen,” Thompson says. “The Clinton Administration [approached healthcare reform] in a very closed-door, take-it-or-leave-it approach. This time it’s being done in a more open and collaborative way. It’s also important to note that the proposals that are on the table today will not affect 85% of Americans, in contrast to the prior reform effort, which was to re-engineer the entire system. History suggests that health reform is more successful when it is more incremental and less revolutionary.”

In March, AHIP stated that by enacting an “effective, enforceable requirement that all Americans assume responsibility to obtain and maintain health insurance,” health plans could guarantee issue coverage with no pre-existing condition exclusions and phase out the practice of varying premiums based on health status in the individual market. While plans support transitioning to a reformed system in which health-status-based rating is no longer used, “rating flexibility based on age, geography, family size, and benefit design is needed to maintain affordability.”

According to the statement, its proposal outlines strategies to achieve four main objectives: controlling costs; helping consumers and purchasers; achieving universal coverage; and adding value.?

As many pundits have noted, the devil is in the details for healthcare reform. And why should anyone pay attention to “Chicken Little” this time around? The major healthcare players have known about this impending crisis for many years, and few have agreed on large-scale solutions, let alone how to implement them.

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