HEALTH PLANS: CDHPs saving money! Really? by MATT QUINN

The recent report from INSIDE CONSUMER-DIRECTED CARE cites an impressive 12.7% drop in PMPM medical claim costs in St. Luke’s Hospital’s first year of implementing a consumer directed health plan (CDH) for its employees. This seems especially impressive in a healthcare environment in which health-care spending per privately insured person increased 7.4% last year, down from a 9.5% rise in 2002.

But the question that the story begs is: Did PMPM costs decrease because members made “better” healthcare decisions (cost and quality transparency) or did they drop because fewer dependents of members were covered, out of network care was no longer covered, and members avoided care because of higher out of pocket costs?

Yesterday’s HSC report attributes the drop in overall spending to a reluctance for consumers to spend money on care and cost-shifting in pharmacy:

    The rate of growth in health-care spending fell for the second year in a row in 2003 as demand for health services dropped because workers were forced to pick up more of the tab for their care and a surge from a change in managed care policies ebbed….The cost shifting was most prevalent in prescription drug plans…

This seems to be borne out in the St. Luke’s case where the hospital saw its employees pharmacy PMPM expenses plummet 20.4%, further proving the point that consumers are quite sensitive to differences in formulary cost (Enrollees at St. Luke’s have a $5 copay for generics, and 20% copay – $20 minimum and $50 maximum – for name brands).

While the CEO for St. Luke’s views the replacement of paying 100% of premiums for PPO coverage for its employees AND their dependents with paying premiums for CDH coverage (in a tight EPO network) only for employees as a way to “to enhance the hospital’s image as an employer of choice,” the result, according to Bruce Davis, a principal with Findley Davies, the consulting firm that designed the plan, was that many dependents of employees dropped coverage through St. Luke’s:

    Prior to implementing the CDH plan last year, St. Luke’s employees – and their families – had rich health benefits. The PPO plan carried a low $150 annual deductible. Employees, even those with family coverage, weren’t asked to contribute to their premiums. Davis says one of the first steps to getting costs under control was to charge employees who wanted to provide coverage to a spouse.

    ‘We decided we didn’t want to be that generous any more because a lot of employed spouses had opted out of their own [employer’s health plans] and had coverage through St. Luke’s,’ Davis says. The result of the policy change was a 13% decrease in covered dependents.

The CDH plan has, however, taken steps to help employees make better health decisions by access and incentives for employees to use web-based health management tools and by making select preventative care exempt from the $20 office visit co-pay. While it is clear that these will cost Medical Mutual of Ohio, the administrator of the St. Luke’s EPO, less than the paper and phone-based health risk assessments and disease management programs, it remains unclear whether online HRAs and counseling will be more effective than their offline predesessors.

While St. Luke’s doesn’t know how much of their savings came from providing better or less care, it doesn’t seem to much care:

    “After the first year with a CDH plan, utilization and claims costs have decreased significantly at St. Luke’s. Davis notes, however, that some of the change could be the result of fewer spouses who receive health coverage through the hospital. He says he has not yet determined how much of an effect the change has had.”

This begs some other questions:

If employers (like St. Luke’s) are achieving impressive decreases in costs through cost-shifting, tightening networks, and dropping coverage for dependents AND the national average spending per employee is increasing at a rate much north of inflation, how much is spending for employers who choose not to cost-shift, tighten networks, and drop dependents really increasing?

What will be the effects of CDH – in the medium and long term – on clinical outcomes?

While employers see impressive initial (year 1) gains by replacing traditional coverage with CDH, how will they manage costs in the future (when there is, presumably, not much else to cut/shift to employees)? (NOTE from Matthew: A question TCHB has asked before!)

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