Moving the Wellness Needle, Compressing the Trend Curve
Critics of the new federal healthcare reform (HCR) provisions assert that the law is largely a move toward increased cost and higher taxes to cover the cost. HCR is a reality one must embrace, rather than simply criticize. Looking for opportunities and adopting strategic approaches allows employers of all sizes - even small employers - to leverage aspects of the law in their favor.
Introduction of Incentives
The Healthcare Reform (HCR) contains many 'good news' incentives. If committed to a health and wellness approach for managing human capital investments and employee benefits more strategically, these incentives will be of tremendous value. A number of incentives apply to 'small' employers, a segment traditionally disenfranchised from advantages large employers enjoy when it comes to wellness and its return on investment (ROI).
Not anymore. Thanks to HCR, both segments of the employer-based market have stronger reasons than ever to pursue an employee benefits approach that engages employees and creates accountable consumerism in the healthcare decision-making process. For this discussion, defining large and small employers on a 3 to 5 year timescale is best accomplished by bifurcating the market into large (100 employees or more) and small (under 100 employees) employers.
Large Employer Advantages
For large groups, managing health and wellness is a critical strategic tool in advising employers and will accelerate in importance under HCR. HCR coverage begins for plan years effective October 1, 2010 and later, expanding coverage for adult dependents to age 26, eliminating caps and increasing administrative and compliance burdens, to name a few. These and other changes will drive costs up - certainly in the near term; but we are at a precipice in bending the trend curve in employers' favor by improving employee accountability for managing health and being more accountable in their healthcare decision-making.
The pie chart says it all for the market in general and for employers. Whether fixing the entire healthcare system or a single employer's cost structure, we need to focus on the 86% component of the cost: claims. The larger the employer, the greater the direct benefit to the bottom line cost structure. Between 50% and 70% of claims costs are driven by controllable behaviors, underscoring the importance of keeping employees focused on staying healthy, incentivizing them to make smart healthcare purchasing decisions and managing disease aggressively and effectively.
Consumers, Consumer-Centric Patients and Patients
Categories of individuals must be defined to understand behavior, cost and utilization. That definition is based on whether someone is a pure consumer, a patient, or a category in-between - a consumer-centric patient.
Level I: Consumers - Consider the diagram at right; the category of youngest and healthiest plan participants, who view themselves as invincible. The healthcare industry views them as novice healthcare consumers needing lots of healthcare information to ensure that first touches with the system (exams, basic physician services, prescription drugs) will be preventive in nature.
The industry wants these individuals to learn that through web-surfing (WebMD, Carrier websites, etc.) they should find quality-based, cost effective options before seeking care. They are true 'consumers' - not yet patients.
Level II: Consumer-Centric Patients reside in the center of the diagram as both patient and consumer. Depending on the employer, they spend $1,000 per year or less, but utilize the healthcare system enough that carriers focus transparency initiatives on them. They frequently benefit from lower costs and higher quality of care that comes with early detection and immediate treatment of diseases such as asthma and diabetes.
Such candidates are likely to be dependent upon drug therapies performed on an outpatient basis; so transparency of physician and pharmaceutical data offers meaningful opportunity for plan participants to act as consumers, not patients to gain insight from available data thus impeding the progression of disease to strip waste from the system and in many cases, to compress the shape and/or slope of the trend curve. Creating incentives for this population is critical in pushing the curve down and to the right.
Level III: Patients - For individuals accessing the emergency room or suffering from chronic or acute illness, consumerism, transparency and accountability take a back seat. This group typically represents 10% of the population, yet generates 80% - 90% of claim dollars. Carriers and group health plan sponsors commit significant medical management resources to reach plan participants and manage disease while monitoring outcomes.
Sudden onset of serious illness or trauma neutralizes consumerism and heightens the need for medical management intervention and oversight. Level I, II and III participants must be engaged in very different ways and when reaching them effectively, the large group market can be rewarded with bottom line financial results. Responsibility falls to the employer-based system until 2014 when large employers accelerate efforts and small employers get additional Federal relief.
Small Employer Advantages:
Bottom line advantage: HEALTHIER IS BETTER regardless of group size. Coming changes should incentivize more carriers, even in the small group market, to offer complimentary programs to employers. New Wellness vendors will enter the field and deliver programs through free-of-charge carrier packages, bringing a variety of designs, competitive cost structures, and range of targeted results. If you value Wellness programs purely on the basis of positive return on investment (ROI), you may not be able to immediately validate investment through lower health care premiums.
However, you can benefit from leveraging new carrier-based programs, benefiting from the past work of larger employers who successfully connect wellness initiatives with lower premium trends and greater ROI - typically 3.5:1.Small employers don't have the same relationship to Wellness as large employers, but size truly doesn't matter.
The absence of measurable results or direct impact on premium doesn't invalidate its worth - everyone benefits from improved health status. Employers want an "environment of Wellness," not "sickness." Productivity improves and other risks decrease, such as workers' compensation claims. We need to encourage health while managing disease more effectively. Small companies have always wanted large company benefits - here's their chance.
How Healthcare Reform Will Begin Moving the Needle:
Objectives for both large and small employers will be enhanced under HCR through key features of the law (explained further in coming final regulations) designed to better align incentives with healthier behaviors, a more focused wellness and disease management environment and more sweeping changes as the system is re-engineered by 2014:
- Small employers will finally be able to take financial advantage of wellness programs by receiving federal grants to start them.
- Plans will be required to cover preventive care, mental health, and dental and vision for children.
- Chain restaurants and food vending machines will be required to disclose nutritional information.
- A National Prevention, Health Promotion, and Public Health Council will be formed to develop a national health improvement strategy.
- A reinsurance program is offered for early retirees and is effective mid-2010 (ending the earlier of 1/1/14, or when funds run out). This program is an employment-based incentive with certain conditions, including a stipulation the employer's plan must implement programs and procedures to generate cost savings with respect to people with chronic or high-cost conditions. Presumably, case and care management programs will qualify, but the scope is to be defined by Health and Human Services (HHS) guidelines - due in June 2010.
- Comparative Research Fee. Taking effect in 2012, this provision will be calculated at the end of the policy year, based on the average number of covered lives. The fee, $1 per covered life for plan years or policy years ending in 2013, and $2 per covered life for policies and plan years ending in 2014 and beyond, funds the Patient-Centered Outcomes Research Trust Fund. The Institute funded by these amounts (as well as transfers from the Medicare program) will assist patients, clinicians, purchasers, and policymakers in making informed health decisions. A good example is the variation in C-Section rates across various locations, facilities, clinicians, etc.
The goal is using evidence-based data to assess and improve protocols in the identification, treatment and ongoing management of illness. The Institute's findings should evaluate the appropriateness of medical treatments thereby improving health outcomes and clinical effectiveness.
The key word is "comparative", signaling a new day in the more aggressive use of clinical and comparative data in managing health and wellness more effectively and thereby positively influencing cost and trend.
Starting in 2014:
Reengineering of the healthcare insurance system kicks into second gear in 2014 by establishing 'Exchanges' and outlining additional market reforms. Although the new health reform law addresses costs in general terms, encouraging efficiency, quality, health/wellness and payment facilitation, plan sponsors should focus on critical health issues:
- The insurance market and employers will be required to offer the "essential" plan which must include among other things - wellness and preventative services and chronic disease management.
- Small group plans will be priced with disincentives for smokers; tobacco use will drive premiums for the smoker by 150% (a 1.5:1 ratio). Additionally, age will be similarly considered (300% or a 3:1 ratio). Other factors considered will be family size and location.
- Plan sponsors may promote wellness by shifting 30% of premium to unhealthy employees. (Federal regulators have the authority to raise the percentage from 30% to 50% in the future.) The goal is to identify health plan participants who can reduce negative health status factors (such as weight) and to facilitate health improvement through a program that provides a reasonable chance of improving health or preventing disease. The new rule implicitly allows plan sponsors and carriers to do the following: set acceptable health standards, test for certain conditions that will generate future claims, provide targeted wellness programs, re-test for improvement, and penalize / reward improved health.
Rewards can be adjustments to premium/cost or benefit enhancements. The program cannot be overly burdensome, a subterfuge, or suspect in its methods, and people who cannot or should not participate must be offered an alternative method of accomplishing the goal. In the past, employers have been constrained by strict rules under the Americans with Disabilities Act that severely limits employers' ability to test for health status and target individuals for this type of program. We'll know how much power is shifted back to employers once regulations are published.
- A program to test the efficacy of offering similar rewards for the individual insurance market will be piloted in ten states.
- In the future, due to new federal rules on minimum loss ratios, carriers can include wellness expenses on the claims side of the equation; offering greater wellness benefits and administration will counter-balance administrative expenses that might generate a punitive rebate by the carrier to enrollees.
- Plan Reporting on Care Management Provisions requires employers to report on plan benefits and provisions that improve health outcomes through quality reporting, effective case management, care coordination, chronic disease management and care compliance initiatives. These initiatives also include monitoring a home care setting in preference to a hospital or hospice. Home care is less expensive and a safer alternative. The law notes that this program must not be perceived as rationing but rather as considering alternatives that may be cost effective and reduce hospital readmissions, while demonstrating better outcomes.
What we know, what we don't and next steps:
The HCR bill and some provisions will likely be controversial for years. We don't know exactly how federal agency regulations and enforcement efforts will shape the law or our actions; but that doesn't prevent us from continuing toward a healthier workforce. We have good reason and enhanced motivation to manage disease, incentivize healthier choices and redesign benefit plans accordingly.
For large employers, the value of improved health status to compress claims/trend is obvious. For small employers, it has never been as obvious, but new HCR incentives reinforce the importance of setting objectives for employers of all sizes (and individuals) - to require accountability for healthcare behavior and purchasing.We have an emerging model that creates mutual incentives for providers, carriers, employers and individuals to take responsibility. It confirms the realizations that "we can afford healthcare best when we need it least" and that we must all work together on a solution. The emerging model also reverberates with the mantra and our new bottom line HEALTHIER IS BETTER!
About The Author
Joe Torella is President of the Employee Benefits Division at HUB International Northeast, a leading insurance brokerage firm, and part of HUB International Limited, ranked as the ninth largest brokerage globally.
