by Curtis S. Morgan

Defining your expectations for health and welfare plans, and evaluating outcomes in order to improve plan options.

It’s that time of year again. Consultants’ recommendations are in, the budget is set, design and pricing decisions have been made, and communications about 2005 benefit choices have been prepared. As medical inflation rises, employers continue to shift costs and attempt to modify participants’ behavior regarding medical services and prescription drugs through plan-design changes. Some of these actions will have administrative implications. Consider the following:

COST SHIFTING AND THE BEHAVIORAL IMPLICATIONS

• Increased premiums for 2005—especially for coverage for spouses and dependents—may encourage employees to get coverage available elsewhere (e.g., from the spouse’s employer). Administrative implications—minimal.
• Increased deductibles, copays, and out-of-pocket limits will decrease employers’ medical claims costs and increase likelihood that plan participants will become more prudent consumers of medical services. But with as much as 80 percent of healthcare costs incurred by less than 20 percent of the population, these cost increases have less of an aggregate effect than many employers realize. Administrative implications—minimal.
• Pharmacy cost-control mechanisms, such as copays and tiers of coverage, encourage the use of generic drug and mail-order preferred providers. Employers continue to adapt their retiree healthcare plans to the changes in Medicare coverages. Administrative implications—greater complexity in claims processing.

BEHAVIOR MODIFICATIONS

• Case management and intervention—With 20 percent of plan participants incurring most of the medical costs, employers continue to focus on managing large claims and employees and dependents at high risk. Some employers tie premium levels to participation in wellness programs. Administrative implications—coordination of case management, greater complexity in tiered-rate environment, and collection of wellness program participation data.
• Reducing the covered population—Some employers require covered spouses to certify that they do not have coverage elsewhere. Administrative implications— collection of certifications for employees electing spouse coverage.
• Healthcare Savings Accounts (HSAs) and Consumer Driven Health Plans—Many large employers offer at least one consumer-driven option, but few mandate these programs. The consumer model combines a high deductible medical plan with a source of funds (typically an HSA) used to partially meet the higher deductible. The first rollout of these integrated HSA offerings will occur in 2005. These include: investment options for HSA funds; automated deduction through the claims paying system (including discounts and rates for the services used); and on-line access to fund information, balances, and claims status. Administrative implications— HSA provider selection, deduction coordination, claims coordination, etc.After you’ve implemented the coming year’s plandesign decisions and administrative mechanisms, you should look at your goals for the 2005 annual election cycle. Many employers do not realistically identify the election and behavior changes they want from plan participants. Without identifying these goals, assessing the impact of communication campaigns and relative pricing models is impossible. Even when goals have been identified, assessing whether or not they have been reached requires a strategic and financial toolkit:
• Plan migration modeling projections, typically prepared after the enrollment season, can show participants’ movement among their coverage options including those waiving coverage. Preparing one before the season helps plan sponsors formalize their expectations regarding the popularity of new options and the likelihood of phasing out less desired ones.
• Projected 2005 health and welfare budgets, based on anticipated costs after plan changes, can set the stage for evaluating the entire cost model. When evaluating projected costs in light of actual enrollment data, do the initial enrollment, new hire enrollment, medical and pharmaceutical usage, and other claims assumptions hold true? Plan sponsors should investigate whenever the actual data deviates from the projections and use the findings to modify either the model or future plans.
• Projected case management usage and per-case costs— Is the case-management process delivering the outcome improvement and cost savings expected?

The program’s success will most likely be assessed by its aggregated results. However, benefits professionals should dig deeper. What they learn will help them adjust subsequent projections in ways that make them more accurate and actionable. Although the aggregate results will be on target, the deeper analysis will indicate changes that can yield significant improvements.