High Performance Provider Networks and HDHP

Monday, November 29, 2010

Although high performance provider networks may be found in conjunction with any form of health care plans, they are most effective when linked to a High Deductible Health Care Plans (HDHP). Since consumers are on point to spend a significant amount of their own moneys as a HDHP member to obtain health care, it becomes imperative that they get the best care possible for the lowest cost possible. If the organization’s goal is to move increasing numbers of its employees to a HDHP, current members must be able to show that their experiences were highly positive. This applies to both the treatment received and the long-term financial impact. Current HDHP members are not going to support continued participation if they do not receive effective and efficient health care if it lacks quality.

Increasingly provider networks are being rated on their use of best medical practices and evidenced based medicine. From a layman’s point of view, best medical practices and evidenced based medicine may be defined as the standardization of medical diagnosis and treatments practices to optimize outcomes and recoveries based on medically documented results and substantiation.

Harvard Medical School offers a continuing education course titled,: “Best Medical Practices: Maximizing Skills, Minimizing Risk”. The two-day seminar included topics on state-of-the-art diagnosis and treatment, safety and effectiveness, patient communication skills, and medical malpractice.

The national Blue Cross and Blue Shield Association maintains “Blue Distinction designations” as a means to identify and designate those medical “facilities that have demonstrated a commitment to quality care by meeting objective, evidence-based thresholds for clinical quality and safety developed with input from expert clinicians and leading professional organizations.” Blue Distinction centers focus on:

          • Bariatric Surgery

          • Cardiac Care

          • Complex and Rare Cancers

          • Knee and Hip Replacement

          • Spine Surgery

          • Transplants

In January 2009, Cigna reported on the use of “more than 300 evidence-based measures of health care quality” to evaluate the effectiveness of over 400,000 Cinga members in its HDHPO, HMO, and PPO plans. Cigna’s conclusion was that adherence to “evidence-based measures” has a positive relationship to both the quatitlty of care and the cost of that care.

The Ohio Association of Health Plans (OAHP), a statewide association of health care plans with more than six million Ohioans, promotes its member plan’s use “of best medical practices” and “delivery of evidence based health care”.

During an October 22, 2010 presentation, Booz & Company, a global management consulting firm to businesses, governments, and other institutions, identified “Narrow, high performance provider networks” as a “key” capability in the emerging health care industry following health care reform.

The operative word is “narrow”, rather than accepting “any willing provider”, a high performance network accepts only those providers, which are able to meet and maintain a high degree of professional and medical standards. The result is often a smaller network, yet a network with highly effective and efficient providers practicing medical best practices based on evidence based medical.

Consumerism Educational Services for HDHP

Friday, November 26, 2010

It has already been mentioned that providing significant education to High Deductible Health Care Plans (HDHP) consumers is vital to achieving the goal of helping them to understand how to best use their plan and any spending or savings accounts associated with it. We have explored how health advocate services can assist HDHP consumers in various ways and at various times to navigate through the health care system. However, there are organizations whose focus is more on the knowledge transfer aspect of consumer education. These organizations direct their efforts at providing information to the consumer either on an ongoing basis or at the time of need. One such organization is Asset Health, Inc.

Asset Health Inc., headquartered in Troy, MI is one of several organizations, which provide e-learning tools to assist organizations in raising the level of employee understanding and self-responsibility when dealing with health care issues. While not solely the purview of HDHP, employee health care education is an integral part of consumerism, HDHP’s, and employee engagement.

Consumerism educational services for HDHP can range from the most simple of concepts, What is a generic drug?; to the details of complex medical procedures, including diagnosis, alternatives, risks, recovery times, outcomes, costs, and ongoing treatment protocols. Health care education includes mundane issues such as understanding the terms in consumer’s health care plan documents, how medical billing works, the function of various body organs, the significant limits of various medical screenings and tests. To be effective, health care education must cover topics of wellness, disease, prevention, treatment, management, recovery, and financial management of health care issues.

While many insurance carriers (Aetna, BCBS, Cigna, UHC) provide significant amounts of member education, health care e-learning organizations allow employers to focus their communications efforts on issues that are directly associated with their workforce, using language levels and terms applicable to their workers and families.

In addition to various insurance carriers, there is a multitude of on-line resources, many associated with world famous organizations, available for the HDHP consumer and their families, e.g., Cleveland Clinic, Mayo Clinic, Nemours Children’s Clinic, RxList, and WebMD.

Beyond what resources are provided in the private sector, there is an alphabetic soup of federal, state, and local agencies directed at public health awareness, education, issues, and concerns, e.g., CDC, HHS, NIH, and USPHS.

Often times it is this overwhelming multitude of resources that creates the biggest barrier to the HDHP consumer. Where do they go and for what information, and when? Organizations which specialize in consumer HDHP education work with employers to develop an evolutionary approach to education. Rather than a downpour of information, educating HDHP consumers becomes more of a process, which builds upon itself over time. In today’s technology driven world, e-learning can be delivered via on-line through numerous channels and devices, from desktops to iPhones.

Consumerism Education for High Deductable Health Care Plans

Monday, November 22, 2010

Previously we pointed out that one component of a High Deductible Health Care Plans is education. Education of health care consumers, employees, their dependents, and others is needed since for the better part of several decades, health acre consumers have had little knowledge of the health care industry. Consumers paid their premiums, co-payments, deductible, co-insurance payments, and out-of-pocket expensive with little knowledge of the true cost of care. For the majority of us who receive health care through their employers, we never the cost of an office visit, immunization or more complex procedures such as debridement of skin and subcutaneous tissue. We made our appointments, paid our co-pay, deductible, co-insurance payment or our out-of-pocket expenses and went on our way. One role of Consumerism Education is to help individuals with HDHP’s to understand the true and total costs of their health care choices.

To assist employees and their dependents gain information and even assistance with their HDHP issues, many organizations employ a “health advocate”. This is usually an organization other than an insurance company who works with the consumer in helping them navigate through the health care system. Carolyn M. Clancy, M.D., Director Agency for Healthcare Research and Quality (AHRQ) writing for AARP defines a

“health advocate” as “can be a family member, friend, trusted coworker, or a hired professional who accompanies you to your appointments and asks questions, writes down information, and speaks up for you so you can better understand your illness and get the care you need.”

For our purposes, we will focus on professional organizations hired by an employer to assistance their employee’s and their covered family members.

Health Advocate, Inc., headquartered in Plymouth Meeting, PA utilizes “Personal Health Advocates, typically registered nurses, supported by medical directors and benefits and claims specialists.” Their services include Wellness/Enrollment; “FMLA Support; Benefits Gateway; Medical Bill Saver; EAP+Work/Life; NurseLine; MedChoice Support; Chronic Care Management; Tobacco Cessation; Health Information Dashboard; External Appeals Administration and Independent Appeals Administration”.

Employees of organizations, which employ health advocate services generally, may contact the services for questions dealing with questions about what a typical medical procedure entails costs, recovery times, side effects, alternatives, screening/testing outcomes and readings. Often the health advocate service may suggest a second opinion, availability of generic or Over-The-Counter (OTC) drugs. They may even speak directly to the individual’s doctor or provider. Should the individual wish for a second opinion, the health advocate service may assist ion locating a suitable provider, make arrangements for appointments, review the individual’s health care plan to confirm how second opinions are paid.

Often individuals contact health advocate services to obtain a better understanding of what the doctor has told them. In cases where the doctor has developed very negative news, the individual has not been able to focus through the shock of the news. Health advocate services will review the indidvual’s case and help them to work through the medical, financial, and emotional issues of their specific situation.

In situations that are more mundane health, advocates can help the individual understand the coverage options available during open enrollment, changes in life stages such as marriage or birth of a child. They help individuals understand how to make the best use of HDHP’s, FSA, HSA, and HRA’s and when one might be more appropriate than another. Health advocates can assists with mis-billing and over-billing issues, they may be able to negotiate reductions in bills or arrange for time payment of very large bills.

Concepts of Consumerism and High Deductable Health Care Plans

Friday, November 19, 2010

Why should a High Deductible Health Care Plan alter the consumption behavior of an employee or their covered dependents? After all, businesses have employed various combinations of premiums, co-payments, deductible, co-insurance payments, and out-of-pocket expenses for decades. How can simply adding a larger deductible to the plan control health care cost, alter behavior, result in better medical care, improve wellness, and increase the medical knowledge level of the average worker? In and of itself, a higher deductible certainly cannot do all that. However, working in concert with a FSA, HSA or an HRA, appropriate education, and a high performance provider network, it is possible.

Consumer behavior is extremely complex, as is all human behavior and cannot be simplified in the 500-700 words of a single blog piece, not will I attempt to do so. However, consumers do react to economic pressures and the result can be changes in behavior relative to the direction of that pressure. Consider Behavioral Economics and health care, the manner in which incentives and dis-incentives are presented may have a greater impact than the absolute financial size of either incentives or dis-incentives.

Towers Watson, the HR consulting firm suggests that a $100 gift card may have more of an impact on behavior than the same $100 in a paycheck. Certainty vs. uncertainty associated with incentives or dis-incentives coupled with the delivery channel has the ability to direct behavior. Example: most consumers would prefer 10% off their purchase at the point of sale, rather than some future chance to receive 50% off another purchase.  I want it now!

Applying the concept of Behavioral Economics and a High Deductible Health Care Plan points to the delivery channel of the deductible; it is directly out of the pocket of the employee and with a high degree of certainly. Except for selected preventive and wellness medical procedures, the employee will be paying for a minimum of the first $1,200 to $2,400 of their health care expenses. The employee knows this, understands this, and with the aid of a FSA, HSA or HRA, has the ability to plan for that expense. With the noted exception of certain preventive and wellness procedures (PPACA), the employee may not file a claim against their health care plan during any specific year. Therefore, even if the employer funds some portion of the employee’s spending or savings account, this expense is far less than the employee’s minimum required $1,200 to $2,400 deductible amount.

In an article published in the July 2009 edition of Health Affairs titled, “High-Deductible Health Insurance Plans: Efforts To Sharpen A Blunt Instrument”, Mary Reed, Vicki Fung, Mary Price, Richard Brand, Nancy Benedetti, Stephen F. Derose, Joseph P. Newhouse, and John Hsu, the numerous authors point out that HDHP appear to have the ability to change behavior. To support this argument they cite:

     · Over half of the Kaiser Permanente California members
        knew they had a deductible.

     · Over one third knew the amount of the deductible.

     · Over 80% of members without a deductible knew
        there was no deductible.

     · Almost 40% of members reported some form of behavior
       change due to the deductible.

 

One concern expressed by the authors was that deductibles have the ability to create a barrier to health care and that health care consumers will need significant amounts of information so they can “differentiate when care is necessary, discretionary, or unnecessary.”

Consumerism and High Deductable Health Care Plans

Monday, November 15, 2010

The premise is simple. Employees who are enrolled in an employer’s health care become more savvy consumers of health care products and services as their financial participation (skin in the game) increases. You say that as long as health care plans have had premium payments, deductibles, co-payments, co-insurance payments, and out-of-pocket expenses we have had a form of consumerism. And to some extent, you are correct, but only to a limited degree.

However, health care consumerism starts with a High Deductible Health Care Plan (HDHP), also known as a Consumer Driven Health Care Plan or an Account Based Health Care Plan. Along with the health care plan, some form of a “savings” (HSA), “spending” (FSA), or “reimbursement” (HRA) account is usually available to the employee. In addition, a HDHP should be paired with a high performance, effective, and efficient network of medical providers, i.e., doctors, hospitals, and pharmacists. The final component is employee education.

The U.S. Treasury Department sets the annual minimum and maximum dollar limits for high deductible health plans (HDHP). For example in 2011, the minimum deductible for single coverage in an HDHP was $1,200 and $2,400 for family coverage. Treasury also sets the HDHP maximum out-of-pocket amounts, Individual $ 5,950 and Family $ 11,900.

As mentioned earlier, HDHP’s are usually paired with either a Flexible Spending Account (FSA), Health Savings Account (HSA), or Health Reimbursement Account (HRA). Pre-tax monies are deposited into one of these accounts by the employer and/or the employee. The employee is then permitted to withdraw amounts from the account and pay for qualified medical expenses. The IRS places significant restrictions on how, when, and on what health care products and services the monies may be spent.

Flexible Spending Account (FSA): pre-tax money from either the employer and/or the employee. Accounts balances not used by the end of the plan year are forfeited. Account balances earn no interest and may not be ported to another employer or account. Full account balances are available upon the first day of the plan year, even though the account has not yet been fully funded.

Health Savings Account (HSA): the employee must be enrolled in a HDHP. Pre-tax money may come from either the employer and/or the employee. An HSA is a tax-exempt trust or custodial account set up with a qualified HSA trustee in the name of the employee. HSA trustees may be a bank, an insurance company, or anyone already approved by the IRS to be a trustee of individual retirement arrangements (IRAs) or Archer MSAs. Unused account balances rollover to next year, accounts balances are portable to another employer, health care plan or trustee. Account balances may follow employee into retirement.

Health Reimbursement Arrangements (HRA): must be funded solely by the employer. Cannot be paid through a voluntary salary reduction agreement on the part of the employee. Employees are reimbursed tax free for qualified medical expenses up to a maximum dollar amount for a coverage period. An HRA may be offered with other health plans, including FSAs.

The requirement for a HDHP to be paired with a high performance, effective, and efficient network is necessary so that employees can obtain the best possible health care at the most appropriate cost. The most appropriate cost does not translate into the cheapest or most expensive health care. A generic drug may be just as effective as its brand name counter-part and at a fraction of the cost. A visit to a retail medical clinic may be just as effective as an office to a doctor, but at a fraction of the cost and time.

The last component of health care consumerism is employee education. For the majority of a typical employee’s life, the employee has had little involvement in the selection and delivery of medical care, its alternatives, and the true cost of that care. Yes, the employee may have paid premiums, co-pays, deductibles, co-insurance payments, and other out-of-pocket expenses, but employees rarely know or care what the total cost of a procedure was. The goal of education is to help the employee make better-informed decisions about their health care expenditures and what, if any alternatives are available. Education also includes topics on medical procedures, drugs, wellness, personal safety, self-care, appropriate use of ER’s, office visits, diseases and disease management issues, how to make the best use of FSA, HSA, and HRA’s, and where to go for help and assistance.

Retirement and Financial Security: Whose Responsible?

Wednesday, November 12, 2010

Many authorities believe that most Americans are ill prepared financially for retirement. Whether due to poor planning, inadequate savings’ rates, job losses, poor investment returns or the demise of traditional employer sponsored pension plans; many workers will outlive their retirement. In addition, as we have seen, the income replacement ratios of Social Security for many US workers will do little to help the situation. Who then is responsible for prepare or helping the worker to prepare for retirement?

When all is done and said, the entity responsible for an employee’s financial well being now and in retirement must the EMPLOYEE. While employers can provide access to employee benefit plans, which may help the employee, tools to help them plan for the future, and even access to professional financial advisers, the employee must accept the role of their own financial controller. Unlike the employer managed and directed traditional pension plans of our parents, self managed and self directed plans such as most current defined contribution accounts are controlled directly be the account holder, the employee.

In her paper titled, “Preparing for retirement: The importance of planning costs”, Annamaria Lusardi, associate professor of Economics at Dartmouth College clearly makes a successful argument when she states:” The responsibility to save and contribute to a pension is increasingly left to the individual worker.” Lusardi’s focus in several articles is on planning for retirement. Certainly a key element in the preparation for retirement.

In one of my prior assignments, I would travel around to the various locations of my employer addressing groups of employees and answering questions on the company’s 401(k) plan. I was continually amazed to hear knowledgeable employee’s refer to participation in a 401(k) as akin to gambling. While there, is a certain degree of risk involved in any form of investing, gambling has no upside; the house will always win in the long run.

The key to any endeavor is arming yourself with knowledge. Fortunately (and unfortunately) in the world of retirement planning there are a magnitude of advisors who are ready to serve the future retiree. As so often is the watchword in these matters, “caveat emptor, let the buyer beware”. Many financial advisors are associated with financial institutions that would prefer to sell you more that advise you. You may well be advised to seek the council of others and demand someone with nationally recognized credentials, licensed you respective state, and someone who is willing to demonstrate their transparency.

One place to start is the Certified Financial Planner Board of Standards, Inc., whose mission is to benefit the public by granting the CFP® certification and upholding it as the recognized standard of excellence for personal financial planning.  Another organization, which could be helpful to both individuals and organizations, is the American Institute of Certified Public Accountants, which serves both CPA’s and the public interest.

Social Security Income Replacement Ratios

Wednesday, November 10, 2010

Most workers in the US are subject to Social Security taxes on earned income up to $106,800 for both 2009 and 2010 at a rate of 6.2% for both the employee and employer. Self-employed persons pay a 12.4% tax rate on their earnings up to $106,800, also for 2009 and 2010. Thus for a worker earning $55,000 in 2009 and 2010, employed or self-employed, a total of $6,820 will be paid into the Social Security Trust Fund (Old-Age and Survivors Insurance (OASI) and Disability Insurance (DI) Trust Funds) on their behalf. In addition to Social Security taxes, workers and their employers pay a Medicare tax of 1.45% (2.9% total) each on all earnings. Self-employed individuals pay a total Medicare tax of 2.9%, which may be offset by certain income tax provisions on their earnings.

For a large majority of US workers, Social Security will constitute a significant portion of their retirement income ranging from 69% to 36% for retires whose pre-retirement income ranged from $20,000 to $90,000 respectively, based on Aon’s 2008 Replacement Ratio Study A Measurement Tool For Retirement Planning. Aon Consulting and Georgia State University (GSU) have collaborated since 1980 to produce periodically an analysis of Social Security and private retirement income replacement ratios. Initially issued as part of the President’s Commission on Pension Policy, the 1980 edition has been followed by seven follow-up studies; the latest is the 2008 Replacement Ratio Study.

The 2008 report by Aon and GSU suggests that to maintain a similar lifestyle in their post-retirement years, a worker will need a 94% to 78% income replacement ratio as their pre-retirement income ranges downward from $20,000 to $90,000. The findings here indicate that lower income levels require a protionally higher level of income replacement, proportionally, than do their upper income counter-parts. The current Aon/GSU study further points out that as the proportion of retirement income replaced by Social Security decreases (from 69% to 36%), the proportion replaced by other sources, i.e., private retirement plans (DB/DC) and personal savings has to increase to compensate for the loss.

Historically, the US retirement system has been based on three components: Social Security/Railroad Retirement, private employer defined benefit pensions, and personal savings. However, beginning in the 1980’s this “Three Legged Stool” increasingly has had the private employer defined benefit (DB) pension leg replaced by private employer defined contribution (DC) plans. However, since defined contribution plans generally require active participant contributions by employees, this change has effectively combined the private employer DC plans and personal savings into a single leg. Moreover, since most workers have a limited ability to save, the loss of private employer DB pension plans, which generally did not require contributions by employees, represents a decline in the employee’s overall income replacement ratios.

Clearly, to achieve income replacement ratios as suggested by Aon and GSU latest report will require significant disciplined behaviors by most workers throughout their working lifetime. Since the retirement of 76 million baby boomers could place substantial strains on both the Social Security and Medicare systems, it is essential that workers save more and sooner. These behaviors could include reduced consumption during the employee’s working lifetime in an effort to increase saving’s rates, something most workers may find hard to achieve. One obvious behavior would entail workers remaining in the labor force longer and even past their normal retirement age. Nevertheless, the coming decades will, no doubt, see a fundamental change in what is meant by retirement.

Retirement Income Security

Friday, November 05, 2010

There is growing concern that many American workers will not have sufficient income during retirement years to maintain an adequate lifestyle during their retirement years. Increased life expectancy, elimination of traditional Defined Benefit pension plans, a decline in the number of employers who offer retiree health care, and double digit increases in health care have placed many future retirees at significant financial risk. This could result in an increased dependency upon public programs, families, and force many workers to remain employed well past their normal retirement age. Combined with the possibility of future reductions in Social Security benefits, means testing, and Social Security’s lack of ability to keep pace with inflation, planning for retirement income security is essential to all workers regardless of income levels.

In a 2009 analysis written for the Organization for European Economic Cooperation (OEEC), which includes the US, author and economist Pablo Antolin suggests that retirees will need 70% of their pre-retirement income to sustain their current lifestyle. To achieve this, Antolin suggests that a worker must save between 5% and 15% of their annual earnings. Antolin goes on to point out that for workers in countries e.g., the US, where the predominant form of retirement income is Defined Contribution plans; workers will have to assume that the majority of their retirement income will come from such plans.

To model and test Antolin’s assumptions of a 5% and 15% savings rate of their annual earnings and a target income replacement level of 70%, consider a hypothetical worker Rick. Rick entered the workforce at age 26 with a starting salary of $12,864, Rick’s salary grew at an average of 5% annually over his career, Rick worked until he was 65 with a final salary of $82,143. Using 70% as a target replacement for his pre-retirement income, Rick will need about $57,500 to maintain his standard of living from all of his post retirement income sources. Based on Rick’s final earnings it is estimated that his Social Security replacement income will be approximately $31,214. Therefore, Rick will needs an additional $26,286 annually to meet the 70% threshold.

• Assuming that Rick saved 5% of his annual earnings and had an average annual rate of return of 5%, Rick will have a balance of $168,187 in his DC plan. This balance is certainly not enough to last more than about 8 ½ years, assuming the same 5% annual rate of return, or for about half of Rick’s remaining life expectancy.

• Assuming that Rick saved 15% of his annual earnings and had an average annual rate of return of 5%, Rick will have a balance of $504,562 in his DC plan. This balance is certainly enough to last more than Rick’s life expectancy of age 81-83.

It appears that Antolin’s assumptions of a 5% savings rate may be on the low side for a country such as the US where the social insurance system has a relatively low-income replacement rate. On the other hand, a 15% savings rate of annual earnings may be too high. Of course the actual savings rate is going to vary by each individual based on their personalized needs and circumstances.

Before making changes in retirement investments and planning, individuals should seek out professionals in the financial planning, legal, and accounting expertise and who have recognized credentials of national professional organizations. The examples provided here are for illustrative and academic purposes only and should not be taken literally.

Phased Retirement

Monday, November 01, 2010

Workers, who do not wish to or are unable to retire, may want to consider “phased retirement”. This process allows employees to continue to work but gradually, over several years, reduce their hours from full time to part time and eventually retire. This allows the employee to “ease” themselves into retirement and out of the workforce. At the same time, the employer is spared the shock of losing a skilled worker all at once, possibility permitting the transfer of knowledge to a replacement. Phased retirement is more or less a mirror image of how many workers started their working lives, part time after high school or on weekends, full time in the Summer and on holidays, maybe half days working during the last year or two of high school, and finally full time once their exited high school. Phased retirees could be partnered with interns, as the workers reduce their hours, the interns could increase their hours. The higher wages of the phased retiree is offset by the increased but lower wage rate of the interns.

One example is the University of Pennsylvania’s “Voluntary Phased Staff Retirement” which became effective on February 01, 2010, it states, in part:

“Voluntary Phased Staff Retirement is a means of transitioning retirement-eligible staff from full-time employment to retirement … [enabling] the staff member’s department to retain the knowledge and skills of the staff member during a period of transition while also aiding the staff member in meeting their personal goals/obligations.”

A Sloan Work and Family Research Network (Boston College) report updated in August 2009 reported that, “More than 80 percent of white-collar workers are employed in an establishment that permits some form of phased retirement”. The report went on to conclude that, 86% of employers surveyed would be willing to “work something out” for workers who were interested in phased retirement. In addition, “Older people appear to have more flexible work arrangements …” A Hewitt (now Aon Hewitt) survey quoted in the Sloan report indicated that more 55% of the survey’s participants had reviewed the effects potential retirements could have on their organization. 61% have developed or are in the process of developing “special programs to retain targeted, near-retirement employees”. Although only 21% perceive that phased retirement is essential to their organization’s human capital strategy at the current time, 61% believe it will be critical by 2013.

In the July/August 2010 edit of the Journal of Nursing Administration, Karen Hill that one third of RN’s are 50 years or age or older. In her article, “A Business Case for Phased Retirement: Will It Work for Nursing?”, Hill points out that programs such as phased retirement can be a business need based approach to the loss of valuable nursing skills.  This loss of nursing skills is coming at a point in time when 76 million baby boomers will be retiring over the next two decades and as the US population’s longevity is expected to reach into the 80’s and beyond.

Organizations will need to reconsider their employment model to ensure that their workforce will be able to meet the competitive demands as baby boomers retire and remain in the workforce at the same time.