Consumer-driven plans still rare in R.I. <br> <i>But high premiums add to appeal of new options</i>

Consumer-driven health plans, long resisted by Rhode Island employers accustomed to rich benefit packages, are gaining more popularity in the state, especially among companies covered by UnitedHealthcare of New England, which actively promotes such plans.
The number of United subscribers in Rhode Island with consumer-driven plans – high-deductible plans tied to health savings accounts or employer-sponsored health reimbursement arrangements – nearly doubled from 2005 to 2006, the company said last week.
While across the nation, United saw a 65-percent increase in such plans, spokeswoman Debora Spano said, in Rhode Island the jump was 90 percent – with a 131-percent increase in HSA plans in particular, compared with 106 percent nationwide.
Of course, such dramatic jumps are easier when the starting point is low, and Spano acknowledged that consumer-driven plans are still far from the norm in Rhode Island.
Even at the national level, Mercer Health & Benefits found in its latest employer survey, only 4 percent of employers offered an HSA plan in 2006, and just 2 percent an HRA-based plan.
Blue Cross & Blue Shield of Rhode Island executives call HSA plans a “niche” product used by only about 1 percent of subscribers. And even at the Cornerstone Group, which actively promotes consumer-driven plans, senior consultant Amy Gallagher said slightly less than 10 percent of the book of business is in such plans now, the vast majority in HRAs.
But health benefit costs also continue to rise rapidly, and that creates pressure for change. Mercer’s survey found an average 6.1-percent increase last year, while locally, an October survey of 63 employers by Wakefield-based Bluff Head Enterprises found that group medical costs had increased by an average of 34 percent over the last three years, to an average of $8,277 per person for private-sector employer plans and $11,823 for public-sector plans.
Both United and Blue Cross have been reporting for some time that to try to reduce costs, more and more employers have been imposing high deductibles and co-payments – though discomfort with high deductibles remains high; Gallagher said the average in the state is now $500 for individuals and $1,000 for families, with preventive care exempt.
That’s where United is promoting its HRA and HSA options, which allow employers to increase deductibles to much-higher levels – and thus cut their premiums – while tempering the impact on employees.
The better-known HSA model, which was created as part of the Medicare Modernization Act of 2003 but only became a legal option in Rhode Island in late 2005, involves a plan with a high deductible (this year it’s $1,100 for an individual, $2,200 for a family, and it goes up each year) coupled with a tax-favored savings account to which the employer and the worker can contribute. Only preventive care, as defined by the federal government, is exempt from the deductible, but the money in the savings account can be used to cover out-of-pocket costs. And any unused portion can get carried over into the following year.
HSA plans are considered the ultimate consumer-driven plans because they provide a strong financial incentive for workers to watch how they spend their health care dollars – and, in the long run, to minimize their need for medical services by staying healthy. HSAs are also portable, so if you change jobs, you take your savings with you.
HRAs, which have been around since 2001, provide more design flexibility and are controlled by the employer. Like HSA plans, they’re coupled with high-deductible plans, but an employer can impose the deductible for only certain services, such as hospitalizations, emergency room visits, diagnostic imaging, etc.
The employer creates an account, the HRA, to cover a pre-determined share of the deductible. It can be set up so if there’s a $2,000 deductible, the worker pays the first $1,000 and then the employer pays the other $1,000 – or, if the goal is to cut back on prescription drug use, for example, the employer can choose to pay the first $1,000, and then have the worker step in.
United CEO Stephen J. Farrell said HRA plans have become popular with smaller Rhode Island employers, especially as replacements for existing coverage.
A high-deductible plan can instantly cut premiums by 20, 30 or even 40 percent, Farrell said, so that’s a big plus, but HRAs also appeal more than HSAs to smaller employers with substantial employee turnover, because the money stays with the employer.
“They’ll say, ‘I don’t want to put money into an account for an employee who I’ll never see again. I want to put the money in an account, and if that employee leaves, I keep that money,’ ” Farrell said.
United also makes HRAs attractive for smaller employers by requiring that only one-24th of the liability be funded at any given time, with weekly updates to reflect actual spending. “That means they get great cash flow advantage,” Farrell said.
And because the majority of subscribers don’t actually use up the money put into the HRA, Farrell said, at the end of the year, the employer doesn’t end up spending much.
Yet to actually change workers’ health care spending habits, Farrell said, HRAs are far less effective than HSAs – which is why larger employers with long-term cost reduction goals like HSAs better.
“I think the larger employer is much more interested in managing a large population and engaging that population in accountability,” he said. “HSAs are much more likely to drive behavior change, because the individual knows, ‘it’s my bank account that’s at risk.’ ”
Gallagher agreed, but she also said she knows of only one Rhode Island employer that has fully replaced its health plan with an HSA plan – and saved $150,000 in premiums, or 17 percent, in the first year with a $1,500/$3,000 deductible.
Most employers would still rather offer HSA plans as a lower-cost alternative for workers, but not as the only choice, Gallagher said.
“But with that, the employer doesn’t see the kinds of savings that you can reap from an HSA.”