By Catherine L. Moreton, J.D.

Consumer driven healthcare is about changing employee behavior. The most successful changes, according to the Hay Group, are those that provide "plan design options" and "encourage employees to change their healthcare buying practices through education and information, choice, and advanced technology." Changing behavior does not happen overnight.

According to Marie Dufresne, Senior Consultant with the Hay Group, people use healthcare like it is someone else's money. In fact, HMO's and other plans where employees pay a minimal co-pay and often have no idea of the real cost of a doctor's office visit or a brand name prescription drug reinforce this notion. However, there have been staggering increases in health insurance premiums over the last ten years and the 8.5% increase projected for 2006 represents the 8th year in a row when premiums increased at more than 2.5 times the Consumer Price Index (CPI). As premiums increase, employers pay more and so do employees said Dufresne. In fact, if employers and employees looked at comparisons of the cost of health insurance as a percent of payroll from year to year, they would begin to see the impact that rising premiums have on employees' disposable income as well as the employer's bottom line.

Dal Anderson, Director of Human Resources for the City of Arlington, Texas, joined Dufresne at the 2006 World at Work Total Rewards Conference to discuss a phased-in approach to implementing a consumer driven healthcare system for employees. The City of Arlington is in its third year of a phased in approach to changing its healthcare benefits to consumer driven models.

According to Anderson, the first part of the transition was the easiest part. By using data showing the year-to-year increases in health insurance costs he was able to convince the top decision-makers that moving in this direction was the right thing to do. Traditionally, the city's employees participated in an HMO with little or no employee contribution to either premiums or to actual medical expenses. Therefore, Anderson felt it was necessary to make incremental steps towards changing the system and also changing employee behavior.

In the first year said Anderson, the city changed its health plan to be self-funded and expanded the network of medical providers to provide employees with more choice. At the same time, it introduced a formulary for prescription drugs that encourages employees to consider generics or alternatives. Finally, human resources developed a communication strategy to keep employees informed throughout the year about their health plan and to help them make good decisions. Anderson agreed with Dufresne that communicating with and educating employees about healthcare options is the most critical first step.

In the second year, the City of Arlington further reduced its subsidy for health insurance premiums and increased the out-of-pocket maximums for employees. As a result, the traditional HMO plan was less attractive to employees and was discontinued for lack of participation. In 2005, the city made further changes to its prescription drug plan, hired a full-time on-site Health and Wellness Coordinator, and implemented new technology that would support consumer driven healthcare options to be introduced in 2006. In addition, Anderson said, there was a big focus on communicating about the new plan options that would be available for 2006.

In 2006, the company implemented incentives to encourage employees to participate in health assessments that would drive the programming provided by the Health and Wellness Coordinator. It made a one time employer contribution to Flexible Spending Accounts for each employee who participated in the assessments. It also introduced two new deductible driven plans, something city employees were not familiar with because of the old HMO structure. The employer premium contribution ceiling was based on the lowest cost plan and a tiered cost structure was put in place for family coverage.

According to Anderson, the city made a deliberate decision not to move to Health Savings Accounts or Health Reimbursement Accounts just yet. In his opinion, the employees were not quite ready for that big change. However, over time, with frequent communication and education, these health accounts may become options and in the meantime the city is seeing significant savings. In addition, the city is taking steps to similarly reduce the cost of retiree health benefits.

In summary, Dufresne notes that healthcare costs remain employers' major benefit issue. Therefore, she encourages employers to:

• Take a good look at consumer driven plans and begin the strategic development process;
• Be prepared to educate and communicate on a regular basis before, during, and after full implementation of new plans; and
• Focus on behavior changes which drive better, more cost efficient use of healthcare plans, even before consumer driven healthcare plans are implemented.