Memo

TO:                   Mike Wildgen

FROM:              Lori Carnahan

Frank Reeb

DATE:               April 15, 2004

RE:                   Consumer Driven Health Plans (CDHP)           

Last summer during budget discussions the City Commission requested the Health Care Committee (HCC) investigate alternate health care programs which would reduce the rate of increase to the City’s Employee Health Care Program.  Specifically, we were asked to look into Consumer Driven Health Care Plans (CDHPs).  As more fully described below, while CDHPs have some benefits to modifying employee behavior over time, a CDHP will not save the City or its employees money in the short run and therefore we do not recommend moving toward a CDHP for plan year 2005. 

Consumer Driven Health Plan Design

While there are many forms of CDHPs, the basic theory is the employer contributes a set amount per employee into a health/medical reimbursement account.  The employee then uses those funds for purchasing health care.  Once those funds have been depleted, there is usually a “bridge” or out of pocket cost which is the responsibility of the employee. Once that out of pocket cost maximum has been exceeded, the employee begins coverage under a traditional but high deductible health care plan.

Research Summary

The Health Care Committee gathered a considerable amount of background material on CDHPs and devoted three meetings in 2004 to speak with vendors and discuss information gathered.  These meetings culminated in a discussion which identified the pros and cons of implementing such an option.

Some concepts of the CDHP are consistent with HCC and Wellness (CHAMP) Committee goals and philosophies such as:

• promoting employee health and wellness education, usually through the use of a website;
• offering a small cash incentive to employees who took a health risk appraisal;
• offering a 24-hour Ask-A-Nurse type hotline;
• and offering higher coverage for preventative services. 

However, there were many aspects of the CDHP that the committee did not like and were contrary to our current healthcare culture.  For example:

• A significant part of the incentive to motivate employees to be better health care consumers involved higher out-of-pocket costs or cost-shifting from the plan coverage to employee pay. Based on stated HCC goals to minimize cost-shifting as a method of reducing the cost of the plan itself and City Commission actions during the 2004 budget cycle to hold employee costs stable, shifting additional healthcare costs to employees at this time, particularly for lower paid employees, would not appear to be appropriate. 
• The CDHPs we examined failed to demonstrate they had any networks in place in this area, and also failed to show network discounts are as deep as our current Blue Cross Blue Shield of Kansas’ Blue Choice discounts.
• The CDHPs we investigated worked in conjunction with insured health care programs.  They required additional administration for the CDHP separate from the high deductible health care plan.  Additionally, there were no processes in place for providing or contracting with a plan administrator or selecting stop-loss coverage necessary under a self funded program.  It was difficult for us to find research material to discuss examples of programs that were implemented with self funded plans or programs that were not already looking at becoming very high deductible plans.  The last vendor we spoke with even suggested that we maintain two plans, one high deductible with the Health Savings Plan and one traditional low deductible plan.
• One CDHP representative we met with admitted, given our current plan structure, it was unlikely we would experience cost savings in the first few years and could possibly see an overall cost increase in the first few years of the program.  He was unable to show any current clients that had experienced cost savings.
• Computer access and computer literacy is necessary for employees to access the educational portion of the program which is touted as the way the programs will eventually save money. 
• The administration of a CDHP, particularly at the initial stages, would require significantly more staff time to close out the current plan, hire two third party plan administrators and obtain new reinsurance coverage.  Education of staff to manage their health care costs over multiple years will take considerable effort as well.
• Because the employee accounts or “banks” are heavily funded the first year and then funded substantially less in subsequent years we were also concerned about mismanaged healthcare accounts (e.g., healthy employees using unnecessary services early on and then running short on money in future years or, conversely, employees may postpone or neglect to seek treatment in order to bank health care dollars for future years.

Conclusion

The HCC believes the City currently has wellness initiatives in place which, if enhanced, would accomplish many of the same wellness aspects as those offered by any CDHP we investigated.  If cost shifting becomes necessary, the same it can be done with increasing deductibles or similar actions under our current plan.

While there are many positive aspects about CDHPs that we should incorporate into whatever health care plan we offer, the HCC believes, at the present time, the negative aspects outweigh the positive.  As a result, we recommend we do not move toward a CDHP for plan year 2005.