This is the last of a three part series on the 2018 Cadillac Tax, which began with a look at employer-sponsored medical coverage and its influence on employees’ healthcare utilization. Subsequently, a multi-year approach for eliminating employers’ Cadillac Tax liability introduced this much larger theme in the healthcare and benefits world – consumerism.
Consumer-Driven Health Plans (CDHPs): Are consumers prepared to be placed in the driver’s seat?
The Cadillac Tax brings about massive changes for employees, who are being asked to navigate healthcare in this post-ACA world. Employees are now responsible for balancing their health and financial needs. But are they prepared to succeed? Do they have adequate information to select the right plans and coverage levels, as well as properly assess risk to limit their out-of-pocket cost exposure?
We have certainly reached a tipping point, with employers introducing CDHPs – also referred to as High Deductible Health Plans (HDHPs) – at rapid paces and in some cases moving to full replacement. Until now, employees lived in a fee-for-service world where it wasn’t necessary for them to understand their health plan, let alone fees outside of the copay, including total cost of treatment, procedure, medications, etc. Employers need to help employees become more informed healthcare consumers.
This will be a significant challenge, as employees have never really been asked to weigh these options or risks. Previously, their annual enrollment in healthcare benefits centered on selecting plans based on much different out-of-pocket-costs, with premium price as the main decision driver. There was hardly the deductible dilemma that CDHP participants find themselves facing. Now, an employee is financially responsible for a much higher deductible and may only have little invested in their Health Savings Account (HSA) to help them meet it.
Consider that new entrants to the CDHP will have just begun to invest in an HSA, which places the majority of “risk” on the employee. This can pose significant challenges to a household budget that has survived on rich plans in the past. For example, a typical Primary Care Physician (PCP) visit is approximately $100-150, and if an employee enrolls in a CDHP plan, they are now responsible for paying 100 percent of that cost (until satisfying their deductible, which can be upwards of $5,000). Unfortunately, there are numerous studies that show, due to this dramatic change in medical plan structure, employees may avoid seeking care due to the financial burden. This can ultimately aggravate symptoms, resulting in far greater expenses down the road, such as visits to the emergency room.
With unprecedented change in employer-sponsored medical coverage, employees must make a more conscious decision around budgeting for unplanned expenses and savings for future healthcare needs. This encompasses managing their HSA and seeking alternative solutions for “pre-deductible” care. Procuring voluntary benefit products such as Critical Illness and Accident will allow the HSA to grow as these products offer financial protection for the unexpected. Digital health and consumer tools are also emerging strategies to help employees obtain quality, lower-cost healthcare that’s readily accessible. In many regards, employees are already familiar with this logic and today are managing a similar plan design structure with other forms of insurance – such as home and auto.
Healthcare coverage to follow home and auto insurance model
As car owners, we manage our “pre-deductible” care on our own because car insurance is viewed as providing catastrophic protection. When non-catastrophic events arise – windshield wiper replacement, oil changes, tire rotations, etc. – we don’t call State Farm, Geico or Allstate. We take care of these items on our own, via PepBoys, AutoZone and Jiffy Lube. If a new car breaks down and you purchased a supplemental manufacturer’s warranty, the supplemental warranty will assist in covering unforeseen malfunctions. However, the goal in car insurance is not to reach your deductible. “Self-care” is the norm.
With more employees adopting CDHPs and managing their deductibles, it’s possible that healthcare can soon function in a similar manner as the auto insurance industry. For example, it’s common to take your car to a mechanic for annual service. In a similar manner, employees can take advantage of preventive services covered via required Essential Health Benefit plans. Also, an employer’s willingness to fund certain health and wellness programs provides an annual baseline of an employee’s health.
And similar to taking our cars to more economical service providers compared to the dealership, CDHP participants will also seek more economical yet quality alternatives to handle basic medical needs aimed at minimizing withdrawals from their HSAs and/or out-of-pocket expenses. Digital health innovations, such as telemedicine, are already gaining adoption.
Digital Health and Low Cost Alternatives
Here are a few emerging strategies and tools that employers can use to help employees take a consumer-centric approach to healthcare and save money.
- Retail Clinics – With a lower price point in conjunction with allowing physician assistants and/or registered nurses to manage basic care, a retail clinic is an affordable alternative to urgent care or the ER.
- Telemedicine – Healthcare remains one of the few remaining industries where “brick and mortar” is the primary method for receiving services. However, with the advent of telemedicine and virtual doctor visits provided by companies including TelaDoc, MDLive and AmericanWell, employees and their families can pay a small fraction of the typical office visit cost – a $40 co-pay or, if an employer is funding the service, nothing.
- Drug Cost Transparency Tools - In the high deductible world of CDHPs, employees are encouraged to take an active role in shopping around for their healthcare needs, including prescription drugs. “Digital RX” tools, such as WeRx, allow employees and their families to search for prescription drug prices via a mobile app. These solutions assist individuals in finding a list of all pharmacies within a 5-10 mile radius, helping them identify:
- Location offering the best price for their particular drugs (as all generics are not priced the same)
- Any therapeutic or over-the-counter alternatives which could lower the price further
- How dosage or pill splitting may impact out-of-pocket costs
- Wearables - Self-maintenance of cars (checking the tire pressure, checking the windshield wiper, etc.) was once a manual task; now it’s provided via dashboard in most cars. The equivalent of the healthcare dashboard is wearable technology –smart watches, fitness bracelets, clothing sensors, etc. These devices track physical activity and heart rate, and provide alerts when your body requires action. “You manage what you measure” is a critical concept in the self-service healthcare world.
- Transparency tools – When significant medical events occur, which cannot be addressed via Retail Clinics or Telehealth, just as Americans utilize shopping comparison sites for travel (Expedia, Kayak), shoes (Zappos) and commercial goods (Amazon, eBay), employees will now be able to access medical condition transparency tools through which, in a similar consumer shopping manner, employees can evaluate the prices of procedures, check online reviews, review physician resumes, etc.
- Biometric Sensors & Genomics – A recent study shows that adhering to healthy lifestyle practices could reduce chronic disease spending by as much as 80 percent. This would be significant, as the Centers for Disease Control (CDC) says 45 percent of Americans have at least one chronic condition, and chronic conditions account for 75 percent of healthcare spending. Great advances are being made that allow individuals to monitor key biometrics – such as glucose levels and blood pressure – on their smartphones. Ultimately these tools will help individuals with chronic conditions reduce acute episodes, ER utilization and readmissions. Additionally, proactive assessments of health risks via genome sequencing allow for a prevention-centric healthcare model to emerge, wherein individuals will not have to reactively wait for their “check engine light” to turn on and can identify susceptibility of conditions early on.
The visual below is the new, consumer-oriented employee benefits “home.” It’s very different than the “co-pay/co-insurance” environment, but it also comes with some new advantages for employees.
While this transition will require an employer to err on the side of over-communicating, the tools mentioned above – which can help employees take over as their own care manager – will result in greater access, convenience and savings. The shift to consumerism and self-health management gives employees the incentive of lower costs. Once employees are empowered to ask questions, request pricing of services and demand low-cost alternatives, they become savvier consumers, driving change in an industry that is in need of positive disruption.
In conclusion, regardless of political affiliations or predictions on whether the Cadillac Tax will survive in its present form, all employers have to reduce healthcare costs. The only way for this to occur is for employees to become active participants in their healthcare by managing their “pre-deductible” spend in a similar way to other forms of insurance. They have to be given the tools necessary to succeed in this new healthcare environment.
Learn more about how you can help employees supplement a CDHP with benefit options that are cost-effective for you and them. Additionally, for an in-depth look at how the Cadillac Tax impacts the future of your benefits program, as well as tips for thriving in the post-ACA world, check out the all-new whitepaper, Don’t Get Run Over by The Cadillac Tax.