Benefit Design Innovations: Implications for Consumer-Directed Health Care

Many Employers Continue to Rely on One-Size-Fits All Patient Cost Sharing

News Release
Feb. 21, 2007

FURTHER INFORMATION, CONTACT:
Alwyn Cassil (202) 264-3484 or acassil@hschange.org

WASHINGTON, DC—Current health insurance benefit designs that simply rely on higher, one-size-fits-all patient cost sharing have limited potential to curb rising costs, but innovations in benefit design can potentially make cost sharing a more effective tool, according to a study released today by the Center for Studying Health System Change (HSC).

Innovative benefit designs include incentives to encourage healthy behaviors and self-management; incentives that vary by service type, patient condition or enrollee income; and incentives to use efficient providers, the study found.

"Most employers have not incorporated innovative designs into their health benefit offerings—and are not even in the planning stages, suggesting that the ability to use substantial cost sharing more effectively is many years off," said Paul B. Ginsburg, Ph.D., co-author of the study and president of HSC, a nonpartisan policy research organization funded primarily by the Robert Wood Johnson Foundation. "This will limit the extent to which cost sharing can be used as a cost-control tool."

Based on interviews with about 25 experts between May and August 2006, including benefit consultants and representatives from health plans and large employers, the study’s findings are detailed in a new HSC Issue Brief—Benefit Design Innovations: Implications for Consumer-Directed Health Care—available here.

"While higher patient cost sharing, primarily through increased deductibles, copayments and coinsurance, has become a major employer strategy to slow rising premium trends, the cost-containment potential of current benefit designs built on greater cost sharing is constrained by several factors," said HSC Senior Researcher Ha T. Tu, M.P.A., a study co-author.

According to the study, factors limiting the effectiveness of increased patient cost sharing include:

• When cost sharing is too large in relation to a consumer’s resources, the result is either serious financial strain or reduced access to care. Benefit structures tend to be designed uniformly without regard for variation in consumers’ financial resources.
• Studies indicate that about 10 percent of patients account for 70 percent of spending in a given year, putting a large portion of spending beyond the reach of patient financial incentives, even in a high-deductible plan. Spending that exceeds the deductible is subject to relatively weak financial incentives, and spending that exceeds a plan’s annual out-of-pocket maximum is not subject to any financial incentives.
• Current plan designs have few patient incentives to choose more efficient providers. In physician services, for example, copayments typically are the same for all network providers and even coinsurance—where the patient pays a percentage of the total cost—sharply dilutes price differences among network providers. Moreover, benefit structures typically do not distinguish between services considered extremely important, such as testing, insulin and physician visits to manage diabetes, and more elective services, such as knee surgery to play recreational sports.

Recently, large employers and health plans have begun experimenting with innovative benefit designs to improve the potential effectiveness of increased patient cost sharing, according to the study. These innovations include:

• Incentives to encourage healthy behaviors and self-management. Large employers seeking to curb costs and increase worker productivity have begun providing incentives aimed at engaging consumers in maintaining their own health and reducing health-risk factors through a wide range of programs, including nutrition and physical activity programs, health risk appraisals, disease management, lifestyle management, and personal health coaching programs.
• Incentives that vary by service type or patient condition. These include incentives to decrease the use of treatment options that are more expensive than alternatives, especially those without greater proven effectiveness, and those designed to encourage—or at least avoid discouraging—the use of services known to be clinically effective. Regarding incentives to decrease the use of expensive, overused services, little concrete innovation was reported by experts, who noted that insurers and employers tend to rely on administrative controls, rather than benefit design, to curb overuse. Among incentives to avoid discouraging the use of particularly effective services, the major approach reported was a reduction in cost sharing applicable to treatment regimens—most commonly prescription drugs—for certain chronic conditions.
• Incentives to use more efficient providers. Health plans—in response to requests from large national employers—have introduced, in selected markets, networks of physicians designated as "high performers" on the basis of efficiency scores and quality measures, both of which vary significantly by insurer. Although insurers have developed high-performance networks, it is employers who decide whether to incorporate them into their plans and whether to alter benefit structures to provide financial incentives to use particular providers. Some large employers have used these networks solely as information tools for enrollees and have yet to introduce financial incentives for using higher-performing physicians. Other large employers have introduced differential cost sharing: for example, 10 percent coinsurance for high-performing physicians vs. 20 percent for another network physician.
• Incentives that vary by income. Although the practice does not appear to be widespread, some employers vary health plan premium contributions and cost-sharing levels by employee earnings. Some employers that vary benefits by earnings choose to vary only premium contributions, while other employers also differentiate deductible and out-of-pocket maximum levels.

The Center for Studying Health System Change is a nonpartisan policy research organization committed to providing objective and timely research on the nation’s changing health system to help inform policy makers and contribute to better health care policy. HSC, based in Washington, D.C., is funded principally by The Robert Wood Johnson Foundation and is affiliated with Mathematica Policy Research, Inc.