Making Higher-Risk Health Plans Palatable

U. of Virginia begins campaign to encourage employees to consider a lower-premium, higher-deductible option as interest in that model increases.
October 25, 2007


With health care costs rising, colleges are seeking creative strategies to encourage employees to consider switching to plans that feature lower monthly premiums and higher employee-paid deductibles.

“It changes behaviors,” says Susan A. Carkeek, vice president and chief human resources officer at the University of Virginia, which just boosted benefits and lowered employee contributions for what it calls the “low premium” option.

“People incur lower health expenses who are on the low plan than on the high plan,” says Carkeek – who adds that while one likely explanation could be that younger, healthier employees tend to choose the lower-premium option, a high-deductible plan also encourages employees to “be more mindful" in making choices about health care.

The costs of services aside, it's generally in the employers' interest to drive down the cost of premiums -- which they tend to cover the brunt of -- and transfer a greater proportion of costs to the employee in the form of deductibles (although, in Virginia's case, the university's contribution toward the premium doesn't vary based on whether employees opt for the low or high option). And the low-premium plans are unpalatable to many employees for a reason: Carkeek acknowledges that with the low-premium, high-deductible plan, employees assume a higher degree of risk. The option, she says, is not for everybody. An employee with a chronic condition, for instance, might understandably prefer to pay more in premiums and less in doctor's visits.

But, she thinks a lot of Virginia employees have never really analyzed the two alternatives, and how much they (and not just the institution) can personally save. And so, with an open enrollment period for benefits in 2008 set for November, the university has begun a campaign to encourage employees to assess whether the lower-premium option -- available since 2004 and now selected by only 6.5 percent of employees – might be right for them.

And, to make switching seem a bit more appealing, the university is offering some incentives.

Virginia offers two plans with the same network of providers, but different cost-sharing mechanisms. The high-premium plan includes a 10 percent coinsurance charge on most in-network procedures and has no deductible for in-network services, while the low plan has a 20 percent coinsurance charge and a $350 deductible for in-network care.

Virginia’s monthly contribution to both plans is identical at $305 for a single employee or $799 for a family, but the difference in the premium costs is made up in employee contributions.

To encourage more employees to consider the low-premium program, the university is widening the gap in what employees would pay for the two plans, cutting the employee contribution for the low-premium program for the upcoming year and raising the contribution for the high-premium option. For single employees, the differences are negligible: The monthly employee contribution for the low-premium program will fall from $13 to $12 for a single employee, and the cost of the high plan will increase from $37 to $38 in 2008.

But for a family, the gap may seem more significant: The monthly cost to the employee for the low-premium plan will fall from $129 to $116 in 2008, while the cost of the high plan will increase from $290 to $299.

In addition, the university is removing maximum coverage restrictions on preventative care – pledging to cover all immunizations and preventative services at 100 percent for both the high and low plans – and has imposed a $7,000 maximum family out-of-pocket charge for in-network expenses for individuals on the low-premium plan. While there currently is a $3,500 maximum, as Anne Broccoli, assistant director of benefits, explains, that maximum is per person, so a family of four, for instance, could potentially face a $14,000 liability.

“Both of those enhancements are to try to respond to the concerns that we’ve had expressed and make the plan more viable to more people. If we can provide employees a lower-cost option for their health insurance, then I think it’s the right thing for us to do. It’s not for everybody, but we think there are some employees who haven’t considered this in the past,” says Carkeek.

In addition to changes aimed at making the low-premium option more palatable, Virginia is also increasing the coinsurance cost for brand-name prescription drugs while keeping the cost for generics the same, and is covering smoking cessation medications and types of genetic testing for the first time.

The university saw its health care costs rise 10.25 percent from 2005 to 2006, to an $89 million total. “There have been double-digit increases for years now,” Carkeek says. “Those are huge numbers.… A 10 percent increase is $9 million and then $9 million the next year.”

“All of us are just looking for whatever creative solutions we might have,” Carkeek says -- without, she adds, cutting the university’s competitive advantage in recruiting top talent.

Nationally, the median rise in health care costs at colleges in 2005 was about 9 percent, according to a 2006 College and University Professional Association for Human Resources survey. Despite the increase, the survey also found that 11 percent of colleges had reduced health benefits during the year.

Given the squeeze, colleges nationwide are, like Virginia, implementing or studying lower-premium, higher-deductible plans -- already largely embraced in private industry -- while expanding coverage of preventative care, says Andy Brantley, the association's chief executive officer.

“Higher education employers want to provide great comprehensive benefits, but as the resources of the institution are squeezed, the amount that the institution chooses to dedicate to health care versus other things like salaries or retirement benefits" can likewise be squeezed, Brantley says. "It really is a dilemma for human resources professionals, to make that balance occur and still provide an overall excellent benefits package for employees,” says Brantley.

At Florida’s Rollins College -- part of a 10-college consortium called the Independent Colleges and Universities Benefits Association -- officials also gave employees incentives to participate in a higher-deductible plan launched in 2003. It’s now the plan of choice for 55 percent of Rollins’s employees and 46 percent of all employees across the consortium, says Maria Martinez, assistant vice president for human resources and risk management at Rollins.

Like at Virginia, officials had to find a way to mitigate the risk of the higher-deductible option, dubbed the “Risk and Reward” plan, to make it appealing to employees. The deductible for the Rollins program is nearly five times that of Virginia’s at $1,500, but Rollins has contributed to individual health reimbursement accounts (HRA) for its employees to help cover out-of-pocket expenses.

The college’s contribution to the accounts is highest for those on the highest-deductible, highest-risk plan -- Rollins offers two other lower-risk options -- and four years into the plan, the average Rollins employee has $3,000 banked in an HRA. The HRA, which rolls over from year to year, is fully funded by Rollins, with no employee contributions.

In addition to mitigating the risk associated with higher deductibles, Rollins also, like Virginia, focused on ensuring that all preventative care is covered at 100 percent, even for those on the higher-risk plan. “When we created these plans, we all talked about that if we’re going to put high deductibles in place, then we have to make sure that our employees take care of their preventative services,” Martinez says.

While the college’s health care costs are still rising in part because of some high-cost claims -- costs increased about 9 percent last year -- Martinez believes the concept will save Rollins money in the long run. “If it’s partly coming out of [employees'] pockets, they’re going to talk to their doctors: ‘Which hospital is less expensive to have a procedure done? Which procedure, which lab is less expensive?’ ”

“There’s more discussion going on about the cost of services.”

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