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Consumer Driven Healthcare

Consumer Driven Healthcare. “Unleashing the Power of Free Market Economics on the Healthcare Industry”. The Principles of CDHC. #1: Patients have the freedom to choose their providers and to direct their care #2: Patients share in the economic consequences of their healthcare choices

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Consumer Driven Healthcare

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  1. Consumer Driven Healthcare “Unleashing the Power of Free Market Economics on the Healthcare Industry”

  2. The Principles of CDHC • #1: Patients have the freedom to choose their providers and to direct their care • #2: Patients share in the economic consequences of their healthcare choices • #3: Patients get tools to improve health and assess healthcare options: e.g. fitness programs, provider “report cards”

  3. The Claim Cost Curve 80% 70% 69% 60% $1,259 pmpm 50% 60% 40% $176 pmpm 30% $30 pmpm 20% 26% 24% 13% 10% 8% 0% Healthy Transitional Chronically Ill/High Risk ($1-$999) ($1,000-$4,999) ($5,000-$100,000) % Members % of Dollars

  4. Designing a CDHP: Level #1 • A “Wrap” Plan • Employer buys high deductible plan • HMO, POS or PPO • Employer “self-funds” deductible to desired ultimate benefit level • Net savings vs. Traditional = 10% to 20%

  5. Advantages of Wrap Strategy • Not Self-funded/Not Fully-insured • Substantial Rate Relief/Limited Claim Risk • Claim Risk per Patient from $1k to $5k • Employer has stake in Employees’ Health • Employer gets Credit for Good Experience • vs. Community Rate (Small Group Reform) • Unlimited Plan Design Flexibility

  6. Designing a CDHP: Level #2 • Add a Flexible Spending Account (FSA) • Employees take on some claims liability • Employees can pre-fund with pre-tax $$ • Funds not used for medical can be spent on vision, dental or alternative therapies • Unused funds are forfeited at year end • Employer may “seed” employees’ FSAs

  7. Designing a CDHP: Level #3 • A Health Reimbursement Account (HRA) • Employer creates a virtual benefit bank for each employee (e.g. $500/ee, $1k/family) • Employee’s out-of-pocket medical costs are paid from bank until exhausted • Any unused “bank balance” can be rolled over into the next plan year

  8. Designing a CDHP: Level #4 • One high deductible base plan • Multiple employee benefit options • options include FSA & HRA tools • Employees pay cost differentials with pre-tax $$; employer cost same for all options • Employer cost is fixed, regardless of which option an employee selects

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