Fixing Co-Pay Woes Promotes Cost Savings

U.S. health care costs continue to outpace inflation, a recent report suggests companies could do a better job of containing costs if they fine-tuned the way they wielded their main weapon: sharing the cost of health benefits with employees.

The report, from the Center for Studying Health System Change (HSC), a non-partisan policy research organization, argues that cost-sharing that is not targeted correctly may be ineffective or could even backfire.

One possible pitfall: Employees who are strapped for cash may fail to get the care they need, resulting in more serious health problems that cost employers more money down the line.

The fact that a small portion of employees account for a large part of medical costs also limits the effectiveness of cost-sharing, HSC says, because financial incentives are weaker once employees have exceeded their deductible. The report also noted that current cost-sharing measures generally are not designed to encourage employees to select more efficient providers or more effective treatments.

Ha Tu, a senior health researcher at HSC and a co-author of the report, says the 25 experts interviewed for the report were most excited about two approaches to designing cost-sharing. One involves identifying the medical services that provide the most clinical value and the employees who would benefit from those services. This approach also entails reducing cost-sharing to encourage employees to use those services. Tu notes, though, that “the clinical knowledge base isn’t where it needs to be to make those differentiations.”

The second approach is to provide incentives for employees to use efficient providers. The networks of high-performance doctors currently identified by some insurers are a version of this approach, but such networks focus mostly on cost measures, rather than on quality, Tu says.

“The very widespread feeling is that these kinds of high-performance networks won’t take off until the quality measures are developed to the point where people have real confidence in them,” she says.

Another approach is to provide incentives to employees who participate in wellness programs. The report cited Johnson & Johnson’s 1995 offer of a $500 health insurance premium discount to employees who participated in such a program. That sent participation to 90 percent from 26 percent, although it has since tapered off from that 90 percent level.

Companies may shy away from wellness programs, however, when they compare the upfront cost with the amount of time it takes to see results, if only because the employee may be working for another company by that point, explained Glenn Melnick, director of the University of Southern California Center for Health Financing, Policy and Management. Melnick predicts that companies will focus on encouraging employees to become better health-care consumers rather than on wellness programs.

The HSC report says that innovation in the design of health plans is not that widespread. Companies want very clear evidence that an approach works before they adopt it, Tu says. “Companies are just very gun-shy of rolling out some expensive program and not seeing the payoff from it.”

The report also noted that the IRS regulations governing the health savings accounts (HSAs) used in conjunction with high-deductible health plans can limit innovation by companies. For example, the regulations do not allow companies to waive the deductible in high-deductible plans for care for an ongoing chronic condition, which limits a company’s ability to provide free drugs for employees with chronic conditions.

The report suggested making HSA regulations more flexible. For example, instead of mandating the same deductibles for all employees, the regulations could allow deductibles to vary according to employees’ incomes.

—Susan Kelly

Filed by Susan Kelly of Financial Week, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.