To Cap Costs, Employers Considering Defined Contribution Health Insurance Plans

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Employers are increasingly interested in defined contribution health insurance offerings to cap spiraling costs, according to two officials involved in the Bloom Health insurance exchange who spoke at a webinar Nov. 10.

“Health care costs are not sustainable,” said Kevin Kickhaefer, head of sales and market development for Bloom Health, a Minneapolis-based private health insurance exchange owned by Blue Cross Blue Shield of Michigan, WellPoint Inc., and Health Care Service Corp.

“These employer groups, they can't keep up with the medical trend levels that are out there in the marketplace,” said Kickhaefer, who spoke at a webinar, Defined Contribution Health Exchanges.

‘Increasingly Difficult for U.S.-based Organizations to Compete'

The rise in health care costs “makes it increasingly difficult for U.S.-based organizations to compete in a global marketplace,” particularly when health care cost increases are higher than revenue increases, Kickhaefer said.

The defined contribution system is similar to 401(k)-type pension plans, in which employers contribute set amounts of money toward employees' retirement savings accounts.

The Bloom Health exchange uses health reimbursement accounts in which employers provide set funding levels that workers use to choose health plans, Kickhaefer said.

Bloom Health is one of a growing number of private exchanges that offer employers defined contribution health plan systems.

System Gives Employees More Choices

In addition to allowing employers to control costs, the systems give employees more choice in plans, and they urge workers to help control costs and take steps to stay healthy, Kickhaefer and Jeff Rubleski of Blue Cross Blue Shield of Michigan said.

Employees are frustrated when they have little choice in health plan offerings, Kickhaefer said. And employers have had to reduce costs by requiring employees to pay higher deductibles, coinsurance, and out-of-pocket expenses, he said.

For the past five or six years, employees have been “confronted with paying more for less and not having enough choice,” Rubleski said.

Health care reform is providing “another tailwind to this,” Kickhaefer said. In 2014, the Patient Protection and Affordable Care Act will require exchanges to be in operation in all states, and insurers must cover all applicants despite pre-existing conditions, he noted.

As that happens, “We believe that it's going to be moving to more of this individual decision,” Kickhaefer said. Defined contribution health plans are “a paradigm shift,” he said. “For the first time we're asking the employee” to choose their health insurance plan, he said.

The Bloom Health exchange is “not in a position of competing with the state exchanges” when they open, Kickhaefer said. But, he added, “As we evolve and grow, we can offer much more than medical and dental [that will be offered] in the state exchanges.”

Moving to defined contribution systems “is now creating better consumers of insurance” because they can choose plans that best suit them, Kickhaefer said.

First Insurer to Offer DC Plan

Faced with the recent economic challenges as the automobile industry in Michigan has struggled, Blue Cross Blue Shield of Michigan was the first insurer to offer a defined contribution system, Rubleski said.

Many employers with fewer than 50 employees were discontinuing coverage, he said.

The defined contribution system operated by Bloom helps employers better predict current and future health expenditures, Rubleski said.

Moving to defined contribution systems “is now creating better consumers of insurance” because they can choose plans that best suit them.

Kevin Kickhaefer, Bloom Health

If an employer contributed 70 percent of premiums before switching to the defined contribution, for example, it would usually continue contributing that percentage, Kickhaefer said. Under the defined contribution system, employers can keep their costs in check by tying increases to increases in revenue, he said.

Bloom Health sells to smaller and midsize companies that have 25 to 300 employees, Kickhaefer said.

However, he added, “We're in some pretty deep discussions with some large national account players as well for 2013, so I think this can be applied to all markets.”

Blue Cross Blue Shield of Michigan offers companies groups of health insurance plans, Rubleski said.

To prevent company plans from including a disproportionately high share of sicker employees, which would raise costs, it requires a minimum of 75 percent of eligible employees to participate in the company's health insurance system, he said.

The most comprehensive plans and plans with the highest deductibles are similar in price and offerings, Rubleski said.

Most Choose Higher Deductibles

Employees are happier with having more control over their health insurance choices, Kickhaefer said.

“Two-thirds of the time, employees are actually choosing to buy a higher-deductible plan than what they were enrolled in initially,” which saves money for employers and employees, he said.

In addition, Rubleski said, “Once we get the member engaged in choosing the plan, we have that point of interest to really engage them in wellness activities, because now the member's looking at those dollars saying, `I want to preserve these to the best extent possible,' ” Rubleski said. Blue Cross Blue Shield of Michigan provides wellness and self-care information, he said.

Although it is too early to determine whether defined contributions will lower medical trend—the rate of increase for health care expenses—“all the indications at this point are, yes it will,” Rubleski said.

Matching Customers With Plans

The Bloom Health exchange includes a survey designed to match customers with plans best suited for them, which also helps them understand their plan choices, Kickhaefer said.

Once we get the member engaged in choosing the plan, we have that point of interest to really engage them in wellness activities.

Jeff Rubleski, Blue Cross Blue Shield of Michigan

The exchange includes health insurance brokers who can aid employees over the phone, he said. Bloom Health typically offers five choices, compared with the two or three choices that were offered by the employers they serve, he said.

In the future, the system may integrate claims data and account transactions with the survey to refine product decision choices for members, Rubleski said.

Bloom Health offers medical, dental, and pharmaceutical benefits and expects to offer other benefits such as life, disability, and long-term care insurance, vision care, paid time off, and 401(k) plans, Kickhaefer and Rubleski said.

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