The Big Health Story In 2007: Consumers, Please Pick Up Your Keys. Please?

BY ALLISON BELL

December 19/26, 2006

The coming year may be the year when “consumer-driven health plans” either attract large numbers of consumers and employers or get relegated to the category of great niche products.

For 2 years, benefits consultants and health policy experts have been wondering whether health savings accounts and health reimbursement arrangements were on their way to being to the Aughties what health maintenance organizations were to the 1980s.

For the past 2 years, the answer seems to have been “no.”

Only 1.3% of the 1,600 insured, working-age adults who participated in a recent survey commissioned by the Employee Benefit Research Institute, Washington, and the Commonwealth Fund, New York, said they had employer-funded personal health accounts along with high-deductible coverage.

American’s Health Insurance Plans, Washington, includes dependents and self-funded health accounts in its total, and ?? has found that the number of health account owners increased to 3.2 million earlier this year, from 1 million in March 2005.

Either way, health account plans still appear to account for only a tiny percentage of the commercial health insurance market, the authors write.

Out in the real world, “there continues to be a good bit of interest” in health account plans, says Lamar Wright, a benefits broker with The Benefit Company, Atlanta. “But there’s more talk than action.”

One problem is that the cost of the high-deductible plans used with HSAs and many HRAs is still almost as high as the cost of the traditional plans, Wright says.

Up in Michigan, “we began to see more movement toward HSAs, but more to HRAs,” says Kristopher Powell, president of BenePro Inc., Royal Oak, Mich. “The employers were happy because of the cost savings, but it took a lot of work to get the employees up to speed.”

Once an employer has a health account plan for about 3 years,though, the employees seem to like it about as much they like other types of plans, and the well-established health account plans do not seem to generate any more employee complaints about claims than the traditional plans do, Powell says.

Cost increases at the health account plans seem to be about 2 percentage points lower than the increases at the traditional plans, and the difference adds up over time, Powell says.

The workers who do have employer-funded health account plans were about 20% more likely to stay out of the emergency room and much more likely to ask doctors to prescribe cheaper drugs and avoid unnecessary diagnostic tests.

Thanks to health account plan wellness benefits, the health account plan members were more likely to have had Pap smears and mammograms in the past year.

But researchers who conducted another survey for the Henry J. Kaiser Family Foundation, Menlo Park, N.J., found that 9% of health account plan members reported suffering from a temporary disability as a result of postponing seeking medical care due to concerns about cost, compared with 5% of the survey participants in traditional plans.

Other Trends To Watch

Here are some other health coverage products, trends and issues to watch in 2007.

2. Costs keeping going up. The consulting arm of Aon Corp., Chicago, is reporting that U.S. health care cost trends were up about 12% this fall for preferred provider organization plans and up about 10.5% for health account plans.

The health account plan increase is the lowest Aon has recorded since it began tracking the plans in spring 2004, and the PPO increase was the lowest since the 1990s.

But Wright says the rate of increase is still too higher. It “may have moderated a little bit, but only by a small amount,” he says. “Next year, I think costs will continue to go up by an amount larger than the general inflation rate.”

Meanwhile, underwriting has gotten stricter, and catastrophic claims limits are getting tigheter, Wright says.

3. Democrats. Another reporter here is writing the Washington article, but, clearly, the change in control of the U.S. House, the Democrats’ fragile hold over the Senate, and Democrats’ gains at the state level are bound, at the very least, to affect the agendas and witness lists of congressional and state legislature health finance hearings.

4. Consumer-driven health care reshapes traditional plans. One reason that health account plans may be having trouble competing is that they have rapidly succeeded at transforming conventional preferred provider organization and health maintenance organization plans.

The Kaiser and EBRI/Commonwealth Fund surveys have, for example, found that traditional plan members are getting much more cost and quality information from their plans than they used to, and that they often get more “consumer shopping” information than members of the health account plans do.

President Bush contributed to the push for transparency in health care costs in August, by signing an executive order that encourages federal health finance agencies to publish procedure prices and to come up with estimates of the overall cost of treating common conditions.

5. Wellness and disease management programs.

6. Limited benefit medical plans . Sellers of these plans hold costs down by capping benefits rather than increasing deductibles. A typical policy might cost workers only a few dollars a day but pay out less than $10,000 in benefits if the worker is hospitalized. The Human Resources Policy Association, Washington, drew attention to the products in October 2005 by including a limited benefit plan backed by a unit of UnitedHealth Group Inc., Minnetonka, Minn.

Despite continuing increases in major medical costs, most mini med issuers and brokers seem to be sticking to their goal of offering the mini med programs to workers who otherwise would have no health coverage, not selling programs to replace existing major medical plans,

In the Atlanta area, among Benefit Company clients, “there is some interest in mini meds, but not that much,” Wright says.

In Michigan, employers seem to be using mini meds mainly to help classes of employees who previously had no coverage at all, Wright says.

7. Financial services companies outside the major medical market may try to do what they can to rein in health care costs to improve their own performance.

Researchers at Ameriprise Financial Inc., Minneapolis, for example, recently published a survey report suggesting that 20% of workers surveyed may cut contributions to employer-sponsored retirement plans because of concerns about increasing health insurance costs and the increasing amounts employees must pay out of pocket for medical services.

8. Internal Controls. This may be another year in which the U.S. Securities and Exchange Commission may make executives at publicly traded health insurers wish they had never heard of stock options.

9. Mergers and acquisitions. This year, many health insurance market watchers are expecting at least one and possible two large managed care companies to be acquired.

In 2006, MultiPlan Inc., New York, a giant provider network company, made a very quiet splash by completing an acquisition of a major competitor, Private Healthcare Systems Inc., Waltham, Mass.

The old UICI, North Richland Hills, Texas, a specialist in niche health insurance products, generated some of the other activity, by changing itself into HealthMarkets Inc., a health account plan company, and selling some of the niche product divisions. CIGNA Corp., Philadelphia, acquired the Star HRG mini med unit, and UnitedHealth Group Inc., Minnetonka, Minn., acquired HealthMarkets’ student health insurance business.

CareFirst Inc., Owings Mills, Md., called off an alliance with Blue Cross and Blue Shield of Delaware, Wilmington, Del. CareFirst blamed the break-up on a dispute over the confidentiality of records that Delaware insurance regulators had requested.

DISABILITY

Disability insurance company executives and producers expect 2007 to be another year when they will celebrate slow, steady growth of the demand crumbs left by skyrocketing health insurance rates.

Health insurance “is not even a 900-pound gorilla anymore,” says Bob Taylor, executive director of the Council for Disability Awareness, Portland, Maine. “I call it the 1,900-pound gorilla.”

Because of the skyrocketing cost of major medical insurance, “disability gets less and less shelf space,” says Christopher Jerome, senior vice president of disability group underwriting operations at UnumProvident Corp., Chattanooga, Tenn.

In addition to buy less disability coverage, workers who do have health coverage and disability coverage may be more likely to go without needed care, says Drew King, president of JHA, Portland, Maine, a disability insurance consulting and risk management firm.

Some disability insurers may make more active efforts this year to do something about the 1,900-pound gorilla.

The critical illness insurance program at UnumProvident, for example, pays a small cash benefit to any insured who gets certain screening tests, and Aetna Inc., Hartford, reports using an automated voice-response telephone system to get more health insurance claimants to let it. More disability insurers could try to find carrots and sticks to get insureds to participate in the kinds of wellness programs that traditionally have been promoted mainly by health insurers.

2. Interest Rates could go up. Or down. Or stay the same. Interest rates are of vital interest to disability insurers for 2 reasons: they affect the health of the economy as a whole, and they affect the returns that long-term disability insurers earn on the enormous pools of capital needed to support benefits obligations that may last 10, 20, 30, or even 40 years.

In recent years, low rates have helped disability insurers to some extent by helping the economy, but hurt them by depressing portfolio returns.

In 2006, rates rose early in the year but then flattened out, King says.

In 2007, the strength of the job market could give the Federal Reserve Board the courage to start pushing up rates, but turmoil in the mortgage market could lead it to push rates back down.

3. The job market could push marginal employees toward the door or cause employers to take a more generous view of which workers can return to work. When the job market is strong enough, employers are willing to invest in programs and equipment to help employees return to work. When the job market is bad, employers see disability insurance as a supplement to unemployment insurance.

4. The oldest boomers are turning 61. Every time the median age of the workforce grows 1 year, that increases total disability claims costs about 4% to 6%, Jerome says.

Aside from the fact that the boomers are getting older, “people are electing to stay in jobs longer,” Jerome says.

Another fear is that disability insurers will lose any gains they might have expected to reap from a decrease in smoking to an increase in the incidence of obesity, King says.

5. Good news. “Negative trends are easier to see than positive trends,” says Kevin Tierney, vice president of underwriting at Disability Risk Management Services Inc., Westbrook, Maine.

Many have noticed that disability sales are growing in the mid-single digits, but what they may not have noticed is that pricing and underwriting have been extremely tough in the past couple of years, and disability insurers have room to loosen underwriting and lower prices a bit in 2007 and increase sales without hurting overall profits, Tierney says.

Moreover, the problems facing some carriers in the market have given smaller carriers room to expand, Tierney says.

In addition, the boomers have turned out to be healthier than cautious disability insurers might have expected, Tierney says.

5. More efforts to educate employers and employees about the need to protect income.

A few years ago, JHA, Portland, Maine, a disability insurance consulting and risk management firm, and the Disability Management xxx Council, San Diego, seemed to have the disability awareness field to themselves.

Recently, “as an industry, we’ve recognized the need to advocate for our product,” King says.

The International DI Society, Seal Beach, Calif., a 2-year-old disability insurance group, managed to attract 240 to its second annual conference in 2006, and it hopes to attract even more to its third conference, which is scheduled to start Oct. 17, 2007, in Las Vegas.

The society also is working with the American College, Bryn Mawr, Pa., to offer a disability insurance class and develop a disability professional designation program comparable to the Chartered Life Underwriter program, according to W. Harold Petersen, the group’s president.

Petersen says signs interest in group and individual disability insurance is increasing. The number of carriers in the market dropped to 26, from about 300, in just 10 years, but now the number has increased to 32, and one of the new players in the market is a unit of American International Group Inc., New York, Petersen says.

An even newer group, Taylor’s Council for Disability Awareness, is beefing up its consumer education Web site and trying to get attention by commissioning surveys on the effects of disability on aspects of household finances such as efforts to save for retirement.

6. Claims. State regulators have announced major settlements with UnumProvident, and California and other states have issued stern warnings about how disability insurers should interpret contract clauses that give them “discretion” to interpret contract terms.

Insurance company executives argue that critics misunderstand the discretionary clauses, and that the clauses give them a very limited kind of flexibility.

Caryn Montague, a North Miami Beach, Fla., disability insurance consultant and personal producing agent, contends that the broader clauses do appear to give insurers almost enough flexibility to say that purple is white.

Disability carriers did seem to go a bit easier on claimants about 18 months, but now many appear to be at least as tough as they were before, Montague says.

When claimants suffer from severe, clear-cut disabilities such as paralysis of the legs, insurers seem to be paying much closer attention to signs the claimants may have suffered from pre-existing conditions and evidence that the claimants might be able to handle their old jobs, Montague says.

When claimants suffer from “subjective” conditions, such as mental illness or multiple sclerosis, the disability insurers are being much quicker to challenge the conclusions of the claimants’ own physicians, Montague says.

7. Deals: In 2006, Aetna Inc., Hartford, acquired Broadspire, Plantation, Fla., a large disability services business, from Platinum Equity L.L.C., Beverly Hills, Calif., for about $160 million in cash. Aetna said it was making the deal, which brought it arrangements with 85 large customers with 1.3 million short-term disability plan members and 1 million long-term disability plan members, to build its integrated health and disability operation.

Fort Dearborn Life Insurance, Chicago, a unit of Health Care Services Corp., Chicago, acquired the life and disability insurance business of HM Life Insurance Company, a unit of Highmark Inc., Pittsburgh.

Fort Dearborn is a sister company of Blue Cross and Blue Shield of Illinois and other Blue Cross and Blue Shield companies.

HM Life was a siter of Highmark Blue Cross Blue Shield of Pennsylvania.

The price of the HM Life deal has not been announced.