It might not be the first thing to cross your mind, but remodeling a bathroom and remodeling a group health plan are often similar projects.
Typical goals are improved functionality, access, esthetics and overall design, while challenges often include reaching agreement with all decision makers on the final blueprint and budget. A successful remodeling leaves all parties pleased, and results in a new foundation that can be maintained with minor maintenance for years to come.
Recently, an employer hired us as their benefits consultant. Our first task was remodeling their group health plan. Here is a quick look at the firm’s original plan design and structure:
The questions we considered about each plan design were:
HDHP: The deductible is the statutory HDHP minimum and the coinsurance is 80%. Is this design pairing optimal? What cost-neutral design changes could we introduce to make this plan easier to explain to employees?
PPO: 98% of plan utilization was in-network. Employees pay more for this plan than for the EPO. What is the unique value proposition of this plan?
EPO: Is it optimal that the EPO is the highest cost plan in terms of total monthly premium? Why do employees pay less for this plan than they do for the PPO?
We also had questions about the overall structure: Do each of the three plans offer a unique value position designed to pair with varying individual healthcare needs, risk tolerance and taxation preferences? Would it be more equitable and streamlined to move to a defined contribution approach when setting employee contributions?
After much contemplation, evaluation and negotiation, the final remodel blueprint was as follows (changes in bold text):
How did we get to these changes? Here was our thinking regarding the design changes and considerations.
HDHP: The combination of raising the deductible, leaving the out-of-pocket maximum unchanged, improving the coinsurance and eliminating non-emergency out-of-network coverage resulted in a slight reduction to premiums.
This employer can now more easily explain the HDHP design to employees because, after the deductible, the plan pays 100%, with the exception of certain normative copays (not shown), up to the same out-of-pocket maximum. This design simplification also makes it much easier for employees to budget for the plan and determine the optimal HSA contribution for their given situation.
EPO: No material remodeling to this plan design. This plan moves from the highest premium plan to the middle-priced plan.
PPO: In-network design simplified to mirror that of the EPO plan. This employer can now communicate that the PPO plan is simply the EPO plan with out-of-network benefits. From an employee communications standpoint, we announced that the old PPO was demolished and replaced with this brand new plan.
So, which employee characteristics and preferences might come into play as employees evaluate which of the remodeled plans is best suited for their respective situations?
HDHP enrollee:
- Prefers maximizing take-home pay
- Has sufficient existing HSA balance or emergency cash reserves to cover the deductible
- Values tax advantages of the HSA
- Risk tolerant
EPO enrollee:
- Prefers spending $1,500 more in annual pre-tax dollars to eliminate the financial and cash flow risks of the HDHP
- Realizes that he might be prone to delay or forgo recommended medical care under the HDHP design, regardless of funds available in his or her HSA
PPO enrollee:
- Similar characteristics of the EPO enrollee plus prefers paying an additional $360 more in annual pre-tax dollars to ensure nonemergency out-of-network benefits
- Often prefers to buy the highest price offering, regardless of its value proposition, because it is “the best”
Good luck on your 2019 benefit remodeling projects. For more benefit design examples and ideas, review the following.
