Author: Karen Pallarito

The nation’s sour economy has added a new step to the tango of self-insured employers and third-party administrators handling their medical claims.

Employers still want a partner that provides first-rate claims administration and customer service, and many require TPAs to provide sophisticated data-mining tools and care management programs. But experts say employers’ efforts to stretch available dollars are keeping TPAs on their toes.

“All employers today, I think pretty much without exception, are trying to figure out ways to save money,” says James L. Rivetts, president of JLR & Associates. a health care insurance services firm in North Bend, Washington. Whatever they can do, whether it’s shifting more costs to their employees or assuming more risk, “that’s exactly what they’re going to do,” he says.

For self-funded employers, the business of medical claims administration is fairly competitive and the scope of services offered continues to expand to meet marketplace demands, experts say.

“I think that the TPA market offers a broad range of services … that can meet most employers’ expectations,” says Dan Priga, a principal in Pittsburgh for Mercer.

Self-funding health care benefits remains a popular option among large corporations, according to Mercer’s National Survey of Employer-Sponsored Health Plans.

For large employers with more than 500 employees, self-funded health care plans remain fairly stable, with 68 percent self-funding health care coverage in 2003 and 66 percent still doing so last year, according to Mercer.

Among small employers with 10 to 499 employees, the rate of self-insurance was 13 percent in 2003 and 12 percent last year, the survey found.

When shopping for administrative services, employers generally need to make a choice. They can go with administration services provided by one of the large national insurers or outsource claims processing and other administrative functions to a TPA.

“Most of the large self-funded employers are with carriers or with large national TPAs because the small TPAs just don’t have the breadth of services that they need or the networks that they need,” says Helmut Braun, chief operating officer of UMR, a unit of UnitedHealth Group’s United Healthcare. As a large TPA with an insurer relationship, UMR has access to United Healthcare products, including reinsurance and pharmacy benefit management services. UMR also works with outside providers.

Because of their significant market penetration, insurers that provide TPA services generally are able to offer deeper network discounts, experts say. While there are exceptions, “being smaller and having to rent a network is probably one of the negatives when we’re reviewing TPAs against the big players,” says Steve May, a senior benefits consultant with consultancy Milliman in Windsor, Connecticut.

Selecting a national, well-known provider also can be an advantage. “There’s comfort in employees seeing Blue, Cigna, Aetna … those kind of names, because they know who they are,” May says.

However, independent TPAs may have an edge over those connected to insurers—namely, greater flexibility in plan design—depending on a company’s needs, experts say.

CoreSource, a TPA subsidiary of Trustmark Mutual Holding, often wins business from employers that aren’t happy with services provided by their national insurer, says Robert Corrigan, vice president of product management and planning. “We have some unusual groups where the broker knows they have some very unusual needs, and they don’t even bother shopping it to a lot of other carriers,” he says.

Hospital systems, for example, often want to steer employees to their own facilities and doctors, and they want to decide what to pay those providers, Corrigan says. Local governments and school districts are another case in point because they often have complex eligibility requirements.

“The more rules they have, the harder it is for the carriers who have more of a standard approach … and it’s harder for them to fit in the box, so they come to a TPA,” he says.

Employers may feel more comfortable with a local or regional TPA because of the personalized service it offers and the ability to meet face to face to resolve issues, experts says.

Several years ago, CoreSource, which operates in nine U.S. cities, centralized its claims and customer service operations in an effort to improve efficiency and drive margins. The result? “It was horrible,” Corrigan says of the personal touch that the company lost. “What we realized is that we need those people out there that are local. … That’s who they bought.”

Since then, CoreSource has redeployed its customer service representatives in the field.

Most TPAs offer a similar array of administrative services, including eligibility verification, claims adjudication and processing, utilization review and case management. In recent years, many have added prevention, wellness and disease management—either through relationships with specialty providers or in-house capabilities—to boost their value to employers.

“I think TPAs believe that you have to be able to deal with cost by dealing with the cause of the cost,” says Steve Rasnick, president of Self Insured Plans., a Naples, Florida-based TPA.

Claims administrators also are responding to greater demand for data to help identify and manage cost drivers. Employers are mining that information to assess their populations’ health risks and determine, for instance, whether their wellness programs are yielding a return on the investment.

Having that data helped Collier Mosquito Control District in Naples, Florida. It found that some employees were using expensive prescription proton pump inhibitors to treat acid reflux instead of less-costly options. So it tweaked its pharmacy benefit design.

This year, in addition to free generics, over-the-counter medicines such as Prilosec also are free, says Stacy Welch, the district’s director of administration. While data on the free medications is not yet available, the district’s TPA, Self Insured Plans, estimates that steering participants to lower-cost generic proton pump inhibitors could reduce spending on that type of drug as much as 70 percent, depending on utilization.

National insurers already have data warehousing and mining capabilities, but it’s something employers need to make certain that local and regional TPAs have, Mercer’s Priga says.

“Often, the smaller third-party administrators don’t have the resources to be able to do that, so they will link up with partners to perform those services,” Priga says.

While a major consideration in choosing a medical claims administrator is price, and TPAs typically boast lesser costs than claims-handling operations of large insurers, experts say it would be a mistake to make a decision based on price alone.

Administrative expenses account for about 15 percent of an employer’s health care dollar, Milliman’s May says. Employers need to get a read on discounts the TPA’s provider network will achieve, he says.

Having the right network is the most critical part of the equation, UMR’s Braun says.

“There’s more savings opportunity by having the right network than any other thing they can do,” Braun says.

Here are a few tried-and-true strategies to trim health care-related expenses without slashing benefits or shifting costs, experts say:

Compare reinsurance companies. Make sure your third-party administrator is working with well-regarded reinsurance providers, because spending on stop-loss coverage can run between 8 and 15 percent of total costs, says Helmut Braun, COO in the Lexington, Kentucky, office of UMR, a unit of UnitedHealth Group.

James L. Rivetts, president of JLR & Associates in North Bend, Washington, says he shops for stop-loss coverage every year on clients’ behalf. He recently priced stop-loss coverage for a 300-employee company and found that the prices from six companies had a roughly $50,000 spread from highest to lowest.

Consider assuming more risk. Rivetts says he also helped his client reduce fixed costs by $30,000 a year by increasing the stop-loss amount per individual to $55,000 from $50,000. Taking on that additional $5,000 of risk per man, woman and child is a gamble, Rivetts admitted, but a worthwhile one because the company would lose money only if it incurred six claims above $50,000 and below $55,000. In the time the company has been Rivetts’ client (roughly six to seven years), it never has had six claims exceeding $50,000, and it doesn’t have any claims that look like they will exceed $55,000, he says.

Switch providers. In several years of doing business with a local TPA, a West Coast refinery that asked not to be identified never received a dime from pharmaceutical manufacturer rebates. When the employer decided to switch to a different pharmacy benefit manager, the TPA claimed it couldn’t handle another provider.

“I was ready to take my business away from them if they didn’t allow me to switch PBMs,” the refinery’s human resources manager says. But she eventually persuaded the TPA to work with her chosen PBM—one she says has a very transparent policy for sharing drugmaker rebates. “It’s my money they are spending to pay bills,” she says. “[TPAs] don’t want to lose your business, so they’re going to talk to you.”

Employers that wield financial incentives and penalties to nudge workers toward healthy behaviors had better think twice about whether those inducements pass legal muster.

If not, their wellness programs could land employers in court.

“My guess is that the vast majority of them have not dotted their i’s and crossed their t’s on the legal requirements,” said Jennifer Shaw, who counsels employers on wellness programs as a partner in the Sacramento, Calif.-based law firm Shaw Valenza LLP. “That I know because I get calls on this stuff all the time, and as soon as I start asking questions, there’s silence on the other end of the line.”

Under the Health Insurance Portability and Accountability Act, for example, wellness program rewards may not exceed 20% of the cost of coverage. That boundary is pretty clear.

But imagine an employer waiving deductibles or reducing premiums for workers who have a body mass index that the employer considers healthy. Unless the company also provides a reasonable alternative for obese or severely underweight employees to earn the reward, it may get into trouble with the Americans with Disabilities Act, according to Tom Bixby, a partner in the health law practice group of Neal, Gerber & Eisenberg LLP in Chicago.

“There’s a lot of debate in the field whether wellness programs that pay for performance are even legal under the ADA,” he said.

Employers also need to heed state laws that prevent employer intrusion on activities outside of the workplace.

When The Scotts Co. LLC, Marysville, Ohio, fired Scott Rodrigues, a Sagamore Beach, Mass., employee, for testing positive for nicotine even though he smoked off the job, Mr. Rodrigues fired back. His lawsuit, pending in U.S. District Court in Massachusetts, had charged his former employer in part with violating his rights under Massachusetts’ privacy statute. In January, federal court Judge George O’Toole, Jr., ruled that Mr. Rodrigues could pursue an invasion-of-privacy claim but dismissed claims alleging that his civil rights were violated and that he was wrongfully terminated.

“A number of state laws say you can’t penalize an employee for lawful conduct that they undertake outside the scope of work, and so if I want to smoke at home, that’s lawful conduct,” Mr. Bixby said.

And there’s another legal quagmire on the horizon. Under the employment provisions of the Genetic Information Nondiscrimination Act, which take effect in November 2009, employers that obtain genetic information from their employees—say, as part of a wellness program’s health risk assessment—must obtain proper consent.

Ms. Shaw advises employers to steer clear of medical inquiries because that information isn’t what’s needed for a wellness program. “We don’t need to know what people’s cholesterol level or blood pressure or weight or BMI are,” she said. “What we need to know is how many days do you get off your butt and walk?”

Crain’s Benefits Outlook Online, November 2008

Green Bay Packers coach Vince Lombardi once described winning coaches as the ones who “get inside their player and motivate.” That’s good advice for the gridiron, and it also works in the workplace, say providers of health coaching.

    The field has blossomed as employers grapple with the impact that preventable health conditions have on health care costs and productivity. Health coaching is becoming a mainstay of employer wellness initiatives, according to the companies that provide the services.

    “We become the little voice on your shoulder that’s saying, ‘Now, we know what we’re supposed to do. Let’s set some goals,’ ” says Roger Reed, executive vice president at Gordian Health Solutions Inc. in Franklin, Tennessee. “It’s almost a personal trainer approach.”

    IASIS Healthcare, an owner and operator of acute-care hospitals also headquartered in Franklin, joined the health coaching bandwagon when it hired Gordian to counsel its medical plan participants beginning in 2006.

    Russ Follis, the hospital system’s vice president of human resources, says the rationale was twofold. “If we can get less claims coming in by having healthier employees, it’ll end up saving us money in the long run in terms of our health plan benefit costs,” he says. Secondly, “we are a health care company, and promoting healthy lifestyles just seems the appropriate thing to do.”

    A growing number of employers are joining the fray. A joint National Business Group on Health/Watson Wyatt Worldwide annual survey of employer-sponsored health programs found that 60 percent of large U.S. employers offered health coaching in 2007, a 7 percent increase from 2006.

    “Employers are concentrating more on how to keep their healthy people healthy,” says Diane Murphy, senior health and productivity consultant in Watson Wyatt’s Minneapolis office.

    Health coaching has gained traction as employers tackle workers’ multiple health risks, including physical inactivity, stress, tobacco use and obesity. The concept builds on research led by Dee Eddington, director of the University of Michigan Health Management Research Center in Ann Arbor, and others linking reduction of health risks to reduced health care costs.

    “A lot of folks put their big toe in the pool of wellness” by starting a health risk assessment program, “and then they realize, ‘Oh, wait. All I’m doing is finding out how sick my employees are,’ ” says Michele Dodds, vice president of health and wellness at Chicago-based employee assistance program provider ComPsych, which offers health coaching.

    Many health care providers are adding coaching to their mix of services. New York-based WebMD added a health coaching capability when it purchased Indianapolis-based Summex in 2006. In June 2007, Humana, based in Lexington, Kentucky, launched a new wellness program, including a coaching component, through its Fort Worth, Texas-based Corphealth subsidiary. The British United Provident Association, a London-based provider of health care services, entered the coaching business with its acquisition in December 2007 of Boston-based Health Dialog.

    There is tremendous variability among health coaching programs. The better ones hire highly trained health professionals, such as physician assistants, nurse practitioners, exercise physiologists and registered dieticians, wellness experts say. A health education or coaching credential often is required, since the coach’s main role is to help employees assess their risks and set achievable goals for improvement. The frequency of health coaching typically depends on the number and severity of a person’s health risks. A higher-risk individual may need monthly sessions.

    To create a seamless experience for employees, a health coaching company must coordinate with an employer’s health plan, disease management company and other wellness providers. It’s common for these companies to physically sit around a table and craft a plan to refer employees to the appropriate service.

    Coaching often is conducted over the phone to cater to an employee’s schedule. “It’s more convenient, more accessible and it’s actually less costly to provide the service via telephone,” says Dr. Neil Gordon, chief medical and science officer for Nationwide Better Health in Columbus, Ohio.

    In contrast, Marathon Health, a health services company based in Colchester, Vermont, has its coaches counsel employees face to face at the work site. Having a physical presence boosts employee engagement, with participation rates of 70 percent to 75 percent, says Chuck Reuter, the company’s president.

    Fees vary widely, depending on an employer’s size and the mix of health coaching services offered. ComPsych says its programs cost 65 cents to $1.25 per employee per month. Nationwide Better Health says an employer can spend an average of $100 to $250 per participant per year, or roughly $8 to $21 per employee per month. Marathon Health charges about $10 to $15 per employee per month.

    Companies that expect hard data on ROI, or on how well coaching works, will have to wait. There is limited data so far on the efficacy and cost-effectiveness of health coaching, says Susan Butterworth, director of health management services of Oregon Health & Science University in Portland, based on a comprehensive review of research to date.

    At Fiserv Inc., a large financial services company, the jury is still out on health coaching. In two small pilot projects—one that lasted 12 weeks and another that lasted five months—obese employees lost an average of just seven pounds in each test. Because of the weight loss, “I’m not going to say this wasn’t successful,” says Linda Schuessler, manager of wellness promotion in Brookfield, Wisconsin, for Fiserv. For now, though, the company is focusing on increasing opportunities for physical activity, she says.

    In the meantime, IASIS saw $1.1 million in health savings from reduced claims frequency and costs in 2007 over the prior year, largely because of the company’s Healthy Steps wellness program, along with health coaching, Follis says.

    “Anything you can do for the health of your employees is a win for everyone,” he says.

As someone who evaluates health improvement programs for a living, Ariel Linden, president of Linden Consulting Group in Hillsboro, Oregon, has seen many missteps.

    One client threw in the towel after it could not prove that employee behavior had changed. But the company did not determine whether the health coaches it had retained were properly trained, and it wasn’t motivating employees to participate, Linden says. What’s more, union leaders failed to recognize the value to employees and were discouraging workers from participating.

    That company’s failed effort has some valuable lessons for organizations that are considering health coaching. Before hiring a company to provide such a program for employees, wellness experts recommend thoroughly evaluating the provider and the program itself, as well as understanding its responsibilities in making the program work.

    Here are some suggestions for successful health-coaching programs:

    Assess the potential savings. Ask a provider how it plans to save you money. If the answer is through reduced hospital admissions, find out how many admissions your company currently has, Linden says.

    Look into the exact categories of savings, the number of employees who will generate that savings and the time frame for achieving a return—all of which should be measured against health care spending before implementing a coaching program.

    If a provider promises a steep or speedy return on investment, be skeptical. There aren’t enough large-scale studies to demonstrate such savings.

    For example: In seeking a health coaching provider, Blue Shield of California identified six serious contenders. And of those, “only one really tried to show that they had established direct, claims-based savings,” says Dr. Andrew Halpert, senior medical director of the 3.2 million-member plan. Blue Shield did not choose that vendor and instead selected WebMD, at which the primary focus was improving consumers’ health over time, which could result in future claims savings, he says.

    Evaluate the coaches and methodology. Find out how health coaches are trained, credentialed and supervised. Know what techniques they will use. “Motivational interviewing” is the only scientifically validated coaching method to facilitate behavioral change, says Susan Butterworth, director of health management services at Oregon Health & Science University in Portland. According to the school’s Web site, motivational interviewing “is a client-centered, goal-oriented method of interacting with people to help them change their health behaviors. Motivational interviewing enhances a person’s own intrinsic motivation to change by exploring and resolving ambivalence.” Many providers are becoming interested in integrating the approach into their interventions, but few have provided the training and follow-up necessary to bring their coaches to a truly proficient level, Butterworth says.

    Communicate the program. Ohio State University’s wellness program is widely recognized and well-received among employees. The university spent “a considerable amount of time” communicating it, says Gretchen Feldmann, communications manager in OSU’s Office of Human Resources in Columbus.

    Yet the health coaching component that was launched in August 2006 has garnered mixed reviews. One group of OSU employees uses, understands and enjoys the program; the other group doesn’t quite understand that it is voluntary, and some see it as invasive, she says. The remedy: a targeted communications campaign to be rolled out before open enrollment this fall. OSU will solicit employee “testimonial champions” who are willing to share personal stories of success with a health coach, Feldmann says.

    Engage employees. Start by giving employees incentives to take a health risk assessment, Linden says. Once health risks are identified, the coaching provider can help determine who needs such help and how often. Incentives can boost participation in health coaching.

    At OSU, employees can earn $120 a year in premium reductions for undergoing a health risk assessment, plus up $125 a year in cash for participating in preventive care services, including $25 for participating in sessions with a health coach.

    Collect and analyze data. Larry Chapman, senior vice president at WebMD Health Services in Seattle, says employers should use quantitative and qualitative measures for “lifting up the hood” and “seeing exactly what’s going on in the engine” of their health coaching provider. Questions to ask include: Has there been a reduction in the number of risk factors or in the severity of risk per employee? Is there a difference over time in per capita claims costs of employees involved in coaching versus nonparticipants? How do the costs of low-, medium- and high-risk employees compare?

    “That change in growth rate is really one of the primary success parameters that tells you you’re making a difference in the rate of growth of these people’s health care costs,” Chapman says.

With a few years of experience under their belts, employers and health plans are adjusting their consumer-driven health plan offerings in an attempt to make them more attractive to plan sponsors and employees.

    The changes include improved communication efforts, more user-friendly decision-support tools and revamped plan design and financing.

    “The only constant in this kind of world is change, so there have continually been updates and tweaks,” says Alexander Domaszewicz, a Newport Beach, California.-based principal and senior consultant with Mercer Health & Benefits.

    Wendy’s International Inc., for example, boosted employer contributions to workers’ health savings accounts in 2006. Lynn A. Bauman, director of employee benefits for the Dublin, Ohio-based fast-food chain, says the CDHP did so well in the first year—leveling the annual double-digit cost trend to zero—that officials decided to put money back into the plan. To meet that goal and comply with new Internal Revenue Service “comparability rules,” the company chose to increase its contribution to all plan options, even though the rules would have permitted the company to reduce its contribution to certain levels.

    Today, Wendy’s share of HSA funding is about 60 percent, on average, across the various CDHP options it offers, up from 35 percent to 40 percent in the first year, Bauman noted.

    The company also made changes to the frequency of HSA contributions. On January 1, 2006, it switched from quarterly to semiannual payments—funding six months’ worth of contributions on day one—to help employees pay for maintenance drugs for certain chronic conditions. Now, because many of those drugs are eligible for first-dollar coverage, and since most employees carried forward an HSA balance into 2007, the company began contributing monthly.

    “So people are getting their money sooner than they used to,” Bauman says. And the financial risk to the company of contributing to the account of a person who terminates employment is reduced, he added.

    A recent Towers Perrin survey suggests that employers and health plans have a lot of heavy lifting ahead of them if they want their CDHPs to succeed over the long haul. According to the survey, members of account-based health plans are significantly less satisfied with their plans than employees in traditional health plans. A major shortcoming: employer-employee communications.

    Increasingly, though, employers are recognizing the “need for really clear and thoughtful and durable communications and marketing,” says Jay Savan, a principal with Towers Perrin in St. Louis. As an example, they’re using employee focus groups or advisory counsels to help design and tailor employee communications. One of Savan’s clients, a national law firm, intends to solicit input on plan design and communication from the company’s legal secretaries, who are regarded as opinion leaders and can “make or break an initiative,” he says.

    In early 2006, Meritain Health Inc., an Amherst, New York-based CDHP administrator, rewrote and expanded member communication materials, including print and online tutorials that explain how the plan works. “Through our customer service reps and the type of questions that they were receiving from members, it was clear to us that members were still challenged with understanding the dynamics of the … plan and how the … design differs from a traditional PPO plan,” says Janice Rahm, a Minneapolis-based senior VP of product and service innovation.

    Many employers are enhancing wellness benefits, saying they want to make employees better health consumers and bolster the value of CDHPs.

    When Fujitsu America Inc. first introduced a CDHP in 2004, it capped preventive care at $500 per employee per year. Now, it covers 100 percent of the cost of routine tests, screenings and other preventive services.

    “We were just nervous about the idea of an unlimited amount,” says Kathy Bartow, director of benefit programs in the company’s Sunnyvale, California, headquarters. “But as more studies have been done that show the value of preventive [care], we thought it made sense to totally lift that cap.”

    It appears to have been the right call: “We have several situations where employees have written Lumenos (the WellPoint Inc. subsidiary that administers the plan) and says, ‘I’m so glad I did this [test or procedure], because the doctor found something,’ ” Bartow says.

    This year, Fujitsu also expanded incentives for wellness, adding $100 credits for spouses who take a health risk assessment and for employees who complete Lumenos’ smoking cessation program.

    Dave Garratt, a Cleveland-based VP and market head for Aetna Inc.’s Ohio/Kentucky national accounts market, says that more employers are talking about implementing an incentive strategy that’s tied to an individual’s biometrics, such as body mass index, blood pressure and cholesterol levels. Aetna is piloting the concept with some of its customers. “It’s sort of a new twist,” he says, “and it’s back to the notion of how do we reward people for doing the right things?”

    Carl Mowery, managing director of compensation and benefits at Smart Business Advisory & Consulting in Chicago, says he is spending more time with clients on developing wellness strategies that underscore the value of staying healthy and accumulating a nest egg for when employees are older and require more medical services.

    But there may be another way to move people into CDHPs. He has one client, a large school system, whose leadership is considering a “negative election” process, whereby all employees would be enrolled in the CDHP program unless they elect otherwise. “If we just say, ‘You are now enrolled in this program unless you want to choose something else,’ they may just stay in the high-deductible program,” he says.

    Amid all the redesign activity, Mercer’s Domaszewicz cautions plan sponsors to keep one thing in mind: “If you look at the plan and you wouldn’t enroll yourself, why would you think anyone else would enroll?”