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Consumerism Litmus Test

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In late 2004, Alegent Health CEO Wayne A. Sensor sat across the table from Union Pacific railroad CEO Dick Davidson. The two were discussing the skyrocketing cost of healthcare during one of several one-on-one meetings Sensor regularly schedules with leaders of major employers in the Omaha, Neb., area.

“I was having a discussion with him about their healthcare costs when he said, ‘Wayne, what are you doing with your own workforce to engage them as consumers?’”

The question stopped Sensor in his tracks because Alegent, like many providers, was a reluctant participant in the latest attempt to rein in healthcare cost increases: consumerism. “So I thought to myself, instead of trying to hold it off, a far better approach would be to behave like true leaders and embrace it,” Sensor says.

That’s exactly what Alegent did when it debuted a new consumer-directed option last fall to its 8,400 employees at its nine hospitals in eastern Nebraska and western Iowa. While some healthcare providers are gently dipping their toes in the water with so-called consumer-directed care, Alegent dove in. Its employees could choose between a heavily promoted health savings account or health reimbursement account options, though Alegent also offered the same PPO it had from 2005. The promotion worked beyond all expectations when 79 percent of employees who utilize health benefits at Alegent chose a consumer plan.

Giant steps

Alegent’s new offerings aren’t change for its own sake, however. Sensor echoes other large employers when he says the shift to consumer-directed care will help slow the increasing cost of healthcare. But the move is part of an overall strategy to diversify patient offerings and embrace consumerism as a business tool. Other consumer-based initiatives include new ways for patients to experience Alegent outside the traditional inpatient touch points—such as walk-in clinics at Hy-Vee grocery stores. To gain insight on what patients want, Alegent is asking a cross-section of the population to design their own healthcare experience. But there’s no doubt a crucial real-world test is riding on Alegent’s experiment with its own employee health benefits.

“If I had to finger one thing that’s led to healthcare being in the state it is in today, it’s that we’ve separated people’s decisions from the cost of healthcare,” says Sensor. After his conversation with Davidson, Sensor and his leadership team adopted the philosophy that a dominant local hospital system should drive change instead of receiving it. The new consumer-oriented focus of the organization soon had a face other than Sensor’s—Andrew W. Dahl was hired last year as Alegent’s vice president of consumer-directed healthcare.

“Part of our strategy for offering consumer-driven programs is to learn from the experience and be our own test market, if you will,” says Dahl.

Proponents of consumer-directed healthcare say employers should switch over to the plans wholesale—eschewing the practice of keeping the HMO or PPO as an option. But Alegent didn’t want to force it.

“The first point in designing this plan is so that it is in the best benefit of the employee,” says Sensor.

The system wanted to find a way to make the philosophy work beyond just an immediate cost-cutting strategy. The hope was that by adding robust preventive benefits and incentives, Alegent could gradually cut the rate of increase in healthcare costs. Meanwhile, they could set an example for other local employers who were considering offering consumer-directed plans of their own.

“We didn’t really go into this as a cost-saver in the first few years, because to change behaviors takes time,” says David Burrack, Alegent’s operations leader of employee services. The system saw about a 10.5 percent annual cost increase in healthcare premiums last year, and “focused on getting that down to 7 percent eventually by changing behaviors and spending habits.”

The generosity gambit

To keep workers from viewing the consumer shift as a benefit cutback, Alegent leaders spent the spring and summer of 2005 preparing the rank and file for the offering. Senior leaders emphasized to employees at every meeting, during every Webcast, and on every piece of printed material that Alegent was going to spend the same amount on the three benefit choices in 2006 that it would have spent had it offered only the PPO. Additionally, the system put $660,000 cash into an incentive account specifically aimed at getting employees off the couch during their free time—and excited about cutting their body mass index.

“The hope was that we would change behaviors, which, over the long term, would help reduce our healthcare expense,” says Burrack. Early results have been encouraging. For example, Alegent’s Healthy Rewards program (see box) first encourages employees to do a health risk assessment, and pays them $100 for their trouble. If they meet certain thresholds of poor health, they are paid $100 to sign up with a health coach. Once they attain the goals the health coach helps establish, they get $200. Anyone who signs up for smoking cessation also gets $100 when they finish. Alegent also incentivizes weight loss through on-site Weight Watchers programs and weight management programs through Lumenos, the consumer plan from Wellpoint Inc.

Though a decision has not yet been made, Alegent may drop the PPO option altogether for 2007. Burrack says employees were told in 2005 that the PPO would be dropped for the 2007 insurance year, but given the consumer plans’ better-than-expected penetration, Alegent might continue to retain the PPO for the approximately one-fifth of employees who want it.

“They are paying higher premiums,” he says. Individual employees pay between $40 and $45 a paycheck for the consumer plans and about $80 for the PPO. “If they really feel like they need that plan, it might be best for them.”

Is there a payoff?

Alegent’s leadership team thought their goals of 30 percent to 50 percent participation were modest. When 79 percent, or 3,900, of the benefits-receiving employees signed on for either an HRA- or HSA-supported consumer plan, they were surprised. Dahl is quick to note that when given a choice that incentivizes employees for good behavior rather than taking a benefit away—through higher copays, for example—employers shouldn’t be surprised that employees overwhelmingly pick that option. Some 1,047 employees elected to stick with the PPO.

“We fund basically 75 percent of the cost, regardless of the plan,” says Dahl. “The difference is in what people have to pay with premiums or with out-of-pocket expense.”

Sensor, while pleased with the initial success, says the jury is still out on whether the shift will improve employees’ long-term health and decrease the rate of increase in healthcare spending. But he’s more encouraged by what the experiment could mean for Alegent’s business, which is increasingly likely to shift toward a consumer-directed future.

Local business leaders are “tremendously interested” in offering consumer plans, Sensor says. Alegent held an executive forum for all local employers in June to discuss its experience with the plans. “But I’ve consistently said, ‘Give us a year track record so we can share what’s really occurred at Alegent.’”

Philip Betbeze is finance editor with HealthLeaders. He can be reached at pbetbeze@healthleadersmedia.com.