Strategic Health-Care Plan Design

Sponsors of public-sector health plans (plan sponsors) face challenges in providing stable, sustainable health-care benefits. Health-care cost inflation has put plan sponsors in the position of continually reacting to increased costs, rather than following a long-term plan. Plan sponsors need to find ways to manage the costs of their health-care plans within the organizations financial framework and structure in order to be more efficient while continuing to offer a slate of health-care benefits that allows the organization to be competitive in the marketplace.

1. Determine the purpose of the health-care plan.
   1. Define the plan sponsor's overall objective for providing benefits (e.g., keeping employees healthy, recruiting new employees, employee retention, etc.).
      1. Develop a strategy for determining who is eligible to participate in the health-care plan.
      2. Articulate separate strategies for both active and retired employees.
      3. Develop a contribution rate strategy for both employers and employees.
   2. Clarify and communicate the role of the health-care plan as part of the overall compensation package (e.g., consider whether these benefits are offered in lieu of other elements of employee compensation).
   3. Define the economic and labor market in which the health-care plan and compensation package exists, and where the plan should fall within those markets. (In the middle of its peers? Below? Above?)
2. Establish and define cost objectives using performance measures. This should include selecting a 3- to 5-year planning horizon for measuring changes to annual trends in the cost of services provided and services used by plan participants. Set performance goals against national or other relevant trends (e.g., keeping plan costs X percent of the national or regional trend).
3. Health-care sponsors should use analytical tools to measure the cost drivers and health risk factors of plan participants. Understanding what diseases, conditions, facilities, and treatments are driving cost increases can help identify opportunities for cost savings and allow plan sponsors to make informed decisions.
   Methods for accomplishing this include:
   1. Predictive modeling, which uses data analytics (analyzing plan-specific, detailed claims, utilization trends, and demographic data) to identify individual high-risk and high-cost users.
   2. Data warehousing, which involves gaining access to participant data from all vendors, in a compatible electronic format. Health Insurance Portability and Accountability Act of 1996 (HIPAA) compliant data warehousing eliminates reliance on vendor-produced reports and allows plan data to be sorted in any way deemed valuable by plan management. Accurate data can allow for better vendor and plan management. Plan sponsors should move away from the idea that vendors own the data and push for ownership of that information; owning the data allows a plan to use it to manage costs.
   3. Measuring the plan's efficiency ratio, or the ratio of covered claims to paid claims. For example, if 100 percent of a doctor's visit is covered, that is a 100 percent efficiency ratio. If there is 20 percent co-pay, the efficiency ratio is 80 percent. (Efficiency ratios tend to be about 75 percent at the state level, and a plan with a 95 percent efficiency ratio, for instance, would be providing very generous benefits. When efficiency ratios are close to 100 percent, people tend to use the plan without consumer consciousness.)
4. Determine appropriate cost-containment measures as needed, and review the purpose of the health-care plan in light of the cost objectives and related performance goals that have been set. Consider the following actions to contain costs:
   1. Auditing plan performance.
      1. Eligibility management strategies include auditing dependents, Medicare eligibles, and retirees.
      2. Vendor management strategies include auditing claims to ensure that carriers or third-party administrators pay benefits according to plan rules, coordinating benefits, adopting procedures for addressing complaints about vendor activity, periodically reviewing contracts, and implementing achievable performance goals (e.g., increasing the percentage of diabetics getting regular check-ups). Consider including high-quality medical outcomes a part of physician and hospital contracting.
   2. Health-care management programs, such as wellness, disease management, large-case management, utilization review, and pharmacy benefit management programs, and different delivery methods, such as telemedicine.
      1. Assess existing vendor contracts to find out if such programs are already included.
      2. Investigate pre-packaged vendor offerings carefully; be aware that some programs do not provide sufficient benefits to justify the program.
      3. Establish the amount the plan sponsor is willing to pay for specific outcomes before committing to such a program, and consider developing measures to assess all health-care management programs.
   3. Influencing participant behavior can improve participant health and drive down costs. This might include educational programs about improving health habits and behaviors, individual health risk appraisals, and online information about certain illnesses, as well as financial incentives for modifying behaviors.
   4. Cost-sharing measures such as higher deductibles, co-payments, co-insurance provisions, and employee contributions.
   5. Aggregation (by using fewer vendors to deliver benefits or by combining the purchasing power of several organizations) to get better pricing. Where allowed by law, organizations can enter into health-care insurance pools, intergovernmental agreements for procurement of prescription drugs, or partnerships with private-sector organizations. Local governments in some states can participate in state master agreements.
   6. Evaluate the viability of self-funding. Factors to analyze include number and type of participants, ability to accept risk, and availability of stop-loss coverage, as well as ongoing comparisons between self-funded and fully insured plans. Long-term projections and analysis of the program's financial viability are essential, particularly in the context of rapidly rising health-care costs. Third-party administrators can handle many tasks such as negotiating pricing arrangements, managing contracts, and processing claims, but it remains essential that internal staff have the scope of knowledge and experience to manage these functions.
5. Work with other departments, including human resources, to make sure the long-term strategic plan design for health care is understood and can be taken into consideration during labor negotiations. Healthcare plan sponsors should consider integrating the health-care plan design with the organization's longterm financial plan.
6. Establish ongoing education initiatives.
   1. Educate participants about benefit provisions, including benefit limitations, employer and employee costs, and the benefit's value to employees and retirees.
   2. Develop an education guide to communicate the value of the benefits to elected and appointed officials, employees, labor groups, other agencies, and the public.
7. Plan sponsors should consider how the provision of retiree health-care benefits (commonly referred to as other post-employment benefits, or OPEB) affects the costs and sustainability of the overall health-care benefit package provided. In addition to cost containment measures, plan sponsors should consider other means of enhancing the sustainability of the health-care benefits provided.