Consumer behavior 101: How To Make Employees Your Allies In Containing Benefits Costs

In January, we promised to publish a series of newsletters about how employers can get control of their benefits expenses.  This is the first in that series, and it’s about consumer behavior: how do you design a medical benefit plan that will satisfy employees but get them to do the things they need to do to rein in costs?  This is how you set the stage for lasting savings for both employers and employees.

To get this right, there are 3 aspects of consumer behavior that need to be understood and addressed:

What they want isn’t what they really want. When someone else is paying most or all of the premiums, employees’ ideal medical plan is a zero out of pocket turbo-charged platinum plan.  One that covers everything and costs them nothing.  And yet, when they are paying most or all of the premiums themselves, a whopping 93% choose a catastrophic, bronze or silver plan! (CMS, Effectuated Enrollment Snapshot, 2016).  What they actually want changes dramatically, depending on who is paying for it.

You can use this to your advantage. The way to do it is, buy a high deductible plan for the group, and a group gap plan that covers part of the deductible and makes the coverage equivalent to a more traditional plan.  And then, allow employees to ‘buy up’ richer coverage via the gap plan.  This gives employees the opportunity to get that ideal platinum plan equivalent, if they are willing to pay for it.  But it also allows employees to buy what they normally would, left to their own devices.  So, each employee ends up with what they actually want, because they chose it.  Not only does this approach eliminate the adverse selection problems inherent in multiple plan offerings, it typically cuts overall benefits expenses by about 30%.  So it’s more affordable to the employees.  It truly is a win-win, and you can learn more about gap plans here: https://www.ahr.net/gap-plan/

Uncertainty makes people wiser.  When copays were first introduced in the commercially insured population, those of us in the provider community were aghast.  Because we knew what was coming.  A doctor’s office visit cost less than a beer and pizza, and utilization skyrocketed.  But as it turned out, the real problem wasn’t about the cost.  In fact, the difference between a PPO discounted office visit rate and a $30.00 copay is minimal.  The real problem was, people mentally adjusted to “$30 is what it costs” and stopped thinking about it.

But if you add a little bit of uncertainty to the equation, people go off autopilot and start thinking again.  The way to do this is for employers to pay a percentage of each medical bill, via an HRA or a gap plan, rather than having a copay plan.  That little bit of uncertainty makes people stop and consider whether it’s really necessary to go to the doctor, or if perhaps telemed might be a better choice.  And makes them ask about the cost of generic or preferred drugs rather than automatically defaulting to name brand.  If you can just get them to think before they choose, utilization and costs drop like a stone.  The out of pocket cost to the employee remains about the same, but they become much wiser consumers.

We’re all sore losers.  A recent study by the Rand Corporation, commissioned by Vitality https://www.rand.org/pubs/research_reports/RR2870.html revealed a fascinating fact about people: we hate losing money even more than we like getting it.  Psychologists call this “loss aversion” and it’s a powerful motivator.  This is particularly important when you think about how to motivate people to do the things necessary to avoid long term high medical expenses.  In spite of the fact that prevention and early detection exams are now free, only 8% of the working age population are getting them https://www.healthaffairs.org/doi/10.1377/hlthaff.2017.1248  Given that early detection and prevention is the single most important thing you can do to control benefits costs, how do we change that statistic?

One approach is to harness the power of loss aversion in your benefits plan design.  Start all employees off with an HRA or gap plan that has a $500 deductible, tied to a wellness plan.  If they get their annual wellness screening, that $500 deductible goes away.  They can avoid that $500 “loss” by doing what you need them to do to avoid long term high medical expenses.  This doesn’t translate into an actual $500 per employee ‘cost’, because you are only waiving a deductible, not writing a check.  And if you want to take it a step further, you could provide richer benefits to those who increase their physical activity or work on their diet.  Even modest improvements in the overall health of an employee population pays big dividends- they don’t all have to become gym rats for you to see lower loss ratios and better renewal rates!

So, next quarter, we’ll talk about population risk management, and then, round it off with a discussion about how to make sure that all the money you are saving gets retained by your clients and their employees!