As previously published on In Business Wisconsin March 24, 2014 issue
By Scott Fuller, employee benefits practice group leader at Associated Financial Group

In the ongoing battle to contain costs, employers are always looking for tools, old and new, to help keep their health care spending in check. One often-discussed approach is health care consumerism — but too often consumerism is discussed as just another plan design option.

Health care consumerism is a strategy, not a feature of your health plan design. It’s consumerism that makes your health plan work — not vice versa. Many employers struggle to motivate their employees and turn them into health care consumers because they have not first created an overall strategy. It’s a mistake to implement a plan and relegate consumerism to an afterthought.

In other words, don’t assume that simply offering a Health Savings Account (HSA) or Health Reimbursement Arrangement (HRA) plan will suddenly make your employees health care consumers.

Instead, you need to start by coming up with a consumerism strategy and then implement a health plan that supports that strategy.

Let’s define our terms

At a high level, the term “health care consumerism” describes an environment that encourages participants to behave as traditional, rational consumers when it comes to health care in order to contain costs through economic forces. David Flotten, an HR consultant at Associated Financial Group, says basic economics don’t apply to traditional health care.

“Employers buy,” he says, “and employees use — with no understanding of the true costs.”

Consequently, employees don’t have skin in the game.

“So if I’m an employee, what do I care about costs? It’s the insurance company’s money,” Flotten says. “Also, the traditional health care system provides no real rewards for those with good health. My basic costs are largely the same whether I’m healthy or not. The system does not promote good health or wise spending.

“Think of shopping for a car. Like health care, cars are expensive and important, so you research your options, consider what you and your family actually need, then shop around for the best quality and lowest cost that meets those needs. Historically, we don’t do that with health care. Traditional health care is like going to a car lot, closing your eyes, and buying the first car shown to you by the salesperson, regardless of cost.”

Health plan designs that support consumerism

The two most common vehicles used to promote consumerism are HSAs and HRAs. Both of these plan designs create financial incentives for employees to be more careful health care consumers. Flotten calls the HSA a “real money” plan design because it includes a bank account where employees can place tax-free funds. If they don’t use the funds on health care, they keep the extra money. Other important details include:

  • The HSA balance can grow from year to year.
  • Employees take the unused funds with them at termination of employment.
  • The funds can even be used for non-health care expenses (but with some tax costs for doing so).

Superficially, consumer-driven HRAs look very similar:

  • Employees are assigned an account where funds accumulate.
  • If the employee does not use those funds for health care, the unused amounts may roll over to be used in future years.

Unlike an HSA, the HRA funds do not represent “real money” — the account balance can only be used for health care spending and is not portable at termination. An HRA also offers employers more control and flexibility than an HSA because the HRA funds belong to the employer and there are fewer regulations.

“Consumerism arises from the fact that if employees do not have enough funds in their HRA to cover their uninsured health care costs, they must pay those costs out of pocket,” Flotten says.

While consumer-driven plans support and encourage consumerism more than traditional health plans do, employers should not rely solely on their plan design to promote wise spending and good health. You can’t suddenly drop them into your benefits mix and expect them to work.

Employers should speak to a benefits consultant about how to integrate a consumer-driven health plan into their consumerism strategy and educate their workforce.

Workplace wellness and consumerism

Consumer strategies integrate well with wellness strategies. Physical and fiscal fitness go together to round out a comprehensive consumerism strategy.

Employees who are healthy tend to have lower health care costs and therefore have a greater opportunity to save their HSA or HRA funds for future use.

By adding wellness incentives, such as a biometric-based health plan that provides financial rewards to employees for maintaining healthy lifestyles, you create a strong synergy that reinforces your consumerism strategy.

The attached graphic helps explain this concept.

Health care consumerism strategy

To build an effective consumerism strategy, you need to engage employees in all of these areas, although not necessarily in any particular order. My clients find that each area energizes and feeds off the others to create a very powerful dynamic. But if you neglect one of the areas, the whole system can be compromised.