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Keywords:

  • Consumer-directed health plans;
  • cost sharing;
  • risk segmentation;
  • risk selection

Objective. To determine whether the offering of a consumer-directed health plan (CDHP) is likely to cause risk segmentation in an employer group.

Study Setting and Data Source. The study population comprises the approximately 10,000 people (employees and dependents) enrolled as members of the employee health benefit program of Humana Inc. at its headquarters in Louisville, Kentucky, during the benefit years starting July 1, 2000, and July 1, 2001. This analysis is based on primary collection of claims, enrollment, and employment data for those employees and dependents.

Study Design. This is a case study of the experience of a single employer in offering two consumer-directed health plan options (“Coverage First 1” and “Coverage First 2”) to its employees. We assessed the risk profile of those choosing the Coverage First plans and those remaining in more traditional health maintenance organization (HMO) and preferred provider organization (PPO) coverage. Risk was measured using prior claims (in dollars per member per month), prior utilization (admissions/1,000; average length of stay; prescriptions/1,000; physician office visit services/1,000), a pharmacy-based risk assessment tool (developed by Ingenix), and demographics.

Data Collection/Extraction Methods. Complete claims and administrative data were provided by Humana Inc. for the two-year study period. Unique identifiers enabled us to track subscribers' individual enrollment and utilization over this period.

Principal Findings. Based on demographic data alone, there did not appear to be a difference in the risk profiles of those choosing versus not choosing Coverage First. However, based on prior claims and prior use data, it appeared that those who chose Coverage First were healthier than those electing to remain in more traditional coverage. For each of five services, prior-year usage by people who subsequently enrolled in Coverage First 1 (CF1) was below 60 percent of the average for the whole group. Hospital and maternity admissions per thousand were less than 30 percent of the overall average; length of stay per hospital admission, physician office services per thousand, and prescriptions per thousand were all between 50 and 60 percent of the overall average. Coverage First 2 (CF2) subscribers' prior use of services was somewhat higher than CF1 subscribers', but it was still below average in every category. As with prior use, prior claims data indicated that Coverage First subscribers were healthier than average, with prior total claims less than 50 percent of average.

Conclusions. In this case, the offering of high-deductible or consumer-directed health plan options alongside more traditional options caused risk segmentation within an employer group. The extent to which these findings are applicable to other cases will depend on many factors, including the employer premium contribution policies and employees' perception of the value of the various plan options. Further research is needed to determine whether risk segmentation will worsen in future years for this employer and if so, whether it will cause premiums for more traditional health plans to increase.