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(originally published by Booz & Company)


Planners, Shoppers, Contenders, and Cavaliers: How Consumerism Is Changing the Health Insurance Industry

David Cordani, president of CIGNA HealthCare, describes how his company is responding as individuals take control of their medical benefits.

For more than 60 years, health care has been largely employer-sponsored. But skyrocketing insurance premiums are forcing employers to cut back on health benefits. According to a study conducted by the Kaiser Family Foundation, insurance premiums have risen 73 percent since 2000, roughly quadruple the rate of inflation. The result, according to the Kaiser study, is that more employers are opting not to offer their employees coverage; just 60 percent of employers offered health benefits to their employees in 2005, down from 69 percent in 2000.

Consumer-driven health care (CDHC) initiatives are one promising solution. In consumer-directed health plans (CDHPs), employers typically deposit a sum of money (perhaps $2,000 for an individual or $4,000 for a family) into a health savings account (HSA) to be used as the individual sees fit for medical expenses. Usually paired with those HSAs are high-deductible major medical plans that cover expenses higher than, say, $5,000 in any given year. Any balance left in the HSA at the end of the year will roll over to the next year, in effect creating a lifelong incentive for people to safeguard their health and spend less on health care. At the World Health Care Congress in Washington, D.C., last April, Booz Allen Hamilton Senior Vice President David Knott discussed the emerging trend with CIGNA HealthCare President David Cordani. Based in Philadelphia, CIGNA Corporation is a leading provider of employee health-care services in the U.S.

S+B: We see consumer-driven health care as a way to give customers the power to make informed decisions, but this requires health-care providers to respond in a way that enables competition. What is your prognosis for the next three to five years?
Consumerism combined with health advocacy will be the dominant trend. In the next few years, we expect that up to 25 percent of our employer-sponsored members will be covered under CDHPs with HSAs and health reimbursement accounts (HRAs). These health plans empower employees to make their own decisions. We expect to see a greater percentage of our members exposed to some dimension of health advocacy, which means, in essence, that plan members — whether at CIGNA or elsewhere — will have access to clinicians acting on their behalf, evaluating their needs, and providing them with resources and information to lead healthier lives.

S+B: So consumerism will change even the more traditional offerings?
Absolutely. The industry’s winners will be those that differentiate by engaging, educating, and enabling their members to navigate the health-care system independently. We define consumerism broadly and have identified four critical elements that will make it work: financing vehicles, which incorporate new health plans; choice and convenience, which will be the key to making services easier to access through a variety of channels, whether it is online, through mini-clinics, or otherwise; member engagement, which is the linchpin of consumerism; and, last, information transparency around the quality and cost of services. These give consumers the insight into the market forces that they need to make informed decisions.

Who Pays and How?

S+B: What are your thoughts on the role of the employer?
Broadly, employers view benefits as an important factor in being considered an employer of choice, but they need relief from carrying so much of the financial burden. Today, the average employer bears about 85 percent of the cost of health care, up from about 60 percent in the 1960s. Employers are looking to rebalance that equation. We think employers will start to move from fully-funded benefits to sponsored or voluntary benefits. We’re seeing burgeoning demand from employers for a recently launched set of CIGNA capabilities called the Custom Benefit Builder. Employers can use this system to identify the levels of subsidy and choice they want to provide employees and their dependents. They don’t have to offer the same package of benefits to all employees.

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  1. Gary Ahlquist, David Knott, and Philip Lathrop, “Prescription for Change,” s+b, Fall 2005: Why consumer-directed health plans are the last chance to avoid a government-controlled monopoly. Click here.
  2. Joe Flower, “Five-Star Hospitals,” s+b, Spring 2006: How some hospitals are thriving by taking a consumer-centric approach to care. Click here.
  3. Joe Flower and David Knott, “Does Health Care Have a Future?” s+b, Spring 2007: Eight books about the health-care system diagnose its problems and offer solutions. Click here.
  4. The Kaiser Family Foundation and Health Research and Educational Trust, “Employer Health Benefits, 2005 Annual Survey”: Annual survey examines the state of employer-based health coverage. PDF download.
  5. David Knott, Gary Ahlquist, and Rick Edmunds, “Health Care’s Retail Solution,” s+b, Spring 2007: How a consumer-oriented marketplace could improve the crippled U.S. health-care system. Click here.
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