The Future of Health Reimbursement Arrangements

Designing ICHRA to be patient-centric when it arrives in 2020

Patients are increasingly expected to make decisions about their own health, to defer less to doctors and take charge. This requires a huge behavioral change from passive reliance on authorities to being your own primary care physician. This becomes a financial services story with the way companies reimburse employees for healthcare expenses. To cover this topic I engaged my colleague at Publicis Sapient David Nickelson, strategist for our healthcare clients, and a behavioral scientist, and credit him with defining the behavioral aspects and authoring the majority of this post. Thank you David! Increasingly I'm finding posts that combine expertise from different industries a rich area for transformation opportunities, and will continue to bring these ideas to change agents in financial services.

With the launch of a new tax advantaged Health Reimbursement Arrangement in January 2020 (ICHRA or Individual Coverage HRA) employers can put the onus on patients to buy insurance and just reimburse them.

For companies, this means less hassle with renewals, participation rates, stressing about doctor networks, or getting constant annual increases. The company just decides which benefits go to which classes of employees, and set monthly allowances for each. For employees, this means great flexibility, but also an overwhelming set of choices. Tax advantages and flexibility aside, what will this mean for patient outcomes? We know that this very flexibility incentivizes low participation in preventative healthcare measures, in contrast to employee health insurance plans. When patients are faced with the chance to save by avoiding the doctor, and that cost is now transparent, we see a meaningful decrease in the use of appropriate preventative measures.

How could ICHRA be designed to retain the advantages while ensuring patients aren't penalized financially for taking care of themselves. In sum, how can financial incentives be aligned with healthy behavior to encourage healthy preventative care while helping businesses benefit from the lower cost of ICHRA? Can we apply behavioral economics to the reimbursement model to encourage patients to invest in preventing future health issues?

The first challenge will be getting employees to select and enroll. Research has shown that there are likely at least three different biases at work when an employee with an existing health plan has the option to select a new plan:

• Loss-aversion bias. People tend to overvalue the prospect of losing something of value and to undervalue the prospect of gaining something of value.
• Value system bias. People have deeply rooted value systems and selective filters. Substantial evidence to the contrary or significant influence is required before behavior changes in a way that is inconsistent with deeply held beliefs -- so if they believe the type of plan is "best" when compared to other available options (i.e. a PPO plan vs. a CDHP), employees are more likely to stay with what they have.
• Status quo bias. Inertia, or the tendency not to change, is especially significant when choices are complex.

Research has also shown that including an HSA or HRA option to a plan or including it in one or more plan options greatly increases the complexity (cognitive load) required to make a decision and only increases the chances that employees will stay with the plan they have.

A useful summary of ICHRA pros and cons can be found at PeopleKeep. One challenge to address is that ICHRA's add another level of complexity; in order to use an ICHRA, employees will have to purchase an individual policy by themselves (without employer guidance or assistance), and then certify they are enrolled, to access and employer-sponsored ICHRA. Using the Virginia Health Insurance Marketplace as an example, selecting a plan will requires comparing four different plan levels (Platinum, Gold, Silver and Bronze) across the eight participating vendors. In almost any case, evaluating this many plans and options will far exceed the number of group plan options provided by an employer and makes an ICHRA option, no matter how much the potential savings, look much to complex to evaluate.

So how might employers increase enrollment in ICHRA's?

Frame Your Messaging: Tell the story of how an employee can take charge of their healthcare to both improve it and reduce cost. Emotion has a significant impact on our decisions; while information about potential employee cost savings are no doubt important, Use testimonials to demonstrate how that other similar individuals have successfully selected that option and that it met or exceeded their expectations.

Frame The Choices and Provide Clues: Research has also shown that the way in which options are presented -- and even the order they are presented in -- can have a significant impact on decision making. Use plain language that functionally describes the plans ("Thrifty Consumer Plan" or "Healthy Living Plan" vs. "HMO" or "PPO". List the plans starting with the preferred plan, and use colors (such as green, yellow, red) to "nudge" the employee toward selecting the preferred plan.

Make Decisions Easy: The more straightforward you can provide comparisons (charts, graphs, etc), the easier it will be for an employee to make a decision they feel good about...and let inertia work in your favor; make the default option enrollment in the preferred plan.

Remove barriers: Help employees understand that there are outside resources available to help them select an individual health plan is right for them, such as the Healthcare.gov "Find Local Help" search tool.

These biases—and many others—will also have an impact on ICHRA utilization. Research has shown that providing employees with HSAs and HRAs does decrease the use of health care. The challenge is that it reduces both appropriate and inappropriate care. That is, faced with spending money on preventative care or not spending money (loss aversion), not spending money is the more likely outcome, if even spending on that preventive care would save money (and improve health) in the long term

Lack of transparency around the cost and quality of care also present a significant barrier. Without information and tools to make a good decision, most employees select a provider based on location, a personal recommendation, or because they have similar demographics, and because they offer better pricing or have a history of providing more effective care. Tools like ZocDoc are starting to provide some help with this by providing information about insurance, provider ratings and reviews, and availability, but not all providers and services are covered, and discrete pricing and quality information is difficult to find and use.

The same goes for services; while it's possible to compare pricing for many "discretionary" healthcare services, such as orthodontics, plastic surgery, and vision care, finding line-item pricing for routine tests, x-rays, or office visits is extremely difficult, and when it is available, employees have few reference points to help them determine if a price is reasonable. Without information to reassure employees that they are spending their money wisely, many simply stay with the status quo, seeing a provider or purchasing services from someone they already know without regard to cost or outcome, or worse, foregoing a trip to the doctor or obtaining a recommended service and "saving" money.

The good news for employers and fintechs is that the approaches listed above can be applied to help employees better utilize ICHRAs as well as traditional HSA and HRAs. In fact, the big disruption opportunity here is for fintechs and health insurers (and even health systems) to work together to build, deliver and market a real health management experience that leverages all of the advantages of ICHRAs, HRAs, and HSAs. By aligning to tackle these natural challenges to good decision making, they can address many of the wide range of cognitive biases (cognitive load, selection bias, representativeness, over-optimism, loss/risk aversion, endowment effect, etc.).to deliver lower costs, better utilization and increase productivity.

This article is a collaboration between Publicis Sapient - Health and the Financial Services Center of Excellence at Publicis Sapient with special thanks to David Poole.