Case Study Update: Horsham Veterinary Hospital – A Multi-Year Strategy Delivers

Originally Published in RMP Advisor, March 2010

by David Edman

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Last year, we introduced you to our client Horsham Veterinary Hospital (HVH), a full-service animal healthcare facility located in suburban Philadelphia. Like most small- to mid-sized employers, HVH was experiencing annual cost increases of 15% to 20% and struggling to manage its health benefit costs in the years leading up to 2008 (see last year’s case study). In 2008, RMP began working with HVH’s owner, Dr. Joseph DiMauro, to implement a new, multi-year strategy for managing healthcare costs.

The Elements of HVH’s Multi-Year Strategy
For Dr. DiMauro, addressing the problem of escalating costs, while maintaining a policy of providing good health-insurance coverage to his employees at no cost (for single coverage) was important. At the outset of our relationship and for the first 2 years of the new strategy, HVH made the following decisions:

• To change carriers and reduce dependence on the carrier by purchasing a high-deductible health plan.
• To establish a Health Savings Account (HSA) option as the base plan, fully paid by the employer, and offer a preferred provider organization (PPO) buy-up at the employee’s expense.
• To fund the employee HSA accounts at about two-thirds of the high-deductible level and encourage employees to build their balances over time. After 2 years, the average balance per account was just under $1,000.
• HVH stayed with the same carrier for 2 years but increased the deductible from $1,250 to $2,000 in the second year and modified the HSA contribution accordingly.

As a result of these changes, HVH experienced cost increases for health benefits of 6.1% in 2008 and 7.8% in 2009. In comparison to the market, these were deemed to be reasonable rates of increase because they included relatively generous levels of HSA funding to maintain the integrity of the company’s benefit plan.

HVH Achieves Even Better Results in the Third Year
As HVH approached its April 2010 renewal, the company was well positioned, given 2 years of HSA funding and growing balances in the employees’ bank accounts. When faced with a fairly large premium increase to stay with the same carrier for a third year, HVH considered various options and decided to change carriers. With a new carrier, HVH was able to provide better benefits by reducing the high-deductible level from $2,000 to $1,500, and lower its contribution level to the HSAs. As a result, HVH has realized a 1.1% reduction in the cost of health benefits for policy year 2010-2011.

What Can We Learn from HVH’s Experience?
The lessons from HVH’s experience are that a “carrier agnostic,” multi-year approach works. By creating competition among carriers and purchasing less insurance, HVH was able to reduce its costs for purchased insurance.

Also, with the implementation of a consumer-driven strategy, including the funding of HSAs for its employees, HVH was able to change the mindset and behavior of its employees. Health industry data show that individuals enrolled in HSAs cost less than those in traditional plans. This is the result of lower costs and utilization of physician office visits, hospital emergency rooms, pharmacy benefits, and other factors.

HVH was able to change behavior and create a “win-win” for the company and its employees—as good or better coverage at lower rates.