Question

based on "Consumer-Driven Health Care: Medtronic’s Health Insurance case study", please answer the following question. Thanks

Consumer-Driven Health Care: Medtronic’s Health Insurance Options

In June, Dave Ness, vice president of Compensation and Benefits of Minneapolis-based Medtronic, was wrestling with the decision about the health care insurance choices he should offer employees next year. He had launched Definity Health, a new program, two years ago, on an experimental basis. Definity Health, also Minnesota-based, was founded to offer a new kind of consumer-driven health plan. Unlike many other health insurance plans, it was consistent with Medtronic’s human resource and business strategy of encouraging consumer-driven health care.

Definity Health’s plan consisted of three elements.

· A Personal Care Account, sometimes described as a health reimbursement account (HRA). Employers contributed to the account and employees used the money to pay for health care expenses from their chosen provider. Funds remaining in the HRA at the end of the year were rolled over to the next year. Preventive care was 100% paid for by the plan and was not charged against the employee’s HRA balance.

· Comprehensive Health Coverage. The plan had three levels of deductibles from which employees could choose, ranging from $1,500 (low) to $3,500 (high) for a single employee, and $3,000 and $7,000 for family coverage.

· Health Tools and Resources. A broad array of resources to support member health and wellness decision-making available online and by phone. Members could research providers across many criteria, review pricing for medical services or conditions, talk with nursing professionals or a pharmacist 24/7, delve into medical information, and track their Personal Care Account and Comprehensive Health Coverage activity.

The plan paid for all preventive care to encourage participants to receive periodic physical exams, immunizations and other services designed to maintain health and to ensure early detection and treatment as necessary. Because the plan had no “gatekeepers” and allowed much broader types of expenditures under its health account and preventive care policy, it permitted employees to make more decisions about their health care.

To date, Ness’s objective of being cost-neutral appeared to be realized. Medtronic self-insures the majority of its health care plans and contributes from 75% to 80% of the cost of coverage, depending upon the plan. Although costs were not the primary reason to offer the Definity Plan, they were an important aspect and it was expected that over the long term, health care costs under this plan would be lower than traditional plan offerings.

In the first year, approximately 10,500 employees were offered the Definity Health option and 13% signed up. Although Ness anticipated that Definity would appeal to younger employees who were less concerned about their health insurance, enrollment statistics were almost identical to Medtronic’s other more established plans when comparing coverage levels, pay rates and job types. The enrollment data did, however, indicate a higher than expected percentage of males enrolled during the first year. During the second year, the distribution between males and females was as expected, approaching 50% each.

Ness was quite pleased with initial enrollment because it showed that a significant number of employees were interested in participating in an entirely different type of health care plan. He was among the 1,300 employees who chose the Definity option and like the others, was well satisfied. Last year’s enrollment was 4,040 participants,

The time had come to decide. What, if any, changes should be made in the Definity plan for next year? Ness also wondered what additional metrics he should use to measure the plan’s success or failure. He thought back to some of the first meetings about consumer-driven health plans and how far they had come since then. He also wanted to revisit the decision not to include BHCAG among Medtronic’s offerings. (See Exhibit 1 for more about Medtronic’s health insurance plans.)

Medical Plan and Level of Coverage	Full-Time or Part-Time 32 Hours or More/Week Employee Cost. Monthly Cost	Part-Time Scheduled under 32 Hours/Week Employee Cost. Monthly Cost
HealthPartners	-	-
Employee only	$ 49.00	$153.13
Employee plus one	$99	$310
Employee plus two or more	$146	$458.25
Medica	-	-
Employee only	$78.25	$195.63
Employee plus one	$156.75	$391.88
Employee plus two or more	$242.75	$606.88
Definity Health	-	-
Employee only	$1,000	PCA
Low Deductible $1,500	$44	$165.63
Medium Deductible $2,500	$28	$151.88
High Deductible $3,500	$11.14	$143.13
Employee plus one	$1,500	PCA
Low Deductible $2,250	$83.40	$347.50
Medium Deductible $3,750	$51.10	$319.38
High Deductible $5,250	$25.05	$300.63
Employee plus two or more	$2,000	PCA
Low Deductible $3,000	$115.20	$480.00
Medium Deductible $5,000	$70.60	$441.25
High Deductible $7,000	$ 33.20	$415.00

G. Determine rewards components that should be increased or stay the same, and provide your rationale. What in the current package should be emphasized or left alone?

H. Determine rewards components that should be reduced, and provide your rationale. What in the current package should be addressed?

Answer 1

G - The definity plan is the flagship plan offered by the company, which would have the low cost of treatment. The enrollment was 13% of the total 10500 employees who worked with the company, which spiked up in the second year. The Total coverage cost which ranges up to 75 to 80% of the total cost, should be taken to 85 to 90% even if there is a spike of 10% in the premium. if the company manages to provide 90% cost of coverage, the employees won't mind spike in the premium. The beneficiaries would look at the long-term benefit which they would enjoy by paying a fraction of more payment. If the company can manage it without any changes in the current payment system, it would be a win-win situation for both.

H - The Rewards package is appropriately planned for what employees are paying, these rewards offered by the plan are encouraging them to keep track of the preventive measure for their health, which is beneficial for the company inturn, hence I feel there should be no reduction of the benefits. If they wish to reduce, they could lower the gap of the difference in premium paid by the Full-time employee vs the part-time employees. Currently, the premium paid is threefold by the part-time, this could be reduced as there could be more enrollments in the plan