Progressive Focus© Newsletter
|Volume 3, Number 2||Summer, 2002|
|Helping You Manage the Expectations of Managed Vision Care|
In This Issue:
Defined Contribution Plans
An innovative variant in third party care brings opportunities and challenges.
He that will not apply new remedies must expect new evils; for time is the greatest innovator.
Of Innovations, Francis Bacon
An innovative health insurance option called the Defined Contribution Plan (DCP) is creating lots of new choices for purchasers. Unlike traditional managed care, where patients are responsible only for copayments and (often nominal) deductibles, these DCPs shift a greater portion of the total premium and service costs from employers to employees.
In exchange, there can be significant incentives -- e.g., tax savings -- for those employees who opt for these plans that come in several creative variants.
Defined Contribution Plans also offer some potential benefits to optometrists. Patients who previously could be seen only if the ECP (eye care provider) were on an approved panel instead can see any provider of their choice. So optometrists could have access to a larger pool of potential patients.
Additionally, some of those patients who were seen previously under a deeply discounted, financially questionable managed vision care program could be seen in the future on a "cash" basis. This should improve margins when compared to most traditional managed vision plans.
DCPs will also offer new marketing challenges to providers. With patients now responsible for every dollar deducted from the medical spending accounts set up under DCPs, smart ones will look more closely at overall value rather than simply what's cheapest or "free."
This could mean increased sales of premium lenses and lens treatments if ECPs can effectively differentiate a premium product's value over "standard," and also set that apart from the efforts of others to marginalize quality differences in premium products.
Ultimately, it comes down to providing a compelling answer to the patient's most basic question: What's in it for me?
Defined Contribution Plans 101
Ring out the old; ring in the new,
In Memoriam, Alfred, Lord Tennyson
DCPs are designed to force fundamental change into the psyche of the insured public -- to turn patients from "entitlement consumers" into "benefits shoppers." Though this is far from a complete list of characteristics, DCPs typically involve some combination of the following.
1) Employers put dollars into a fund that pays employee expenses to a certain point. After that the employee pays until reaching a second threshold. From that point on the employer pays for services.
2) The employee's share of services and monthly premiums depends on the threshold (trigger) points and copayments or deductibles. Obviously, if the employee is willing to bear more of the risk (i.e., accept a lower first threshold point and "bet" that she won't need much care exceeding that threshold) her monthly premiums will be less.
3) In some cases plans arrange deals for certain services with select providers who agree to give preferred rates. Any employee taking advantage of these arrangements would have fewer dollars deducted from his medical account than if he went elsewhere. But the choice to go elsewhere is always the employee's.
4) In some cases employees can allocate dollars to "purchase" specific services such as vision, dental, or pharmacy. Sometimes certain of these services are tied together. For example, an employee might be able to get routine vision care only if she also elects dental.
The bottom line for your DCP patients? They must now think about how, when, where, and why every dollar gets spent for healthcare services.
How Might Defined Contribution Plans Change Third Party Vision Care?
Traditionally employers offered exams and/or eye wear as employment incentives ("perks"). A patient's financial responsibility usually was limited to the nominal copayment for covered services plus scheduled amounts for any optional upgrades on the eye wear.
As the services were perceived as "free" or nearly so, patients often went to a designated eye doctor whether they needed or imagined they needed care.
The only thing that one really knows about human nature is that it changes. Change is the one quality we can predicate on it.
The Soul of Man Under Socialism, Oscar Wilde
However, the American Journal of Public Health (Nov. 2001) opined as have many others that patients will reduce their use of medical care when they have to pay more of the cost. If true, and if DCPs gain a meaningful slice of the insurance pie, this could mean a noticeable change in the dynamics of vision care delivery.
If that were to happen the overall percentage of those who get regular eye care via insurance could go down once "entitlement" benefits are replaced by self-selected benefits and/or account deductions. That is, some who previously had "entitlement" benefits for eye care simply won't access that care as often, or at all, if they must allocate the total cost of the services into their discretionary spending accounts -- especially if that's done at the expense of something else.
For example, where previously many low or no Rx, pre-presbyopic patients went to the eye doctor anyway just on the chance they might get new glasses (it's fashion, and they'd be "free," after all), now some of those same patients probably won't go since to do so would be "on their dime."
By The Numbers...
In 1999 the nationally known consulting firm, KMPG, surveyed 14,000 employees at Fortune 1000 companies. KMPG asked:
What if you were able to select from any health plan being offered in your area, at the cost you choose, using both your employer contributions and the personal contributions you make, instead of having your employer select plan options for you? How interested would you be in this concept as a replacement for your current health care selection options from your employer?
25% were "extremely interested," 19% were "very interested," and 29% were "somewhat interested."
A New Direction for Employer-Based Health Benefits,
KMPG, LLP, publication 99-12-05,
On the other hand, those who choose to fund DCPs for eye care will utilize, and so will their family members. We can anticipate that such predisposed and motivated users predominantly will be those who on average: 1) require higher power/more costly Rxs, 2) use multifocals rather than single vision lenses, 3) have a vision-related, occupational need.
How Might Defined Contribution Plans Affect The Purchasing Options Of Employees?
An obvious issue for everyone involved in ophthalmic care is: Will employees set up their medical accounts to include anticipated expenses for vision exams and eye wear, or will they allocate use of those funds for other healthcare services such as dental, pharmacy, chiropractic?
Assuming an employee does fund eye care, what services is he likely to purchase with his discretionary dollars? Under traditional systems many presbyopic patients used their benefits as a stepping stone to something better -- for example, to upgrade to progressive lenses. Now, with patients seeing dollars removed from their medical accounts, will they still "go for the gold"?
And if, for example, they do select progressives, what kind of progressives will they buy, and how much will cost impact that decision? If your staff does not do an effective job differentiating premium lenses, are patients likely to think: Panamic is nice, but the XYZ brand progressive is cheaper and it's probably just as good?
And how might the time of year influence any purchasing decision? For example, would some or many wait until the end of the year to see if any dollars remain in their accounts before considering the "luxury" of eyeglasses? Will they hold off spending on eye care until November/December as a hedge against possibly needing the dollars for other healthcare services during the year? If so, might we see a rush at year's end for exam appointments as employees approach the "use it or lose it" deadline? (Note: Several prominent optical chains ran "use it or lose it" advertising promotions at the end of 2001.)
By The Numbers...
Benefits consultants Booz-Allen & Hamilton surveyed Fortune magazine's "100 Best Companies to Work For" and reported that:
...all but a few were anticipating a shift to defined-contribution systems, which would save them millions of dollars in administrative costs by taking them out of the selection and retailing process.
One of the report's authors opined:
We believe the move to defined-contribution health plans is no more than three to five years away. Within 10 years, the defined-contribution system will be as common in health care as it is in retirement planning.
When Consumers Rule: The Next Revolution in U.S. Health Care,
Lathrop P, Ahlquist G, and Knott D,
Booz-Allen & Hamilton,
Strategy and Business, March 2, 2000
How Might Defined Contribution Plans Affect Eye Care Providers?
First and most obvious, since patients in these plans no longer will have automatic, pre-paid exam and eyeglass benefits, some may think twice before getting care they will have to fund in its entirety. At a minimum, this certainly will impact the results of optometric annual recall notices sent to those who become enrolled in DCPs.
Patients in these plans will have more choice -- fewer closed panels. For both independent and "corporate" ODs this means more opportunities to see patients who previously went elsewhere.
In those plans where patients have freedom of choice there should be fewer outrageously discounted fee schedules. And where practitioners are not throttled by artificially low fee schedules margins should improve on patients from DCPs.
However, the retail chains know an opportunity when they see it, and they're certain to promote aggressively to these patients and to the companies offering DCPs. They're certain to offer significant discounts to attract patients with discretionary spending dollars.
This could re-energize competition for "cash" patients, and could include new rounds of "buy one, get one free" and other painful sales tactics used by retail chains to the dismay of private practitioners.
How Do Optometrists Convince Patients In DCPs To Spend Optional Dollars On Premium Product?
This will boil down to "selling" the employee and dependents on a simple concept. (Of course you'll use more appropriate verbiage.)
The cost is on you, so now more than ever choosing the right lens is critical.
This means differentiating premium products and creatively promoting the benefits (i.e., the resulting payoff) of investing medical account dollars in high quality lenses and treatments.
For example, promoting:
- Task-specific progressives rather than generic "no-lines,"
- Premium anti-scratch coating rather than less durable alternatives,
- High-index for comfort and better cosmetics rather than heavier and thicker conventional lenses,
- A/R coating for work and leisure comfort, and for good looks.
Blessing Or Curse?
Never tell people how to do things. Tell them what to do and they will surprise you with their ingenuity.
War As I Knew It, Gen. George S. Patton
DCPs could turn out to be both a blessing and a curse to the optometrist. On the one hand they could return a portion of eye care services to private pay status, reducing the number of patients seen under marginal or money-losing managed vision plans. On the other hand we could also see that "recovered" portion of the business slide into a death spiral of ever deeper, chain-driven discounting.
Defined Contribution Plans present providers with an opportunity to sell differentiation and quality to consumers who will be forced to think about the "value" of every dollar spent. If ODs can successfully present the over-riding value of premium product there is opportunity to profit from this change in the way healthcare services are purchased and delivered. On the other hand, if they cannot then this growing slice of the third party market could end up as yet another low or no profit disappointment.
Education is what you get when you read the fine print.
Experience is what you get when you don't.
Copyright © 2003-2007, Gil Weber, MBA. No part of this newsletter may be reproduced or distributed in any form whatsoever without the author’s prior written authorization.
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