WHEELING & DEALING
Consumerism On The Rise
By Jean-Marc Levy

First published in HRO Today (November 2004)
 

Adoption of consumer-directed health plans (CDHPs) is accelerating.
 

As millions of American employees face new benefits choices and decisions during open enrollment period, I thought it would be a good time to revisit my June 2003 column on Healthcare Consumerism, in which I described the basic features of consumer-directed health plans (CDHPs) and introduced the growing number of investors beginning to plant stakes in this emerging space.

CDHPs are designed to encourage consumers to take an active role in managing their healthcare spending decisions, by allowing plan participants to make tax-free contributions to a special medical account in which they can carry over and accumulate unused benefits that can be used to cover medical expenses in future periods.

Eighteen months later, it is becoming abundantly clear that savvy healthcare investors don’t need a primer on consumer-directed plans anymore. While we have not quite reached a tipping point in employer adoption of CDHPs, consumer-directed plans are not only here to stay, but are becoming one of the fastest growing offerings in the rapidly changing health benefits segment.

According to the results of a survey by Deloitte Consulting published in September, 19% of the firms surveyed offered some sort of consumer-directed health plan in 2004, up from 11% in 2003 (the 314 companies surveyed had an average employee size of 5,000). Additionally, as noted in my earlier column, consumer-directed health plans continue to elicit surprisingly high levels of satisfaction among plan participants. According to the same Deloitte Consulting survey, 60% of employees in consumer directed plans expressed that they were satisfied with their plan, with less than 10% of respondents expressing mild dissatisfaction.

And the money keeps pouring in…

• Over the course of 2004, Alexandria-based Lumenos, a provider of CDHPs and related services raised $37 million, bringing its total capital raised to $76 million. Lumenos’ blue-chip financial and strategic investors include Galen Partners, KBL Healthcare Ventures, Liberty Partners, Draper Fisher Jurvetson, Allianz Group’s Fireman’s Fund, as well as Novartis.

In addition to its flagship Health Reimbursement Account product, Lumenos also provides health improvement support programs designed to help plan participants optimize their health care spending decisions. For example, personal coaches can provide one-on-one assistance to participants with certain ongoing conditions.

Lumenos will use its new capital to accelerate the development and introduction of a full-service Health Savings Account product (authorized by the Medicare Prescription Drug, Improvement and Modernization Act) by 2005.

• In another significant transaction, Evolution Benefits, a Connecticut-based provider of healthcare payment technologies, raised $18.5 million from a group including Conning Capital, The Sprout Group, and Pfizer's new Strategic Investments Group.

While the payment technology services offered by Evolution Benefits (such as the BennyTM card) can be used to facilitate access to the benefits offered by many different types of benefits plans, the company’s self-stated mission is to support “the movement toward greater consumer choice in and responsibility for employee benefits” and to develop “technology that will play a key role in the evolution of consumer-directed health care”. According to its marketing materials, Evolution Benefits now powers the programs of more than 20 managed care organizations, more than 1,250 employers, including 30 of the nation's top-ranked companies, and hundreds of thousands of employees.

I expect this level of interest and investment in the consumer-directed segment to continue to accelerate over the coming year as more employers and employees adopt consumer-directed plans. Eighteen months after my first mention of CDHPs in this column, I stand behind my prediction that they may well be on track to become the 401-k’s of the health benefits industry.

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