Employer-provided medical plans have seen significant benefit design changes in the past few years, which is due to rising healthcare costs and the Patient Protection and Affordable Care Act (ACA). As actuaries analyze historical medical cost trend in order to forecast future trend and analyze the impact of benefit design changes, the effect of the member behavioral phenomena known as “benefit rush,” “benefit hush,” and “trend crush” should be considered. This cycle of behavior was explained by Joan C. Barrett in a Health Watch article called “Timing’s everything: The impact of benefit rush.”
As Barrett’s article points out, when notified toward the end of the plan year of impending reductions to their medical plans for the upcoming plan year, savvy members often “rush” off to get deferred elective medical care in order to take advantage of the current richer plan design. For example, if there is an elective knee surgery that needs to be done, the rational member will get this done in the plan year with favorable member cost sharing. The magnitude of this rush will depend on the severity of the benefit design change and how benefit savvy the member is. Small increases to copays will result in less rush than the plan implementing a full replacement high-deductible health plan. The timing of this rush will depend on when participants are notified of the impending changes. The ACA requires that notifications to participants related to benefit design changes be made at least 60 days before implementation. Further, this rush must be considered in conjunction with the mini-rush that occurs even without any impending benefit design changes. Mini-rushes are due to members satisfying out-of-pocket limits toward the end of the plan year and taking advantage of fully paid plan services before the cost-sharing limits are reset again in the next year.
Subsequently, if more elective medical procedures are performed in the last quarter of the previous year during this rush period, there is a slowdown or “hush” in medical care in the first few quarters of the new plan year. This hush is further magnified as participants get to know their new benefit plan designs before getting medical care. The magnitude of this hush must be understood and even quantified separately from the decrease in costs that is due to the actual reduction in plan benefits. In the second year of the new plan, as costs return back to normal levels there is a trend “crush” compared with the previous year because it’s compared with a lower base level of claims from the first year of the new design. The impact of this trend crush must be considered if the plan experiences higher trends in the second year of the new plan.
Figure 1: Benefit Design and Usage Patterns
As actuaries evaluate historical trend, this rush, hush, and crush cycle should be evaluated and normalized to estimate future trends. This cycle must be kept in mind as projections with impending plan design changes are made. Knowledge of this cycle is also useful when actual results are compared with initial projections. Further, this cycle must be explained to plan sponsors to help them make sense of their cost experiences and for actuaries to maintain credibility regarding their trend and projection estimates.