Shifting the Burden
Chances are you’ve at least heard of a high-deductible health-care plan, even if you’re not one of the many whose companies offer them. The plan seems simple at first glance. But just how high is that high deductible? Many employees are surprised by the answer.
“It’s not like a traditional plan. It’s $1,500, $2,000 all the way up to … $5,000 and $10,000,” says Amber Hulme, vice president for Central and Southern Ohio sales with Medical Mutual of Ohio. “High deductible means for the employee portion. It’s what their exposure is going to be.”
That can be a bitter pill to swallow for someone moving from a traditional plan, such as a preferred provider organization (PPO) plan, whose deductibles are typically closer to $500.
Often, a high-deductible health-care plan means lower premiums for employers but higher initial costs for at least some employees, since benefits don’t kick in until the deductible is met. The minimum deductible is $1,200 per year for single coverage and $2,400 for family coverage, while the maximum is $5,950 for single and $11,900 for family. Typically, costs are covered at 100 percent once the deductible is met, though some plans require the consumer to pay a percentage, such as an 80 percent to 20 percent split.
High-deductible plans, also known as consumer-driven health plans (CDHPs), go hand-in-hand with health savings accounts (HSAs). Employees can contribute to the accounts on a pre-tax basis, and typically get a debit card to pay for health-care purchases straight from the HSA. Many employers contribute to the accounts. Sometimes, there’s a carrot attached.
“We see consumer-driven health plans that have lower contributions, that have employer-funding of accounts, that ask employees to complete something in a wellness program like a health risk assessment, which gives the employer administration more information to help control the cost of their program,” says Diane Snyder, principal in the Columbus office of Mercer, a human resources consulting firm.
CDHPs also typically eliminate co-pays in favor of a plan’s negotiated provider rate. “The difference between high-deductible and a PPO or HMO is that now you have to pay every dollar for prescriptions and doctor visits and urgent care and the emergency room. Before, if you went to the doctor’s office you might have a $15 co-pay, but the visit costs $75. With a high-deductible plan you would actually pay the $75,” says Thomas Wagoner, president of Accelerated Benefits, an employee benefit firm.
There’s no doubt health care is expensive. The average annual cost of employee health insurance premiums is expected to rise past $10,000 in 2012, according to a report from consulting firm Aon Hewitt. The projected average for Columbus is $9,977. The report projects premiums will rise 7 percent nationally and 7.2 percent in Columbus. Aon projects employees will take on 22 percent of premium costs as well as increases in out-of-pocket expenses this year.
Employers switch to high-deductible plans to save on premiums, but also to encourage employees to pay more attention to their health-care costs. “Every dollar the employer saves in premium is a dollar that’s transferred to the employee in costs,” Wagoner says. While some employees—the healthy and the chronically ill alike—can find ways to benefit from such plans, others may not.
Employers added CDHPs in record numbers in 2011, according to the National Survey of Employer-Sponsored Health Plans conducted annually by Mercer. Last year, 32 percent of employers with 500 or more employees offered a CDHP, up from 23 percent in 2010. Overall, 13 percent of covered employees are enrolled in a CDHP, up from 10 percent in 2010 and 3 percent five years ago. A third of employers surveyed planned to raise deductibles or co-pays this year.
“We definitely have seen an increase,” Hulme says. “It’s most popular to have a dual option where they might have a traditional lower deductible, like $500, then a choice to take a lower premium, high-deductible plan.” Medical Mutual also has groups that have completely converted to CDHPs. “It’s definitely a way for the employer to cut costs and put ownership back in the hands of the employee,” Hulme says.
Gardner, a Columbus business that sells outdoor lawn and garden equipment and parts, offers its 300 employees a choice between a high-deductible HSA plan and a PPO, says human resources manager Don Nye. When the company added the CDHP option in 2007, less than a dozen people enrolled.
“Over the years, we’ve worked closely with the broker and Anthem to educate folks on what the plan is, identifying a list of advantages to belonging and giving people a reason to give a serious look,” Nye says. The last enrollment period saw 140 join the high-deductible plan—the majority of Gardner’s 250 covered employees. Nye attributes the shift to educating employees and word-of-mouth on the plan’s benefits.
In February, the village of Sunbury moved to a CDHP with Medical Mutual that has a $5,000 deductible for single coverage and $10,000 for family. Employees get $1,500 (single) or $3,000 (family) deposited in their HSA and are then responsible for the next $1,000 (single) or $2,000 (family) of out-of-pocket expenses. The village pays remaining costs until the deductible is met. The village contributed $55,500 in initial HSA account funding for 21 participating employees. The plan will result in a 1.38 percent rate decrease for the village in 2012, compared with a 16.3 percent rate increase under the old plan.
Wagoner says about a third of his clients are offering high-deductible plans, up from approximately 5 percent five years ago. “They’re cheaper. For an employer, a $2,000 high-deductible plan versus a PPO plan is about 20 percent less. You have to pay for those co-pays as billed,” Wagoner says.
The move toward CDHPs is likely to continue, Snyder says. “Employers are adopting these plans. They’re doing that because they’re seeing some savings,” she says. The average per-employee cost for a CDHP is $7,787 compared with $9,385 for PPO coverage, according to Mercer.
The average monthly employee contribution to a CDHP is $64 for single coverage and $240 for family coverage, compared with $111 and $366 under a PPO. On average, employees contribute 20 percent of premium costs for single coverage and 25 percent for family in a CDHP, compared with 23 percent and 31 percent with a PPO, Mercer reports.
Wagoner agrees the trend toward high-deductible plans will continue, but expects a decrease in some of the higher-cost CDHPs. “Under health-care reform, they’ve limited the deductible to $2,500 for an HSA and $2,000 for a PPO. We now have clients with $5,000 deductible HSAs. In 2014, those won’t be available,” he says.
Auto-enrollment, another health-care reform change coming in 2014, is another reason more employers might opt for high-deductible plans. Employees who work more than 30 hours will be automatically enrolled in a company’s health plan unless they waive the benefit. Adding a CDHP now is a good way to add a more cost-effective auto-enrollment option, Snyder says.
‘More Skin in the Game’
Part of the impetus for CDHPs is that consumers will think twice before seeking out higher-cost care. “Employers want to add more accountability and consumerism to their plan,” Wagoner says. “There are people who go to the emergency room for a sinus infection where it costs $500 to look at it and give them antibiotics. They can go to a doctor and have it done for $75. People were abusing co-pays. That was one reason employers gravitated toward high-deductible plans.”
Under CDHPs, most employees will go to the ER only when necessary because they’ll be paying the full cost of the visit unless they’ve met their deductible. “The concept is to have the employees have more skin in the game as far as their health-care insurance goes and to be more sensitive to where they go and what they have done,” Hulme says.
But employees usually aren’t left completely out in the cold. Most employers contribute to HSAs and provide information so plan participants can make educated decisions. Anthem, the insurance provider for Gardner, allows consumers to price shop on its website and will call enrollees to suggest cheaper options, Nye says.
“If a doctor sends you for an MRI, the hospital might charge you $1,500. But there are freestanding facilities that specialize in MRIs that might do it for $1,200 or $1,000,” Nye says. “Once Anthem is notified, they will call the employee and say, ‘We see the doctor wanted you to go to Riverside, but we can send you to X and get the same for $950 and we’ll work with your doctor to get it there instead.’ ”
Under a high-deductible plan, people begin to take more direct control of where, when and at what cost they receive health care. “They want to spend it in the most effective way possible. It’s slowly starting to modify behavior. … I can speak for myself specifically. I take some prescriptions. Every year now, when I go to the doctor, I price shop them. I call four different pharmacies and get four different prices,” Nye says. “At the end of the year, we compared the PPO and HSA and discovered that no matter what your circumstance, we found that you could spend less money out-of-pocket in the HSA.”
“The bottom line is that whether you’re well or you’re sick, we want these plans to encourage a new way of thinking,” Snyder says. “On the well side, you will do all these things to take on responsibility and have regular checkups and look at different providers. On the sick side, we want them to have that involvement, but to think about cost and quality, too. You need to make sure you’re making regular visits and following doctor orders and know that you’ve got the coverage for the serious illness.”
“What we’ve noticed is that you have about 20 percent of people who can run four-minute miles and don’t have medical conditions. They benefit because if you don’t have any claims, you benefit from premium reduction,” Wagoner says. Another 20 percent have a chronic condition, such as a pulmonary disease. “They benefit because they’ll have a $2,000 high deductible and won’t have any co-insurance and co-pay. Once they hit that, they don’t have expenses. People in the middle, if they have a lot of medical claims as a result of prescriptions, they’re probably not going to benefit,” he says.
Mark Jarvis, senior director of practice economics with the Ohio State Medical Association, works with physicians’ offices on insurance issues. He sees CDHPs as more of a mixed bag in terms of how much upfront burden they place on patients. “Healthy young people tend to benefit from high-deductible plans. They don’t use as much health care and they don’t end up paying a lot into the deductible amount, whereas someone with a chronic condition or someone who needs to use a lot of health care, especially if they’re on a fixed income, can find high-deductible plans very challenging,” he says.
“One thing that doctors do not want their patients to do is to skip health care or not get their prescriptions filled. Unfortunately, in some cases when people are on a fixed income and they have to make decisions, they’ll skip that so they can pay rent and buy food,” Jarvis says. “In those cases, it has an adverse effect in that by skipping the chronic care or preventative medicine, it puts you at risk of a more serious condition that ends up costing everyone more. … We’re for the consumer being more involved in their health care. I just don’t know if requiring them to pay large amounts of money is really the best way to go about that.”
Proponents say a healthy individual can take control of his or her health care, shop for the best prices and end up saving, particularly since preventative care, including immunizations and annual checkups, is paid fully by insurance under federal health-care reform.
Pat Earnest, educational director with Gardner sister company Central Power Systems, says he has saved money through a CDHP. Diagnosed with kidney cancer in 2007, Earnest enrolled in Gardner’s high-deductible plan after some encouragement from a co-worker.
“My medications are extremely expensive. Being on a regular plan where you would be subject to a 30 percent co-pay, there is not a way I could afford the medication that I’m taking currently. One of the medications I take is over $4,000 a month,” Earnest says. This year, he expected to meet his deductible by February.
“The first year is the danger year because a big expense will come out of your pocket,” Earnest says. If you suffer an injury or major illness without the cushion of HSA funds, you’ll have to pay the expenses out-of-pocket. “Once you build from the first year to the second year, it’s a great plan. Right now, I am building for next year. I’m over 55, so I can put about $7,000 in my account and it’s tax-free money,” he says.
While Earnest has benefited, others with long-term health issues or who get sick a fair amount may be less fortunate. Some may have trouble deciphering their benefits, Jarvis says. “You’ve got the deductible amount, then the doctor has his or her charges, and then the insurance company has their allowables. Doctors didn’t go into medicine to be collection agents. They just want to care for the patients. They’re in this world of complicated billing,” he says.
“The doctor doesn’t know whether the payment is coming from the insurance company or the patient sometimes. There are ways to try to look it up while the patient is there, but it’s not always accurate. If you went to see a doctor the day before and that claim hasn’t been filed yet, it might look like you have deductible left when you don’t,” Jarvis says. “Patients often don’t understand it. It seems like there should be a better way for doctors to care for patients and the insurance companies to pay for that care.”
Michelle Davey is an editorial assistant for Columbus C.E.O.
Reprinted from the March 2012 issue of Columbus C.E.O. Copyright © Columbus C.E.O.