Employers hold down health care costs! The rise of the high deductible health plan; the decline in your disposable income

Here is a tidbit from The Hill; read it carefully:

U.S. employers are making special efforts to hold down healthcare costs as they prepare to comply with the Affordable Care Act, according to a new survey.

Mercer, the human resources consulting firm, found that employers’ healthcare costs grew 4.1 percentage points in 2012 — the smallest increase in 15 years. The firm attributed the trend to the rise in high-deductible, consumer-directed health plans (CDHPs) and wellness programs.

The cost of coverage in a CDHP is 20 percent lower on average than coverage in a preferred provider organization, according to Mercer, which found that many employers are turning to those plans as they prepare to widen coverage under the Affordable Care Act.

“Moving even a small number of employees out of a more expensive plan into a CDHP can result in significant savings for an employer,” the report stated. “Many employers see these plans as central to their response to healthcare reform provisions that will raise enrollment.”

Of course, what this boils down to is cost-shifting to the worker. In exchange for a higher deductible, you get lower premiums which is honky dory if you and your family have very modest health care bills – or you are motivated to simply avoid health care.

Here is a real life scenario contained in an e-mail to me from one of my sons:

I am trying to decide which medical plan to take for next year. We have the POS plan now, but they are offering a HDHP this year, similar to what we had before. Assuming maximum medical usage, the total cost to us would be about the same. The difference is that with the POS we would pay the premiums pre tax, and the other $4,000 could be FSA [Note: by law that’s now limited to $2,500], but could potentially loose that if not used, and the contributions of course are taken no matter what.

With the HSA, the much smaller contribution would be pretax, the max HSA of $6450 would be pretax, but we keep that money. The only part that would be post tax would be the difference between the HSA amount and the max OOP which would be $4,750, assuming we had tons of medical costs, which is unlikely.

POS $15/$30 Copay, $100day/5 day max hospital. 100/70 Coinsurance, $5/$30/$50 Rx
Contribution $7215
OOP Maximum $4,000
Maximum Cost to us if we hit coinsurance limit would be $11,215

PPO HSA No Copay, 90/50 coinsurance after deductible, $5/$30/$50 Rx
Contribution $585
Deductible $5,000
OOP Maximum $11,200 including ded., copays, and coinsurance
Maximum Cost to us if we hit coinsurance limit would be $11,785

So the maximum cost we would have to pay would be about the same, assuming we had lots of medical care. The HSA we previously had was similar, and we only hit the max the year Maggie was born. We wouldn’t hit it next year unless something serious happened. I am thinking that we put the max into the HSA of $6450 pre tax, and at least that money is ours to keep, unlike the $7215 in contributions for the POS which is paid whether we use benefits or not. With the HSA plan if we don’t use the $6450 we can carry over.

What do you think?

As with most plans today the HDHP is an option and employees are free to make an analysis similar to the above although many workers may not be equipped to do this objectively, he is my son after all and grew up hearing this stuff at the dinner table.

So, in the quest for affordable health care these employees can choose to pay $7,215 in premiums or $585 in premiums, contribute thousands to a HSA and risk paying a $5,000 deductible. Note also that if the patient goes out of network in this PPO the coinsurance is 50% of the charge. Exactly where is the affordable part?. This example is somewhat unusual in that there is a large difference in premiums between the two plans. Also, in some cases the employer makes a contribution to the HSA.

Observe too that part of this decision includes the consideration of tax-free premiums and tax-free Health Savings Account contributions. The tax-free status of employer contributions and pre-tax premiums may both be on the table during fiscal cliff discussions. Should the status of employer contributions change and no longer be tax-free, the dynamics of this change considerably. More workers may be inclined to opt out of plans that would create taxable income in favor of plans such as the HDHP with HSA and their tax favored status.

No matter how you slice it; higher premiums or higher deductibles with HSA contributions, all this saving of money and so-called affordable health care is falling directly on the shoulders of working Americans.

Employers are taking a risk too for short-term gains. When the high deductible plan is offered as an option the people believing they will have low health care bills will choose the HDHP leaving the poorer risks to drive up the alternative plan costs. When the HDHP is the only option, many of the apparent savings disappear and the ability to shift costs to employees diminishes.

“Holding down costs” must be at the root cause, that is, the quantity (and quality) and intensity of health care provided.  Anything else, including the claimed savings by the federal government, is cost shifting.


One comment

  1. While this may be the start of a “race to the bottom”, while that may be the result, most employers have few alternatives in the run up to application of the employer’s “shared responsibility” rules. Keep in mind that even after the change in point of purchase cost sharing, Mercer was still announcing increases in funding/premium rates.
    It is important to remember that, just like the enrollment of adult children, employers who decide to “play”, to continue to offer coverage, expect to see a shift in costs, a migration to their plans. So, even if the cost of coverage was not increasing, many expect to see a significant increase due to greater enrollment.
    The migration will take multiple forms:
    – more employees who have families will enroll for family coverage beause fewer spouses will have access to coverage where they work (as many other employers will opt to “pay”, as early as 2014),
    – The number of employers who “play” will continue to decline after 2014, once the exchanges are stable, and simply as a continuation of a trend to fewer employers offering coveage, a trend that started before health reform, and
    – There will be lots of new burdens on the plans in terms of new taxes and cost shifting – as more and more Americans are enrolled in plans that do not cover the cost of services.

    While a $2,500/$5,000 deductible is a significant amount, your son might also want to attempt to consider two other issues:
    • First, he may want to consider the breakeven point – where the HSAs becomes more expensive than the POS, and
    • Second, he may want to reconsider the limited time frame of his analysis.
    That is, the HSAs represents a multi-year alternative. Another way of saying this is that I have always encouraged my children to take advantage of the HDHP/HSA concept while they are young and healthy, to accumulate assets for the future. That is, when my employer first offered a HDHP/HSA, I enrolled when first eligible. I compared the two options I had at the time, and determined the increased risk of the HDHP was, based on past expense patterns, likely to have less cost. Then, I went back 30 years (I was 55 at the time) with a strawman comparison of the two options – what I had actually done, and what I would have done had the HDHP/HSA been available for the prior 30 years. I later updated the analysis for the 2007 changes which delinked the deductible and the HSA funding. Not only would I have spent less, much less in the HDHP/HSA, I would have accumulated more than enough money to fund my projected retiree medical out of pocket spend (as I have continued to participate in the HDHP/HSA my former employer offers in retirement).
    My observation in 2004, when we first reviewed and then implemented the HDHP/HSA (after the Medicare Modernization Act of 2003) was that, “25 years ago, no one had ever heard of 401(k), 25 years from now, everyone will have a HSA. That is, like most workers, given a choice, the better choice may well be higher point of purchase cost sharing.
    But, the real issue here is the “elephant in the room” – that health reform never addressed the cost of coverage challenge. Even today, on healthcare.gov, the federal government asserts that the average family, even outside of the taxpayer-subsidized exchanges, will save over $2,300 in costs in 2014. Obviously, this excludes the new costs taxpayers (current or future) will shoulder to fund the expanded Medicaid and state-based exchange coverage – plans they themselves will not be eligible to use/receive where their employer continues to offer coverage.
    My expectation is that after all the “cost shifting” you criticize, employers will likely still end up paying more, much more, in 2014 or 2015 than they did in 2013.


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