By Thom Mangan
CEO, United Benefit Advisors
Employers are turning to consumer-driven health plans (CDHPs) - high-deductible health plans (HDHPs) often paired with health savings accounts (HSAs) or health reimbursement accounts (HRAs) - as a cost-cutting solution against the relentless upward spiral of health care costs. In fact, of the nearly 12,000 employers UBA surveyed in 2012, almost 60% said they were planning to offer a CDHP in the next five years.
Our research shows, however, that small-to midsize businesses in particular, who may be considering these plans may first want to consider increasing the deductible on the plans they already have to achieve the same initial savings. Or, prior to implementing a CDHP plan, employers should build a culture of health and wellness in their workplace that drives employee behavior towards quality, low cost medical care and prescription drugs.
CDHPs seem to be growing everywhere (except in the west where it is very heavily HMO driven) and for good reason -- they appear to be cheaper on a retail basis. However, the 2012 UBA Health Plan Survey shows that CDHP cost savings appear to be overestimated at the national level as does their popularity, a finding diametric to what is often reported. If you take a close look at the real cost per employee of a PPO vs. a CDHP with employer contributions, except for regional exceptions, you will see that PPOs return a lower average cost per employee than CDHPs at nearly every deductible range. Click here to see a chart illustrating this trend.
Let’s look at the reasons why these CDHPs are failing, and how they could perform better:
Most employers are offering a high deductible plan but then telling employees, “We will pay the first $1000” - mistakenly removing the employee’s risk. Because the average employee will not have more than $500 in health care costs – in fact 80% of all employees won’t have more than $700 in annual costs - they will never know what the cost of care is and therefore not become better consumers.
In this scenario, you defeated the high deductible and you funded an account to pay at 100%.
Now let’s look at the right way to do it:
A CDHP with an HSA typically performs better than those with an HRA because they require a deductible up front, typically $2500, and there’s not usually a pharmacy card attached. Employees and their dependents pick up that first $1000 and you cover the next $1000 before the health plan starts covering at 80 or 90 percent.
In this scenario, we’re turning employees into consumers.
You can still make an HRA work, but it is where you put that employer-funded deductible – it shouldn’t’ be on the font, it should be on the backside.
Health care reform is likely to spur the growth of high-deductible consumer-directed health plans, and as medical cost information becomes more transparent and patients become better consumers, employers have a chance at cost containment. But how they choose to design their health plans should be based on benchmarking data and workplace culture. With careful plan design, employers could see only 5 percent annual health cost inflation instead of the 10 percent anticipated in the coming years.