A recent report from the Health Care Cost Institute (HCCI) found that people enrolled in high-deductible consumer-directed health plans have higher out-of-pocket healthcare expenditures than those in other types of medical plans, even though they use fewer medical services. The HCCI study examined claims from 2010-2014 for over 40 million individuals per year covered by employer-sponsored insurance. According to the study, out-of-pocket expenditures for people enrolled in CDHPs were 1.5 times greater than for those in traditional PPOs or HMOs, even though CDHP enrollees utilized roughly 10% fewer medical services per year. Neither the study groups nor the results were adjusted for member demographics, so it’s difficult to say that plan design accounted for all the difference in utilization. But it is interesting to note that while utilization was lower in all categories of medical services, the biggest differences were in the use of brand-name drugs and in ER use – two areas where overutilization is targeted by consumerism strategies.
Not surprisingly, the study found that total per capita spending on healthcare for CDHP members was 13% lower than for non-CDHP members. Out-of-pocket spending, however, is 33% higher for the CDHP members. On the face of it, this might seem like a bad deal for the CDHP members. But, as the report explains, the cost analysis does not take into account differences in the plan premiums and employer contributions to employees’ health savings accounts (HSAs) or health reimbursement arrangement (HRA) funds. Savings on lower premiums and employer account contributions can offset higher out-of-pocket spending at least to some degree, and employers use these two elements to manage employees’ financial risk under the CDHP. The difference in out-of-pocket spending in the study was just over $300, and, according to Mercer’s National Survey of Employer-Sponsored Health Plans, the median employer contribution to an HSA is $500. Of course, not all employers make an account contribution.
Because a key tenant of consumerism is that if consumers have more ‘skin in the game’ they’re more likely to spend their healthcare dollars wisely and efficiently, it’s expected that out-of-pocket spend is greater under CDHPs than non-CDHPs. Unfortunately, the study can’t quantify how much greater because it doesn’t take into account premium savings or employer contributions. And while it does show that CDHP members utilize healthcare services at a lower rate, it leaves unanswered a critical question – did higher out-of-pocket spending discourage use of medical services so far as to negatively impact the health of CDHP plan members, or did consumerism in fact work the way it was supposed to? Here’s hoping that the next big CDHP study will focus on that – admittedly difficult! – question.
In the meantime, it’s a good idea at open enrollment to provide employees with a modelling tool that will help them understand how they are likely to fare under a CDHP versus another medical plan choice. A lower paycheck deduction means more money that you control, while a rich medical plan may never deliver value (other than peace of mind) for the money spent; for many, choosing a CDHP is a good financial decision when the lower contribution is weighed against the higher OOP expense. It’s also important to educate employees on how they can use the HSA to their best advantage and to ensure they have the price and quality information they need to be smart healthcare shoppers.
Emily Ferreira contributed to the preparation of this article.
Offerings of HSA-eligible high-deductible health plans have more than doubled in the past five years. Our 2016 National Survey of Employer-Sponsored Health Plans found that more than half of large employers (53%) now provide this type of plan to their employees, and nearly a quarter of employees (24%) are enrolled. At the same time, there has also been steady growth in offerings of onsite and near-site medical clinics, especially among the largest employers: About a third of employers with 5,000 or more employees provide a clinic for primary care services. An onsite clinic offers the maximum opportunity for control over quality, and more than half of the clinic sponsors in another Mercer survey said that their clinic is integrated with their population health efforts.
Employers that offer HSA-eligible plans and provide onsite care face unique challenges. Under rules for HSA-eligible plans, only preventive services can be provided at no cost; employees need to pay the full cost of a non-preventive visit before they satisfy the plan deductible. Some employers with onsite clinics may be unknowingly disqualifying employees, understating their own tax liability, and incorrectly filing employment tax forms.
It remains to be seen if lawmakers will loosen regulations to make coordinating clinics and HSA-eligible plans easier. In the meantime, we surveyed 84 organizations that have onsite clinics and asked how employees are charged for clinic services. Of those respondents that offer both an HSA-eligible and non-HSA eligible plans, nearly two-thirds say that members are charged the same amount for clinic services, regardless of plan selection, though a third responded that members in the HSA-eligible plan are generally charged more. More than half of these employers that offer HSA plans charge a single, flat fee per visit for all services, 29% have a full fee schedule, and the remaining 17% have a tiered fee structure. Nearly a quarter of respondents use third-party services for billing, and just over half require full payment for clinic services at the point of sale.
Employers with onsite clinics that are considering adding an HSA-eligible plan will need to revisit their clinic fee structure and billing practices to ensure clinic use is compliant with plan eligibility -- at least until these regulations are updated… fingers crossed!
The stalled House ACA repeal and replace effort means the next crucial decision about the ACA’s future will probably be made by the White House. Following the canceled vote on the American Health Care Act (AHCA), the immediate concern on the health reform front is whether President Trump is serious about his threat to let the ACA “explode” – to use his term.
The first – and clearest – signal by the president and congressional Republicans will be whether they continue to fund crucial subsidy payments to insurers – called cost-sharing reductions – that reduce premiums by about $9 billion for millions of the poorest exchange customers. Stopping the payments would virtually guarantee a collapse of exchange markets, causing insurers to flee some markets immediately and nearly all to stay away entirely in 2018, with millions of Americans losing coverage. Employer-sponsored health plans would also feel the repercussions of an individual market collapse as providers would likely look to shift more costs to those plans and employer strategies that rely on the market to provide coverage to part-time workers and pre-Medicare-eligible retirees would need to be reevaluated.
But it appears that GOP sentiment is running toward preserving the subsidies to keep the market stable — an irony given that the House Republicans went to court to stop the Obama White House from spending the money without a congressional appropriation. Last year a federal judge agreed but let the subsidies continue pending an appeal. The parties are scheduled to meet on May 22nd, and the judge could then order Republicans to decide what they want to do. They could withdraw the suit, or the Trump administration could continue providing the subsidies without an appropriation, though that wouldn’t go over well with some conservative Republicans.
The AHCA would have repealed the subsidies in 2020, but Republicans were expected to appropriate funding in the meantime. Now, without the political cover of a repeal and replace effort, it’s not entirely clear that Congress would appropriate the money. Still, some leading House GOP lawmakers believe that the subsidies will be kept in place despite the legal effort to stop them, given the potential political backlash.
If Republicans cut off the payments, Democrats could go to mat over the issue when Congress needs to pass a new government spending bill at the end of the month. That bill will need 60 votes in the Senate, so this has the potential to become a government shutdown issue.
The uncertainty is weighing heavily on health insurers. They have until June 21 to decide whether to participate in the 2018 federally-facilitated marketplaces, and the deadline for participation in some state-run exchanges is even earlier. The clock is ticking.
We’ve been tracking the growth of consumer-directed health plans in our national survey for years. Now policymakers in Washington are signaling interest in liberalizing health savings account rules, intensifying the focus on high-deductible plans that would be eligible for an HSA. While the majority of large employers already offer CDHPs – among the largest they are nearly ubiquitous – most often they are offered as a choice, not as the only medical plan. Building enrollment in a CDHP offered as a choice has proven to be challenging, but it can be done. In this infographic, we present survey findings that should be of interest both to employers thinking about a full replacement strategy and to those committed to offering a CDHP as a choice but looking to encourage more employees who could benefit to make the move.
Just a few days after the dramatic collapse of efforts to pass the House GOP’s American Health Care Act, more than 1,300 folks with an interest in employer-sponsored health benefits joined a Mercer webcast* to learn a) what the heck just happened, b) now what, and c) what does this mean for employer health benefits? A team from our Washington Resource Group aced the first question and gave as good a look into the future as possible without a crystal ball.
We took advantage of the opportunity to ask the health benefit professionals on the call a couple of questions, starting with their reaction to the (apparent) death of the bill. More respondents were relieved than disappointed; in fact it wasn’t even close. Enough said.
Our second question was inspired by our belief that while shoring up the individual market and ensuring Americans have access to affordable health coverage is critical, neither the AHCA nor the ACA did nearly enough to address the underlying problem in the US healthcare system: too much cost for not enough value. Given that employers provide coverage to more than half of all Americans, employers are key stakeholders in any effort to reform US healthcare. So what would they like Congress and the administration to prioritize going forward?
At the top of the wish list is help with controlling the escalating cost of pharmaceuticals: on a scale of 1-5, that scored a 4.4. Next was improving price transparency for all medical services and supplies. Most respondents to the poll also want the government to maintain Medicaid funding and stabilize the individual market so that people not in employer-sponsored plans have access to affordable coverage. A rise in the number of uninsured will increase providers’ risk for uncompensated care, leading them to hike rates for private payers. This type of cost shifting does nothing to address the underlying cost of care and makes it harder for employers to provide affordable coverage.
As we’ve been saying, employers are uniquely positioned to help control healthcare spending and promote positive health outcomes. They are working to help employees become responsible insurance consumers and are a trusted source of health information and resources. Policymakers should view this health reform “reboot” as an opportunity to partner with American businesses to drive higher quality, lower costs, and better outcomes for all Americans.
*Mercer Select Intelligence membership required. Not a member? Learn more
After their failed attempt to pass ACA repeal and replace legislation, President Trump and House Speaker Ryan indicated that they were “moving on” to other legislative priorities. On Tuesday, we learned that Republicans have restarted their conversations about healthcare. On Wednesday, Bloomberg reported the GOP was discussing a new vote as early as next week.
At Mercer, we believe that the current healthcare system is unsustainable, but we urge that changes be made without undue haste and with careful consideration of the many complex factors at play in our system. We are actively advocating for new health savings account rules and the repeal of the Cadillac tax and, as I said in my blog post earlier this week, we stand ready to support lawmakers in shaping policies that will address the underlying causes of healthcare cost growth.
Our conversations with employers across the country echo these priorities. For instance, the morning of the day the bill was pulled, I gave a speech at the North Carolina Business Group on Health annual conference. I asked the group of benefits professionals if they could ask one wish of the President and Congress, what would it be? Responses included:
- Healthcare coverage for all
- Consideration of the consequences of cutting federal funding for Medicaid and public health programs
- Consideration of the consequences of cost-shifting to older pre-Medicare-eligible Americans
- Help addressing unnecessary/inappropriate care, ER visits, and opiate use
- Help with escalating prescription drug costs
- Relief on the ACA reporting requirements
What would your "one wish" be?
A couple of weeks ago (feels like ages) we launched a brief survey to find out where employers stood on specific provisions in the House GOP repeal-and replace-bill, the American Health Care Act (AHCA). We closed the survey on Thursday with more than 900 responses. As I was reviewing the results on Friday, the bill was apparently dying -- but now House leaders and President Trump are signaling that it may be revived. Either way, the health reform debate is far from over, and many of the provisions introduced in the AHCA will likely remain part of the discussion.
The survey asked health benefit professionals how key provisions would affect their organization’s health benefit program, employees, and business success -- as opposed to how they might affect the individual market or people without access to employer-sponsored health insurance. They could also respond that the provision would not affect their organization one way or the other.
HSA changes, repeal of employer mandate seen as positive
We didn’t ask for an overall opinion of the bill, but employers’ reactions to individual provisions added up to a less-than-ringing endorsement. To start with what they liked: 66% said that liberalizing HSA rules -- such as allowing higher contributions -- would have a positive effect on their organizations. That’s in the ballpark of the percentage of large employers nationally that offer HSA-eligible plans (53% in 2016). If you don’t offer an HSA-eligible plan and don’t intend to, or if you do offer one but none of your employees are likely to hit the maximum account contribution, you might not believe this provision would have much of an impact, like 29% of our respondents.
That was the only provision seen as a positive by more than half of the respondents. Next closest is repealing the employer mandate. Just over a third -- 35% -- said it would have a positive effect on their organizations. Most said it would have no impact. Why? Wouldn’t employers like the option to drop coverage for employees working less than 40 hours per week, or to stop worrying about meeting the affordability and minimum plan value requirements? The fact is that most employers already met the ACA requirements before the law was signed. And if they did make changes to extend coverage to more employees or make it more generous, they may not be able to picture clawing that back. Our earlier surveys found that the employer mandate had very little effect on employer plans because employers were already voluntarily providing comprehensive and affordable coverage, so repealing the employer mandate would likewise have little effect.
Repealing the individual mandate was judged as a positive by just 27% of employers; 18% view it as a negative and most believe it would have little effect on their organizations.
Other provisions expected to do more harm than good
For the rest of the provisions we asked about, the view was much more negative than positive. Nearly two-thirds of respondents (65%) believe that cutting funding for public health initiatives would have a negative effect on their organizations. Such a change would scale back or eliminate programs designed to improve community health (for example, vaccinations), and employers are well aware of the extent to which workforce health is tied to community health. Federal programs to monitor and reduce hospital-acquired infections would also be cut, with obvious negative consequences for health care payers.
Nearly as many respondents (64%) say that the proposed Medicaid cutbacks -- ending Medicaid expansion and moving to block grants -- would have a negative effect on their organizations. This suggests that employers are aware and concerned about the impact that an increase in the number of people without insurance could have on the cost of health care. It may be hard to prove, but it stands to reason that providers wind up shifting the expense of treating those who can’t pay to those who can.
Last but certainly not least, 64% of respondents told us that retaining the excise tax, as the AHCA did, would have negative consequences for their organizations; our health reform leader Tracy Watts described the excise tax as a dark shadow hanging over strategic planning. We also asked about capping the exclusion on the individual tax, which was in an earlier draft of the bill and may well resurface. Not quite as many saw this as negative, but it was close, at 57%. Those who believe that the excise tax or the cap will not affect their organizations may think they will never hit the thresholds. We wish that were true, but given that health cost generally rises faster than the CPI, the index used to raise the tax thresholds, more likely it will only be a matter of time.
Based on their 2016 plan costs, we project that 23% of large employers will be subject to the excise tax in 2020 when it is slated to go into effect, unless they make changes to the plan. That percentage almost doubles when we project it out to 2025.
Cadillac tax remains a focus
For many employers, avoiding the excise tax won’t be a simple matter of downgrading a “Cadillac” plan, because their plans weren’t Cadillac to begin with! As we’ve shown, many factors that drive plan cost are outside an employer’s control -- in particular, location and employee demographics. That’s why Mercer will continue to advocate against the excise tax and a cap on the individual health benefit tax exclusion -- provisions that will make it harder for employers to continue providing affordable, comprehensive coverage to the more than 177 million Americans that now rely on it.
Last week Republican leaders abruptly canceled a House vote on the proposed American Health Care Act (AHCA) because it was clear that it wouldn’t pass. At a March 24 press conference, Speaker Paul Ryan, R-WI, said that the party will now "move on" to tax reform and other policy priorities.
While “moving on” might be an option for Congress, it isn’t an option for employers who collectively provide health coverage to 177 million Americans and spend over $660 billion annually on health benefits -- more than federal spending on Medicare. Given that healthcare spending rises faster than inflation, it has been an ongoing challenge for employers to provide their workers with comprehensive, affordable coverage.
But there is reason to be optimistic. In recent years, we’ve seen overall health benefit cost growth slow, and some employers have made remarkable progress in bending the trend with breakthrough strategies. We believe there are steps that employers of any size can take to make a difference in their own programs -- and that ultimately these actions will drive change in the larger US healthcare system. We are working with employers to lead meaningful change through a collective focus on these four vital aspects:
- Pay for Value: Align reimbursement with value, not volume.
- Drive to Quality: Deliver the right care at the right time, in the right setting, error free.
- Personalize the Experience: Leverage data and technology to help employees make better healthcare decisions.
- Embrace Disruption: Leverage constant changes in the system -- with internal stakeholders and external partners -- to be future-ready.
Of course, true transformation will require change and cooperation from other players in the healthcare system -- including the federal government. That is why we will continue our efforts on the Hill, pushing for policies that address the underlying causes of healthcare cost growth, new health savings account rules, and the repeal of the Cadillac tax.
One possible fix for the public exchanges? Repeal the ACA provision expanding dependent coverage. Allowing young adults up to age 26 to be covered under their parents’ plans has been one of the law’s most popular provisions, especially since it went into effect at a time when many young people were struggling to find full-time work in the wake of the recession. But it also took these same people out of the potential pool of enrollees when the exchanges opened in 2013. While many factors have contributed to premium spikes in exchange coverage in some states, one quoted across the board has been that fewer young people than expected signed up for coverage. Had young adults not been able get coverage through their parents’ plans, it’s possible a portion of them would have signed up for exchange coverage. And having these younger, and generally healthier (i.e., lower risk) individuals in the pool might have helped to keep the premiums down.
Leading up to Thursday’s vote in the House on the AHCA, the GOP’s repeal and replace bill, lowering the dependent eligibility age to 23 was on the list of possible amendments but then withdrawn. As acknowledged in thisPolitico article, repealing the provision would be political suicide for anyone that proposes it; people don’t react well to losing a benefit they’ve gotten used to having. Yet the upsides for removing this provision are, in principle, aligned with GOP repeal and replace goals, namely, removing additional costs imposed through the ACA and helping to stabilize the individual market.
One approach might be to phase out this provision, or grandfather individuals born before a certain date, so that families have time to prepare and plan for alternative coverage for their older children. Of course, this only works if there’s an affordable health care option for these young adults on the exchanges. If the current subsidies are reduced to the levels proposed under the AHCA (an individual under 30 would only receive $2,000 towards health coverage per year regardless of income or location beginning in 2020), then leaving these individuals to the mercy of the individual market may not be wise; it could create a “black hole” of coverage from age 26 perhaps until the age when people are starting their families and see an absolute need for care. So while employers as well as the individual market could benefit from a rollback of this provision, adequate subsidies on the exchanges would need to be in place to help these individuals purchase and maintain continuous coverage.
Before the ACA, many self-employed individuals found it challenging to find a health plan on the individual market that met their needs, let alone to pay for it. Post ACA, the ability to obtain affordable coverage not tied to an employer has givenentrepreneurs in the growing ‘gig’ economy the flexibility to pursue their goals without having to worry about maintaining health coverage. These days may be coming to an end if the new GOP health care bill passes, however. Under theAmerican Health Care Act or AHCA, subsidies are dependent on age, as opposed to income (like under the ACA), and are not adjusted for geography, even though health costs vary widely depending on where you live. This could mean big changes in the amount of assistance an individual would receive under the AHCA compared to under the ACA. As cited in the article, a 40 year-old in San Francisco making $30,000 a year would receive $800 less a year under the new plan, and a 40 year-old living in Santa Cruz County, CA would see a $2,490 less per year -- potentially putting coverage out of reach.
A study published by the McKinsey Global Institute estimates that U.S. has between 54 million and 68 million ‘independent workers’, with some working independently full-time and others using independent/freelance work to supplement their primary income. With the proposed changes under the AHCA, some individuals may try to seek traditional employment for the purpose of healthcare coverage, or they may just choose to go without coverage completely. While critics of ACA subsidies have said they discourage people from seeking employment or advancing their careers since an increase in income would result in a decrease in subsidies, this new plan could have the same discouraging impact on the next generation of entrepreneurs.
Today is the seven-year anniversary of the signing of the ACA, and we spent it with our eyes glued on the House, waiting for a vote to repeal the law. It looks like the vote is delayed, so too soon to call if it’s lucky number seven for the Republicans or the Democrats.
Meanwhile, there’s no question that the ACA has had a big impact on the US healthcare system -- particularly for the relatively small segment of the pre-65 population that doesn’t have access to care through an employer-sponsored plan. Many millions of people have gained insurance because of the law, which was its primary goal.
But the ACA has had an impact on employers, too, and it’s less clear what that has accomplished in that arena. A look at our survey data is a reminder of the hoops we’ve jumped through since the law was passed. Two big ones:
- In 2013, nearly one-third of employers did not offer coverage to all employees working 30+ hours per week. By 2016, virtually all of them had taken steps to make the offer of coverage to their formerly part-time workers, and all employers were tracking and reporting employee hours to demonstrate compliance. At the end of the day, all this administrative effort appears to have resulted in little benefit -- enrollment levels overall barely budged.
- Administrative burden is one thing -- the Cadillac tax is another. We can’t say it enough: the tax is not an effective method of penalizing rich plans because plan design is only one factor affecting plan cost and often less important than location and plan-member demographics. We initially projected that 33% of employers were at risk of being taxed in the first year, a number that would increase every year as benefit cost rose faster than the threshold amounts. Many employers responded by implementing and steering employees into consumer-directed health plans. While such a move might have been a sound strategy in any case, unfortunately about a third of employers have said they have made changes they would not have made in the absence of the tax, such as unbundling medical and dental/vision coverage, raising deductibles and other cost-sharing provisions, and eliminating healthcare FSAs.
Yet all along, employers have continually reaffirmed their commitment to offering health insurance. In 2010, just 6% of large employers said they were likely to terminate coverage within five years. By 2016, that already small number had shrunk to just 2%. In other words, the vast majority of employers really didn’t need a law to get them to offer coverage.
Whenever the vote and whatever the result, we’ll continue working with employers and policymakers on making a better, more efficient healthcare system for all.
Despite last week’s cold snap, the bloom of cherry blossoms along Washington DC’s Tidal Basin is now under way – a peaceful sight that belies this stormy moment in Congress, where new healthcare legislation is being debated and the headlines seem to shift from moment to moment. However, one thing is for sure: any legislation affecting the US healthcare system must consider the impact on employer-sponsored health insurance – the source of coverage for 177 million Americans, 16 times the number enrolled in public exchanges.
That’s why the leadership of MMC companies Mercer and Oliver Wyman created a health policy group to help formulate MMC’s views on ACA repeal-and-replace legislation. Our efforts led to the issue of a policy paper that showcased original Mercer research on changing the tax treatment of employer-sponsored coverage.
Last month, we took this research to the US House of Representatives to meet with policymakers actively working on the newly proposed American Health Care Act, or AHCA. We demonstrated that the excise tax on high-cost plans, currently law under the ACA, is not an effective method of penalizing rich “Cadillac” plans because plan design is only one factor affecting plan cost and often less important than location and employee demographics.
This would also be true of a cap on the employee individual tax exclusion for employer-provided health benefits, a provision included in an early draft of the AHCA and favored by powerful voices such as House Speaker Paul Ryan (R-WI), House Ways and Means Chair Kevin Brady (R-TX) and new HHS head Tom Price. Mercer had also modeled the impact such a cap would have on the effective tax rates of Americans based on their income. The hardest hit, by far, would be lower-paid workers with families. Some staffers faced with this information for the first time were visibly struck.
When the bill was released for mark-up, the cap on the exclusion was not included, and the Cadillac tax was delayed until 2025 (and possibly 2026). But while we were pleased with this outcome, we also knew the bill was a long way from becoming law and the cap could easily resurface.
It was my privilege to meet last week with Senators Rob Portman (R-OH) and Tom Carper (D-DE), both members of the Finance Committee; Senator John Cornyn (R-TX), Majority Whip and Member of the Finance Committee; and Senator Orrin Hatch (R-UT), Chairman of the Finance Committee. I urged them, first and foremost, to preserve the health benefit tax exclusion, and secondly, to liberalize HSA rules. I also discussed the potential impact of proposed cuts to the Medicaid program, and our concern that a surge in uncompensated care would cause providers to shift cost to private group plans – making it harder for employers to continue to provide adequate coverage to their workers.
Our work is far from done. I look forward to returning to Washington as the legislative debate continues – to advance the goal of preserving and enhancing the employer-sponsored healthcare system that is a stable source of good health coverage for approximately half of all Americans.
Join me on LinkedIn to continue the conversation. How will changes in healthcare policy have an impact on your organizations and people?
In an effort to garner more support for their ACA repeal legislation, House Republican leaders revealed changes to the legislation on Monday night pending the Rules Committee vote before going to the House for their vote. Of greatest interest to employer plan sponsors is the delay in the Cadillac Tax from 2025 to 2026. The bill’s amendment repeals some of the other ACA taxes retroactively to the beginning of 2017 instead of 2018 as originally proposed. Other changes include additional funding to increase tax credits for older Americans and some Medicaid revisions.
In light of the changes, the House Freedom Caucus has indicated they won’t oppose the legislation, but they may still have enough “no” votes to kill the bill. President Trump went to the Hill on Tuesday to help the House Leaders secure support for the bill. In the meantime, the CBO is analyzing the changes and is expected to issue a new CBO score before Thursday’s House vote. The Brookings Institution doesn’t expect a meaningful improvement in the score.