More employees moving into lower-cost medical plans contributed to one of the smallest increases in total health benefit cost per employee in decades: 2016’s average increase of 2.4% is the lowest since 2013 and, before that, since 1997. According to Mercer’s survey, total health benefits cost averaged $11,920 per employee in 2016. This cost includes both employer and employee contributions for medical, dental and other health coverage, for all covered employees and dependents. Small employers (10-499 employees) again reported lower cost -- $11,271 -- compared to $12,288 for large employers with 500 employees or more.
While many factors contributed to the low cost increase, including general inflation hovering around 1%, one that is drawing attention is the accelerating movement of employees into high-deductible consumer-directed health plans (see this article in the New York Times). CDHP enrollment has been rising for a decade and in 2016 jumped to 29% of all covered workers, up from 25% in 2015.
Adding CDHPs has been a key strategy for employers concerned about the ACA’s excise tax on high-cost plans. Coverage in a CDHP that is eligible for a health savings account (HSA) cost 22% less, on average, than coverage in a traditional PPO plan among large employers, even when employer contributions to employee HSA accounts are included. The largest employers have moved the fastest: Among organizations with 20,000 or more employees, 80% offer a CDHP and enrollment jumped from 29% to 40% of covered employees in 2016.
Despite the CDHP’s lower cost, most employers continue to offer it as a choice and not as a full replacement. While 61% of large employers now offer a CDHP (up from 59% last year), just 9% offer it as the only plan available to employees. This suggests that most of the latest growth in CDHP enrollment came from employees choosing to move from a traditional PPO or HMO. For employees, the difference in the cost of coverage can be substantial – on average, more than 30%. Among large employers, for employee-only coverage in an HSA-based CDHP, employees contribute $84 per month on average, compared to $132 for PPO coverage. For family coverage, the difference is $321 vs. $467. In addition, 75% of large employers offering HSA-eligible CDHPs make a contribution to the employees’ HSA; typically $500 for an individual.
For employees who can manage the high deductible, a CDHP can be a financially smart move. Employers can make it easier to choose a CDHP by offering resources to help employees manage their spending on healthcare. In our next post on the survey findings, we’ll look at the big increase in offerings of telemedicine, one resource to help employees hold down cost before they hit their deductible.
Mercer recently released key findings from our 2016 National Survey of Employer-Sponsored Health Plans, a nationally representative survey of US employer health plan sponsors with 10 or more employees. More than 2,500 employers participated in the survey in 2016, making it the largest of its kind. The complete survey report and data tables will be published in March 2016 (click here to pre-order), but throughout the year and starting now we will post findings on select topics here.
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.
We got a question in response to our post Checklist: Want to Increase Your CDHP Enrollment? Try This.
Q: How? If my execs are enamored with PPO.
A: One of the key tenets we pursue in helping clients develop a CDHP strategy is to focus stakeholder attention on what would change, and what would not. In the case of moving from a traditional PPO to a CDHP, the change could be focused entirely on just a couple elements. For example, there’s no requirement for a change in:
- Plan actuarial value
- Covered expenses, or
- Out-of-pocket maximums.
In fact, one preferred approach is to install CDHPs that are approximately equal in actuarial value (AV) to a competing traditional plan, but which offers employees lower premium contributions (because their utilization will generally subside in a CDHP vs. a PPO) and, in the case of an HSA-compatible plan, the opportunity to contribute to and accumulate a portable, tax-protected account that’s generally superior even to their 401(k).
While many employers hesitate to pursue a CDHP strategy because account-based plans can appear to simply be (or, if poorly-designed, can actually be) a means of cost shifting to members, they don’t have to be so, at all. In fact, we generally try to avoid use of CDHPs as “low value” plans, but rather encourage clients to position their CDHP offering(s) to compete with more traditional plan options on AV as well as premium contribution. Further, we see and help many employers move to strategies that reward positive health behaviors through HRA/HSA funding by the employer. These strategies provide first-dollar HRA/HSA funding to offset higher deductibles for those exhibiting healthy behaviors.
Finally, with the rapid expansion of CDHP offerings we’re seeing among employers, it’s likely your company will begin competing for candidates who’ve been enrolled in a CDHP and may even have an HSA balance they’d like to port with them to your company, and in which they’d like to continue contributing. By not offering them the opportunity to enroll in a CDHP – particularly an HSA-compatible version – you may inadvertently be inhibiting your ability to attract quality candidates whom you’d like to hire.
A Federal Appeals Court ruled that consumers may purchase a fixed indemnity product even if they have not purchased comprehensive medical coverage that meets the ACA criteria for minimum essential coverage. It is estimated that four million Americans have purchased this type of plan and do not also have comprehensive medical coverage, bringing a “gap” in Obamacare into the spotlight. In the gap are those living in states that did not expand Medicaid whose household income is too high to qualify for Medicaid and too low to qualify for a subsidy on the public exchange. While we all agree that a plan providing a cash benefit – for example, $500 a day for hospitalization – is not a comprehensive medical benefit, these plans do play an important role in the era of high-deductible health plans. In Mercer Marketplace 365, 34% of people enrolled in a plan with a deductible of $1,500 or higher are enrolled in at least one supplemental health plan. While there are different types of products – some focused on an illness (e.g., cancer), or on a type of coverage (hospitalization), or on a circumstance (accident), these supplemental benefits do not affect HSA eligibility and provide a financial security blanket for those concerned about high deductibles. If you do not currently offer supplemental benefits alongside your high deductible health plan, it’s not too late to think about it for 2017.
Employers implementing HSA-eligible consumer-directed health plans will almost certainly confront participant concerns about greater cost exposure from higher deductibles and other required cost-sharing features. There are a number of creative approaches employers and participants can take to manage financial risk while leveraging the tax-preferred features of an HSA (or a health reimbursement account). Participants can consider the following strategies:
Full contribution rule. An individual who is otherwise ineligible to make a full-year HSA contribution (because, for example, they enroll in the plan mid-year, or have a health FSA grace period balance from the prior year) can make a full-year contribution for the current year, if they (1) are HSA-eligible on December 1, and (2) remain HSA-eligible for the entirety of the following year. This helps participants who are subject to the full annual deductible but would otherwise be unable to fund an HSA to pay for qualifying expenses.
Provider payment plans. While not specific to CDHPs, it’s worth noting that providers – namely hospitals and physicians – generally permit patients to establish a payment schedule to retire their out-of-pocket expenses. This means a plan member might not have to pay their entire deductible or other out-of-pocket exposure with a single payment. Participants could work with their provider(s) to align payments with their pay periods, so they can fund their HSA on a pay period basis and simultaneously pay the provider with tax-free HSA distributions.
Permitted coverage / supplemental health insurance. Certain types of insurance that can be disregarded when determining whether an individual is eligible to contribute to an HSA, for example, critical illness insurance, certain types of accident insurance, and hospital indemnity policies. While these types of coverage are generally offered on a voluntary basis, it is possible for the employer to subsidize this coverage, although the coverage will then generally be being deemed subject to ERISA, invoking compliance-related considerations. Regardless, some employers may find it beneficial to subsidize these types of coverage. Lower-wage / risk-averse participants may value the additional coverage more highly than an employer HSA contribution.
The rise of the CDHP has brought real and perceived financial risk challenges to the forefront for both employers and participants. It’s important for employers to ease participants’ concerns and build their confidence with effective benefits communications about how they can get the most out of an HSA.
This post is part of our 2017 Planning Checklist series.
Consumer-directed health plans (CDHPs) have become a mainstream benefit offering. Spurred on by the need to avoid the excise tax, employers have added these low-cost plans at a fast clip over the past few years. In 2015, 29% of all employers – but 59% of those with 500 or more employees – offered an account-based CDHP, and a total of 25% of all covered employees were enrolled in one, according to Mercer’s National Survey of Employer-Sponsored Health Plans. Now more than a decade old, CDHPs were designed with the goal of holding down cost by encouraging cost-consciousness among consumers. The best CDHPs promote personal responsibility for maintaining or improving health and for choosing cost-effective, quality health care providers.
Most employers still offer a CDHP as an option alongside a traditional PPO or HMO plan. If you’re looking to increase your CDHP enrollment this year, we have a few tips to get your numbers up – whether you have a new or existing plan:
- Sweeten the deal. Offer some great features that you can advertise to your employees in your benefit communications. For instance, seed the HSA and provide funds in January to give employees a start. Our survey shows that in 2015, 37% of eligible employees enrolled in HSA-eligible CDHPs (if offered as a choice) when their employers contributed $800 or more to their HSAs, compared to just 22% when their employers didn’t contribute at all. Another idea is to pay for supplemental health policies, such as critical illness and accident coverage, to help fill gaps for employees.
- “Upset the apple cart” and disrupt current plan offerings and/or employee contributions by plan. The most effective way to get employees to migrate to HSA-eligible plans is, quite simply, to offer only these plans. But if, like most employers, you want to continue to offer a choice of a traditional plan, change up the entire array of plan offerings. Disruption can be a big motivator; without their current plans to fall back on, employees have to pause and spend time to review their options and choose a plan. Employees will be more likely to consider CDHPs under these circumstances, especially if employee contributions are favorable. Also, requiring active enrollment in this situation can translate into higher CDHP enrollment since employees can’t default into their current plan and must make an election.
- Provide decision support. Benefits enrollment isn’t exactly what most employees would call fun. You can at least make it easier by providing a tool during enrollment that allows employees to model which plan has the best cost/features for their situation. It’s also important to create a seamless enrollment experience for your employees, for electing an HSA-eligible plan and for opening the HSA at the same time. Some employees miss out on the employer’s HSA seed because they didn’t open the HSA (don’t need to add, but clarifies a bit).
And, once you’ve done all (or some) of this, make sure to get the word out to your employees. Communication is vital. Just over half of HSA plan sponsors say they provide extensive or very extensive communication to their employees, and among these employers, the average enrollment is 35%, compared to a mere 24% among those providing less extensive communication. In other words, it’s not enough just to provide tools and resources – you have to motivate your employees to use them to take control of their benefits decisions.
This post is part of our 2017 Planning Checklist series.
Critical illness coverage is becoming increasingly important as medical benefit offerings become leaner and enrollment in high-deductible health plans rises. Our National Survey of Employer-Sponsored Health Plans found that 45% of employers with 500 or more workers now offer critical illness coverage as a voluntary benefit for their employees. As Mercer’s Barry Schilmeister describes in this recent Kaiser Health News article, “More employers are looking at the reality of pulling back on the value of health plans but looking to offer something else that would make people feel a little more comfortable about taking on that additional risk.” Critical illness coverage, which typically provides a lump sum payment for certain diagnoses such as cancer, heart attack, stroke, kidney failure as well as major organ transplants, can help fill a coverage gap for employees.
This post is part of our “Dear E.B.” series, in which Mercer’s very own advice columnist (“E.B.,” for Employee Benefits) responds to questions concerning health and well-being that are on the minds of employees across the country.
I enrolled in a high-deductible plan with a Health Savings Account last year because it had the lowest paycheck deduction. My employer contributes money to the account and I was hoping I could save some of it for dental work I need, maybe a couple of years down the road. But my three-year-old gets ear infections and my husband has chronic allergies. After 4 visits to the pediatrician for antibiotics for her, and a trip to the ER for him, we used up the HSA money and then some. How will I ever get ahead?
I have a suggestion for you. Your employer offers a telemedicine program. That might help you save on visits to the pediatrician for your daughter’s ear infections. A typical office visit is about $100, but a telemedicine visit is only $40. You have the convenience of not leaving your house and dealing with a fussy child at the doctor’s office. You simply access the telemedicine program via phone or video, and your daughter can be seen by a licensed provider in as little as a few minutes. The provider can also call in a prescription to the pharmacy of your choice and hopefully your child is quickly on the mend!
As for your husband, if his allergies are causing cold-like symptoms, the ER is probably not the best place of service for him. He’s likely experienced long wait times and a hefty ER bill to boot. Telemedicine would also be a better option for him for the same reasons as for your daughter: being treated quickly while staying in the comfort of home and paying a nominal amount for the visit. For the longer term, though, your husband should find a Primary Care Physician that can monitor his condition and perhaps help him with a preventive medication regimen. Good luck and health to you all!
Advice by Eva Carlson in Mercer’s Washington, D.C. office
In 2015, enrollment in consumer-directed health plans (CDHPs) reached a new milestone -- one-fourth of all covered employees. Mercer’s 2015 National Survey of Employer-Sponsored Health Plans found continued growth in both CDHP prevalence and enrollment rates. Growth has been fastest among large employers. More than half of employers with 500 or more employees now offer a CDHP (59%, up from 48%), and 28% of covered employees are enrolled.
CDHPs place additional responsibility on the consumer. Typically, while CDHP premiums are lower, the risk for out-of-pocket expense is higher. This year’s survey results suggest that employers and providers are catching up to the demand for support tools to guide employees in making the most out of their CDHPs. A growing number of large employers contracted with a specialty vendor to provide employees with transparency tools that deliver price and quality information about specific health care providers or services to employees (15%, up from 12% in 2014). An advantage of these tools is that they can help consumers find an appropriate provider and obtain an estimate of the cost of a visit before the visit.
In addition, telehealth services, which can help employees manage out of pocket spending by providing a cheaper alternative to seeing a physician in person for certain non-acute services, are now offered by 30% of large employers, up from 18% in 2014 and 11% in 2013.
Employers are also taking steps to educate their employees about consumerism in general. Over half (55%) of large employers that offer HSA plans say they have made extensive efforts to provide communications related to this topic, including decision-support tools and provider cost and quality.
While health care consumerism has always made intuitive sense, in the early days it may have been an idea ahead of its time. But now, the tools and resources that make true consumerism possible are finally available, and all trends point to additional and more sophisticated resources on the horizon. Offering a complete “consumerism package” to employees takes more effort than simply implementing a high-deductible health plan. But providing appropriate support tools and education may be necessary to ensure that a consumerism strategy leads to a paradigm shift, and not just a cost shift.
Along with the growth in enrollment of high-deductible health plans has come growth in voluntary insurance coverages to provide a “financial backstop” in the event of catastrophic claims. This article in EBN discusses industry data indicating that sales of critical illness (CI) insurance overtook cancer insurance last year for the first time ever. Mercer’s Tim Weber comments in this article that he has seen a significant uptick in CI offerings that Mercer has handled on behalf of corporate clients. In many cases, “a significant portion” of those plans include transitioning to CI from cancer coverage. Cancer insurance sales historically targeted individuals with a family history of cancer, while CI policies can be positioned as a safety net for the unknown. When offered in conjunction with a high-deductible plan, a product with a broader focus may be appropriate.
Of course, that doesn’t mean that there isn’t a place for cancer coverage as well. To get the most out of these offerings, employers should also consider providing education and decision support tools so that employees understand exactly what their options are.
A new study from the Employee Benefit Research Institute (EBRI) revealed only 6.4% of people with health savings accounts (HSAs) invested their contributions in the financial markets while the remainder left their money in savings accounts that typically earn a lower return. Given how rapidly these plans are spreading -- the number of large employers (500 or more employees) offering an HSA-eligible consumer directed health plan jumped from 32% to 41% in 2014 -- the EBRI study signals a need for further evaluation and education by employers to help participants maximize the benefits of an HSA. You’ll want to determine what roadblocks discourage your plan participants from investing their HSA contributions -- for example, fees and minimum balances -- and address those accordingly. Also, the upcoming open enrollment season is a great time to reeducate employees about their investment options and explain the process to liquidate the funds to pay for medical expenses, if needed.
Last year saw the biggest one-year enrollment increase ever in account-based consumer-directed health plans – from 18% to 23% of all covered employees – as employers added plans at a rapid pace. All the growth is in plans with Health Savings Accounts – HSAs – and yet the other type of account, the Health Reimbursement Account, hasn’t gone away. About one in ten employers still offer an HRA, as they have for the past three years. In this informative article "HSAs Surge, Leaving HRAs in a Niche" in Managed Care Magazine (p.27), Mercer’s own Jay Savan explains the pros and cons of HRAs and why some employers prefer the doughnut to the bagel.