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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.

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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.

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We got a question in response to our post Checklist: Want to Increase Your CDHP Enrollment? Try This.

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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. 

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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:

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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.  

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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.

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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.

 

Dear E.B.,

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?

 

Feeling Stretched

 

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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.

 

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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.

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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.

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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. 

 

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