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With Or Without HSA, HDHPs Are Here to Stay An informed and involved health-care consumer is the best defense for controlling premium cost. By Brad Elman
ver the past six years, there has been a significant migration from traditional preferred provider organization (PPO) health plans to consumer-driven health plans. These are typically high-deductible health plans (HDHP) with health savings accounts (HSA) which initially included an employer-sponsored contribution. Six years ago, an employee could take the cost savings in premium created from choosing the HDHP (versus the employer’s traditional PPO plan) and use it to fully fund the HSA and still save the company money in comparison to the previous year’s traditional PPO plan. This was effective for employees because they had little or no out-of-pocket exposure. If they didn’t use an HSA contribution for health care, they could use it for other IRS 213d expenses. In addition, the employer saved money and provided a more comprehensive package to the employee. The insurance carriers benefited as well because the employee had financial “skin in the game” and was proactive about how they used care, ultimately lowering morbidity cost. However, in my experience, the HDHP plans attracted a lot of claims since the employees’ out-of-pocket expense were so low or even zero, which was the opposite of what insurers anticipated. The result was premium costs escalating to a much higher rate than traditional PPOs. Over time, as the premiums increased for high-deductible HSA-compatible plans, the employer’s contribution to HSA has gone down each year, roughly by the amount of the increase in the premium. Over a six-year period, 52
the employee has slowly weaned off the expectation that an HSA contribution will be made on his or her behalf. From a behavioral economics perspective this is interesting. Deductibles would not be as high today if it were not for the process that took place. The HSA softened the introduction of a quantum increase in the deductible amount. The gradual reduction of HSA contribution over time was more palatable than the significant increase in the deductible would have been over the same time period. Six years ago, a typical client had a $250 or $500 annual calendar year deductible. Now, because of the HDHP HSA phenomenon, deductibles for PPOs are routinely $1,500-$3,500. In my opinion, higher deductibles encourage consumer proactivity as it relates to their health care expenses, and are the only way we are going to get price stabilization in the health insurance marketplace. This year, almost without exception, clients are moving back to traditional PPO plans, which are not HSA compatible but the deductibles are at the same level as the HDHP plans, typically $2500 for an individual. Although HSA-compatible plans are waning in popularity, there have been many beneficial outcomes from client exposure to them. First and foremost is client education on the actual cost of health care. For many years, people assumed a doctor’s visit cost $10, a generic prescription costs $10 and a brand name drug costs $25. HSA-compatible plans incentivized employees to learn about the actual cost of health care. If the difference between a generic and a brand name drug is only $15, (as it typically would be with a prescription drug benefit on a traditional health plan), people aren’t seeing the true cost of their decision and they may choose a brand name drug because $15 is not significant to them. On the other hand,
InsuranceNewsNet Magazine » December 2012
if they saw the cost of the generic drug was $3, and the actual cost of the brand name drug was $300, they might choose to try the generic, ultimately saving everyone money. Take this a step further as it relates to diagnostics. A physician may suggest that an individual with an HDHP have a test such as an MRI. The individual may choose to pay for the MRI or to take a more conservative approach to treatment before having that diagnostic performed. If an individual does have to pay the actual cost for the MRI versus a small co-pay, they may decide it’s a better option to try physical therapy, or other less expensive measures before going through with the test. It’s not for us as advisors to say what’s right or wrong for an individual, but having the individual be part of the decision-making process is a very positive step. Even though we are now seeing a trend away from HSA-compatible HDHPs, they have influenced the decision process of the individual. Now, we have the best of both worlds. We have lower cost, high-deductible plans that engage the consumer to think about cost, treatment alternatives and first-dollar coverage because the shift to a non HSA-compatible HDHP plan allows for office visits and drugs with copay. These plans are typically best for consumers who need high-cost drugs who are otherwise healthy, and an employee who would benefit from tax deductibility of a larger out-of-pocket exposure. In this case, an HSA compatible plan might be a better option. Given the high cost of health care and health insurance, HDHPs are here to stay with or without an HSA. Brad Elman, CLU, is a principal at Nine Dots Benefits in Los Altos, Calif. He is a 20-year MDRT member with 10 Court of the Table qualifications. He can be reached at Brad. Elman@innfeedback.com.