A burden landed on many employers this year – again. The cost of providing health-care coverage went up.
To deal with it, and to get a head start on tax changes expected in 2018, more companies are turning to high-deductible health plans. Those plans are meant to boost employees’ decision-making power on health spending, while nudging them to price shop for the best care and not waste money on unnecessary medical procedures.
“It’s the direction the industry is going,” says Rob Huffaker, director of employee benefits for Tennessee, at BB&T Huffaker Insurance, in Chattanooga.
High-deductible plans also encourage employers and employees to focus more on wellness incentives and being healthy, some industry experts argue. “The old health-care model paid you to be sick, and now, instead, it pays to be healthy,” Huffaker says. Indeed, the high-deductible plans often don’t have a simple $20 copay option for popping into the doctor’s office.
The prospect of the “Cadillac tax,” which penalizes employers for offering some high-cost benefits, most often associated with lower deductible Preferred Provider Organization plans, is also prompting companies to increase deductibles. Created under the Affordable Care Act, it’s expected to go into effect in 2018 but faces opposition. The tax is meant to get companies to pay workers higher wages, instead of compensating them with lavish health benefits, which the government currently doesn’t tax.
But it’s unclear if high-deductible plans actually turn workers into smart shoppers, or if workers just avoid going to the doctor altogether – which could lead to health-care problems that have much bigger price tags for employers down the line.
Health costs keep growing
A March survey by the Society for Human Resource Management showed that more than three-quarters of organizations have had a spike in health-care costs since last year, with nearly one-quarter of them saying the jump was at least 16 percent.
A survey of Chattanooga area employers by the local chapter of human resources group this fall found that for next year more than one fourth of the respondents expect rate increases of 10 percent of more and a majority expect health-care rate increases greater than the overall inflation rate.
But that doesn’t mean the price tag for health coverage has gone down for workers.
The average family is now paying $4,865 more for employer-sponsored coverage than they were in 2008, according to the 2015 Employer Health Benefits Survey by Kaiser Family Foundation/Health Research & Education Trust, released in September. And, since 2010, premiums have risen at a much higher rate than worker pay or inflation: 24 percent compared with 10 percent and 9 percent, respectively, according to Kaiser.
Deductibles have shot up even more than premiums: a whopping 67 percent.
What’s a high deductible? By federal guidelines, it’s $1,300 for one person and $2,600 for more than one person. The silver lining is that these plans can be paired with health-savings accounts, which let workers tuck away pre-tax money to help pay medical bills. In some cases employers contribute to those accounts.
About one quarter of the 300 to 350 accounts BB&T Huffaker Insurance services in the Chattanooga area offer high-deductible plans. Some contribute to their employees’ health savings accounts, Huffaker says.
A higher deductible puts more responsibility on employees. “The employee is spending their own money up front,” Huffaker says. The hope is that if people have to take on more of the cost of their medical services, they will be more careful about how much they spend.
Bur that might mean they don’t spend anything at all.
Saving money by skimping on health care
A National Bureau of Economic Research study released in October showed that when faced with a high deductibles, patients didn’t look for the best deals. Instead, they skipped treatment.
The authors looked at the habits of about 75,000 workers and their insured dependents at a large, unnamed company. The company switched from offering a plan with no deductible to one with a $3,750 deductible – but the company contributed $3,750 to health savings accounts. It also gave workers online tools to compare prices for all kinds of medical care.
“We find no evidence of consumers learning to price shop after two years in high-deductible coverage. Consumers reduce quantities across the spectrum of health care services, including potentially valuable care (e.g. preventive services) and potentially wasteful care (e.g. imaging services),” concluded the working paper’s authors, who were from Harvard University and the University of California at Berkeley.
If workers who get employer subsidies for their health savings accounts aren’t bothering to be smart shoppers – or even uninformed shoppers who still go to the doctor – the proclivity of those who don’t get cash help is likely worse.
“If you just can’t get any money into that account it does create a tough situation for someone who has little or no disposable income,” says Russ Blakely, president of Russ Blakely & Associates, a Chattanooga employee-benefits advisory firm. “I know there are instances where they wouldn’t go because they don’t have money to pay for a doctor’s office visit.”
That could lead to sicker patients in the long run, experts say.
Playing out high-deductible plans
Cleveland, Tennessee-based Family Resource Agency, which serves several Tennessee counties, is familiar with that bind. The non-profit organization has had a high-deductible plan for many years.
“It’s not really because we like it that way; it’s because it’s what we can afford,” says CEO James Anderson.
The plan has a $5,000 deductible for a single person and a $10,000 deductible for more than one person. “None of our employees pairs it with an HSA because they have no money to put in it It’s well and good for people making more money, but for your average working people out there, that’s make believe.”
Indeed, health-savings accounts are a boon for well-paid workers, Blakely says. “They like the idea of a tax-free account that pays for expenses.”
Late this year, Southern Champion Tray will introduce a high-deductible plan, paired with a health-savings account that it will contribute to on behalf of employees. The Chattanooga company plans to still offer a lower deductible plan, but it’s hoping the extras it’s putting in place alongside the high-deductible plan will encourage workers to try it.
“The last seven to eight years we’ve been on a journey of promoting health and wellness,” says TW Francescon, the company’s director of human resources. Southern Champion Tray has an on-site clinic, wellness center and staff exercise physiologist.
According to the Kaiser health-benefits survey, about one-third of large firms offer financial incentives for participating in wellness programs such as health-risk assessments (questionnaires about lifestyle, stress or physical health) and biometric screening (in-person health examinations conducted by a medical professional). Many offer programs to help workers stop smoking or lose weight.
“We felt like this was the next step: giving people choices for their health,” he says.
What’s more, the company added a person to its human-resources team who’s dedicated to helping employees figure out how to maximize their health savings accounts and shop for the best care.
“If we all take responsibility for our health and our family’s health, we’re able to minimize health insurance costs, both for us and for SCT,” Francescon says.
BOX 1
What is a high-deductible health plan?
A health plan product that combines a health-savings account (HSA) with traditional medical coverage.
The HSA allows workers to put tax-free money in an account to help pay for medical expenses. The account is theirs forever and is portable.
The most that can be contributed to a health-savings account each year is $3,350 for self/one person and $6,650 for more than one person/family.
The annual minimum deductible for a high-deductible health plan is $1,300 for self/one person and $2,600 for more than one person/family.
The plan is supposed to give workers more flexibility and discretion over how they use health care dollars.
BOX 2
Health care cost snapshot:
Average annual premium for single coverage: $6,250
Worker share: $1,070
Average family premium: $17,545
Worker share: $4,955
Average deductible for one person: $1,318 for one person
For organizations under 200 workers: $1,836
For organizations 200 workers or more: $1,105
source: Kaiser Family Foundation/Health Research & Education Trust 2015 Employer Health Benefits Survey
SIDEBAR
The Affordable Care Act’s tax on high-cost health plans, sometimes called the “Cadillac tax,” begins in 2018. Preferred Provider Organization plans are the most likely to trigger it.
About 33 percent of the Society for Human Resource Management members’ organizations said their plans would likely trigger the tax in 2018. A full 30 percent of businesses said they didn’t know what they were going to do to avoid the tax.
Things got better this year. SHRM’s 2015 survey showed that 9 percent of companies had already made changes – namely offering high-deductible plans – to avoid the tax, and 24 percent planned to explore options to avoid it.