High-deductible health plans (HDHPs) began drawing interest well before the enactment of the Affordable Care Act (ACA) in 2010. Although the prevalence of these plans did grow following the ACA, it eventually leveled off as companies explored many options for offering health care benefits to their employees.
But, as the scheduled 2018 imposition of the “Cadillac” excise tax draws nearer, many employers are feeling more pressure to control costs. And, with fresh data now available, organizations that had previously sat out of the HDHP trend may now begin to stand up and pay attention.
At the threshold
When an employer offers an HDHP, it typically does so in conjunction with a Health Savings Account (HSA). In these cases, the permissible range of high deductibles in 2015 is from $1,300 to $6,450 for single coverage, and $2,600 to $12,900 for family coverage.
Most workers (61%) who have health plans and work for small companies (fewer than 200 employees) already face deductibles of at least $1,000 for single coverage, according to the 2014 Kaiser/HRET Survey of Employer-Sponsored Health Benefits. But the proportion is considerably smaller (32%) for employees of large companies, says the same study. Still, the data suggests many employers are already close to the “high” deductible threshold.
Notable cost contrasts
In 2009, 8% of workers covered by any kind of a health plan were in an HDHP, per the Kaiser/HRET survey. By 2012, this number had reached 19%, followed by 20% in 2013 and 2014. The study also revealed that, in 2014, PPO plans maintained their traditional dominance — with 58% of covered employees enrolled in them. PPOs were followed by:
- HDHPs at 20% (as noted),
- HMOs at 13%,
- Point of service (POS) plans at 8%, and
- Other plan types at less than 1%.
The relatively small market share for HDHPs is somewhat surprising in light of average per-employee costs for the various plan types. HMOs, PPOs and POS plans’ total costs (combining employer and employee contributions) for family coverage average $16,918, or about 10% higher than the $15,401 figure for HDHPs. (See the table “Average employer, employee costs for various health plan types, 2014.”)
The difference is even more dramatic for single coverage: a 17% variance, with the HMO/PPO/POS average at $6,202, vs. $5,299 for HDHPs.
Maybe not so “high”
What’s also notable is that, despite the implication of the word “high” in HDHPs, the average employee contribution to these plans is less than in other models — both for family and single coverage. (Again, see the table.) For example, the average of the HMO, PPO and POS plans’ employee contributions is $4,993 for family coverage vs. $4,385 for an HDHP with an HSA.
Of course, averages are just … averages. Demographic variations captured in statistically robust survey data offer a more accurate picture. For instance, according to the 2014 UBA Health Plan Survey, HDHPs are much more prevalent in the Northeast, where 32% of employers offer them, than in the West, where only 15% of employers offer them and HMOs capture significantly more business.
Also, if an employer offers multiple plan types, the savings potential from offering an HDHP will be impacted by the proportion of employees who actually enroll in one. Enrollment data from the UBA survey shows HDHPs with average enrollment rates ranging from 26% in the Northeast to 8% in the West.
Few large employers have limited employee health plan choices to only HDHPs, an approach taken more often by smaller employers. But a poll conducted by the AHIP Center for Policy and Research suggested that 32% of employers that already offer an HDHP intend to make it the only option for employees this year.
Employers unwilling to take that step, fearing possible employee disgruntlement, have typically sought to encourage enrollment with HSA contributions. The inducement increases participation but, naturally, employer costs as well. Last year, according to the UBA report, the average employer contribution to an HSA for an employee with single coverage was $515 — and $890 for family coverage.
The jury remains out on why HDHPs are, on average, less costly than the alternatives. The premise of the plan design was that employees, facing high deductibles, would become smarter health care consumers — lowering costs for themselves and changing the benefits market. A recent study by professors from the University of California–Berkeley, the University of Pennsylvania and Harvard University suggests more progress can be made toward that goal.
In “What Does a Deductible Do? The Impact of Cost Sharing on Health Care Prices, Quantities and Spending Dynamics,” the authors analyzed changes in health claims by employees of a large company that changed from a PPO to an HDHP. The employer did experience a 19% drop in annual health care spending. But the biggest spending reductions came from the sickest employees, suggesting the high deductible might have the effect of causing some employees most in need of medical services to skimp — which could ultimately result in higher claims in future years.
The study also found that reduced employee spending occurred in all medical services. This implies that employees didn’t discriminate between high-value and low-value services. In other words, they didn’t demonstrate smart consumer behavior. In a consistent finding, dollar savings resulted entirely from reduced purchases of health care services — not reductions in fees, as would be expected in a competitive consumer market.
Body of evidence
A growing body of statistical evidence indicates that HDHPs may not be a miracle cure for the high costs of health care benefits. Nonetheless, when approached realistically, these plans may help your organization manage these expenses while providing participants with the services they need. So the popularity of HDHPs could rise yet again.
|Average employer, employee costs for various health plan types, 2014|
|Plan type||Employer contribution for family coverage||Employee contribution for family coverage||Total cost||Employer contribution for single coverage||Employee contribution for single coverage||Total cost|
|HMO||$ 12,129||$ 5,254||$ 17,383||$ 5,041||$ 1,182||$ 6,223|
|PPO||$ 12,456||$ 4,877||$ 17,333||$ 5,082||$ 1,134||$ 6,217|
|POS||$ 11,188||$ 4,849||$ 16,037||$ 5,182||$ 984||$ 6,166|
|HDHP*||$ 11,016||$ 4,385||$ 15,401||$ 4,394||$ 905||$ 5,299|
|All plans||$ 12,011||$ 4,823||$ 16,834||$ 4,944||$ 1,081||$ 6,025|
|* High Deductible Health Plans With Savings Option|