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HEALTH PLANS: As you may have guessed CDHP = Cost shifting

So when I told TCHB readers about Harris’ forecast for the year a few months back, it sounded like employers were confused by the consumer-directed health plan (CDHP) hype but somehow believed that it gave them a way out of paying for first dollar coverage, and was, following the death of managed care, the next big thing in terms of saving them money. My suspicion was that employers would try to slowly move employees to HRA/HSA based high-deductible health plans, and then gradually over time–particularly if the CHDPs didn’t produce their initially savings– gradually stop funding the HRA/HSA. This would be same thing as essentially only covering catastrophic insurance for their employees. Of course that essentially means reducing their benefits.

Well the latest KFF/Mercer poll, as reported in USA Today (hat tip to Don Mccane) suggests that in forecasting that this might be a gradual phenomenon, I actually gave employers too much credit (or too little depending on your viewpoint). The report says:

    Mercer’s survey of 991 employers found that 61% would set the individual annual deductible for an HSA plan at $1,000. But 17% chose $1,500, 11% said $2,000 and 10% were above $2,000. Don’t expect employers to pay that deductible: The Mercer study also found that 39% would not put any money into the savings accounts for workers, while 24% would put in $500 a year, leaving it up to the workers to fund the rest.

In other words, the CDHP translates into direct cost shifting. When you parse the press release from Mercer (access to the survey itself is coming later), it looks like the employers, who are interested in CHDPs with a high deductible plan, are looking at it as an alternative to asking employees to pay up to 50% of the premium for a normal plan. (There’s also a lot of high-fallooting rhetoric about providing a savings plan vehicle for employees to use for health spending in their retirement years, but I don’t think any employees are really buying the notion that employers will care about them in their retirement).

    Nearly half of large employers (48%) say that a likely motivation for offering an HSA would be to provide a savings vehicle for post-retirement medical coverage. Interestingly, significant portions of both those employers who currently offer retiree medical coverage and those who do not say they are interested in this use of HSAs (53% of retiree plan sponsors and 40% of non-sponsors). More than one-fourth of employers (26%) say they would offer the plan to provide a more affordable medical plan option for employees.

In fact, I think that Mercer (which is after all selling something) is a little too gung-ho about the ability that employers will have to force CDHP and their associated costs easily onto employees. The John Gabel study in Health Affairs a few weeks back suggested that the CDHP would have a modest impact. However, it’s clear that the cost-shifting direction is set, and that health care as an automatic employee benefit is at risk in the future.

The “free-marketers” behind the HSA movement, and their opponents who believe in some kind of community-rated tax-based social insurance system, will both take cheer from the apparent demise of the employer-based health insurance system. Both sides of that argument would like to see greater visibility to the tax-payer and/or the consumer as to what all this health care they are consuming actually costs. Employer-funded third party payment (of which Medicare is an extension, by the way) has been the cause of both healthcare cost inflation, the continued existence of the uninsured and all kinds of ridiculous anomalies and inefficiencies in the market-place. When health care is regarded as a freebie provided as a part of employment, all kind of bad things result. So theoretically the employee should be happy because they have for 50 years been giving up income in lieu of their health benefits–one reason that real wages in the US have been flat for 30 years.

But, and this is a major but, there is one set of actors here who severely disagree. To repeat a poll taken last year which I described here, when offered the choice 71% of employees wanted a combination of “health coverage & lower salary” compared to only 24% wanting a “higher salary & no health coverage”. In other words, health benefits as a part of employment are very popular amongst employees.

So if employers are going to try to cut benefits severely (and let’s face it they are unlikely to be adding increased wages in their stead) you can expect to see some very grumpy employees over the coming years. And even American corporations don’t necessarily want to make their employees that unhappy when it only saves them a modest amount of their payroll costs. So I think that Gabel is right and that the way this trend will play out is by no means automatic.

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Tom LeithAaronRon GreinerirbChris Martin Recent comment authors
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Tom Leith
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Tom Leith

> The “free-marketers” behind the HSA movement, > and their opponents who believe in some kind of > community-rated tax-based social insurance system, > will both take cheer from the apparent demise of > the employer-based health insurance system. Ummmmm…. Why can’t a community-rated tax-based social insurance system also have a HDHP/HSA style design? There certainly isn’t a technical reason why not. Matthew points out again and again that employers are not completely funding the HSA component of their employees’ health plans. Uncle Sam could do that, and could also do it on a differential scale depending on income. Maybe… Read more »

Aaron
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Aaron

Chris, you have no idea what you’re talking about. PPO’s are simply networks of physicians that an insurer negotiates discounts with to lower the cost of claims (and thus premiums). How are they a “wolf in sheep’s clothing”? PPO’s have nothing to do with CDHP, they have been a part of health insurance for a number of years, while CDHP are a more recent development. As for the general issue here, what is wrong with shifting some costs to the insured? HDHP’s are an attempt to make people consumers when it comes to health care, to lower the overall cost.… Read more »

Ron Greiner
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Ron Greiner

Matthew, It sounds like these comments disagree with you on tax free HSAs. That’s good, they are correct and you are wrong. I will correct a few false comments by these commentors. HSAs are controlled by the account owner and not the employer. Any HSA client can move their HSA balance anytime they want to whatever bank they prefer. And yes, they have mutual fund options too so no motification is required as stated above. Most HSAs are combined with health insurance that gives discounts on a PPO. Chris says this is a “Wolf” in sheep’s clothing. I have no… Read more »

irb
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irb

HSAs, in and of itself, are not evil. The just have to be structured right. No HSA should be catastrophic only. There should be some preventative care in there as well. Without prevention, there will never be cost savings (and health improvement). The best reason for employers to have HSA’s is cost predictability. If you ignore for the moment the fact that employers might be creating HSAs/CDHP to shift the costs to the employees, and take the hypothetical situation that the same money will be spent as before, then the employers benefit from cost predictability. Healthcare costs are an unknown,… Read more »

Chris Martin
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Chris Martin

Interesting post about CDHP…I dont know whether employers are smart or not but I do know some of them have caught on to CDHP through its more common name: Preferred Provider Organizations….the product that was, for many people, the soft landing after being bounced out of managed care plans is now an employer’s savior as it allows them to cost shift to employees who gladly sign up for this wolf in sheep’s clothing!

Richard
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Richard

Your comments are a joke. I have three years of data that can show how CDHP have mitigated annual renewal increases as well as increasing employee benefits via HRA accounts. Among 30 companies insured, 75% showed HRA rollovers of 50% or higher. Do your research…don’t rely on Mercer. I read Mercer’s study and can analyze the same results in the contrary