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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6 replies »

  1. > 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.
    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 “everyone” could be required to set aside up to (say) 5% of their own income into the HSA component, and they who don’t earn enough to cover the deductible get essentially a refundable tax credit deposited to their HSAs. And yes, its theirs. This is the sort of solution that Milton Friedman has championed for 45 years, and that Charles Murray has talked about from a “human happiness” point of view more recently. I think the only reason we don’t do it is cultural — we’ll give a poor man medical services if he jumps through a sufficient number of hoops, but we do not want to give him anything at all unless he does jump through the hoops. “Sing for Your Supper and You’ll Get Breakfast”. Don’t sing: off with your head!
    Of course, this presumes the HDHP route is the route we want to take. There are reasons this might not work so well, discussed at length elsewhere .
    I don’t know what to say about 71% of employees having the “mommy, take care of me” attitude. This is baffling. Maybe it is conditioned on ignorance. I don’t know. At least 24% are smart enough to at least considering breaking the link between an employer and health insurance.

  2. 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. If you are responsible for the first $2500 or so of healthcare costs, maybe you will decide you don’t need an office visit for that little sniffle, or you’ll shop around for a better price on that MRI. How many people do you think even ask how much something costs if the insurer pays for it all? That is one of the reasons health care is so expensive.

  3. 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 idea what he is talking about.
    Richard in his comments sounds like he enrolls people on HRAs that are combined with dangerous group health employee plans. I hope Richard points out to his clients that if they become too sick to work, like ovarian cancer, they will be put to a COBRA extension for insurance termination. I hope Richard points out this flaw with his dangerous group plans but most salespeople who market them don’t.
    The big problem with HRAs is it is not the law that employees can keep their balances when they retire. HSAs on the other hand can never be taken away from the employee. That’s a big difference and why HSAs are so much better.

  4. 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, and companies trying to make their numbers don’t like unknowns. Having a fixed amount to put into an HSA helps companies predict and plan for costs. The reason employers pay ridiculous amounts for health insurance now is that employees want it. Why would that change with HSAs? HSAs don’t necessarily amount to less care, that is if structured with preventative care as many pilot programs have done. What HSAs do very well is educate the consumer as to how much they are spending. Currently consumers are dissociated from their insurance. Insurance companies don’t feel beholden to patients because they interact with the employer, not the patient.
    For an example, lets say your employer is currently paying $300/month for a group HMO plan, you only pay $10 copays for doctor visits/$50 for ER visits. You have little choice of your plans, maybe 3 or 4 choices that your employer selects for you. Let’s say you get a high deductible plan, the employer puts the same $3600 into an account. Your plan, with a $1500/year deductible, costs about $2000. Assuming a plan without any prevention added it, it would take a lot of doctor visits, and pharmaceuticals to spend the other $1500. and if used up, the catastrophic would kick in to protect you. The money you don’t need to spend, gets rolled over into next year, accumulating interest.
    If I were setting up the HSA system, it would have some preventative stuff worked in, however, as you can see in my example, HSAs allow the company to give you a fixed amount of money, even the same you were getting before, just now you see it and can spend it on the type of plan you need. If done right (not the way the current HSA system has been set up), it is a win-win situation: the company can predict its costs, and the patient can get good coverage, and keep what they don’t need to spend. Employees who don’t need a lot of healthcare, essentially save up extra money for later when they do need it. and those who need it, still get it.
    I think people are assuming that employers running HSAs in place of regular insurance will only fund the insurance, not the deductible. I believe that employers who are paying for regular insurance will likely take the previous year’s money spent, put it into an HSA, and let the employee spend it as they see fit, still using the employer as a way to be part of a group coverage situation.
    I have an individual HSA right now, and it has saved me a ton of money, but I’m still covered for what I need. The money I didn’t spend last year in premiums covered the deductible that, as it turned out, I didn’t use. But if I needed it, it would have been the same money, just spent on deductible instead of premium. the big problem with the HSA is that the way it is currently structured, only healthy people qualify for the plans, and you have to get the HSA attached with an insurance company, you can’t have an HSA that is separate and shop around with that for a plan. I also have no control over how my money is invested, another negative.
    I think HSAs, in a modified form, have promise.

  5. 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!

  6. 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