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4477
Phone: 281.880.6525

Time to Take Another Look at

High-Deductible Health Plans?

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Enrollment in high-deductible health plans (HDHPs) could gain traction soon,

as employers begin to focus on a very attractive feature: These plans have a
demonstrated ability to control costs. Also, there is a growing urgency among
employers to avoid exposure to the Affordable Care Act's "Cadillac tax," which
is scheduled to take effect in 2018. These factors may cause some employers
to rev up promotion of HDHPs as a viable option for their employees. Here's a
look at where things stand.

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A Spotlight on HDHPs
As the name indicates, the central feature of an HDHP is the high deductible.
For 2015, a "high" deductible is defined by the IRS as having an annual
deductible of at least $1,300 for single coverage, and $2,600 for family
coverage, with respective maximum out-of-pocket limits of $6,450 and
$12,900. These figures apply to standard HDHPs, which means they are
accompanied by either a health savings account (HSA) or a health
reimbursement account (HRA).

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A number of studies have shown that HDHPs have grown in popularity in

recent years. For example between 2010 and 2014 the number of employers
offering these plans grew 144%.
The $1,300 minimum deductible wouldn't require a radical change for small
employers that is, those with fewer than 200 employees because nearly
two-thirds of them already had single-coverage deductibles of at least $1,000
last year. And 41% of larger firms also fell into the same category (that is, level
of deductible), according to statistics provided by the Kaiser Family
Foundation.

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Are Health Care Consumers More Discerning these Days?

The theory behind these accounts has been that higher deductibles will cause
employees to become smarter health care consumers. Also, by adding an HSA
as part of the package, employees have a financial cushion. Alternatively, they
can allow HSA dollars to accumulate for future tax-free expenditures on
approved health care services, including expenses incurred in retirement.

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Are employees who are covered by high-deductible plans actually becoming

savvier as health care consumers? That's tough to assess. Indeed, critics of the
HDHP concept speculate that when faced with a high deductible, many
employees will simply put off seeking medical attention until a health problem
reaches crisis proportions.
In any case, recent research shows that these plans are generally less costly
than other plans. As the accompanying table indicates, employer and
employee costs for HDHPs were, on average, below those of the other health
plan categories: 8.5% lower for family coverage and 12% lower for single
coverage.

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When compared to a preferred provider organization, the average cost for an

employee in an HDHP is about $350 lower, according to an Aetna study of 2.2
million plan participants. Similarly, a Cigna study concluded that average HDHP
costs came in 12% below the statistical average.
Averages, of course, are just that some HDHPs undoubtedly don't show
such savings. Still, the numbers suggest that the plan design is worthy of
consideration.

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No Cold Turkey
Most employers willing to give the HDHP design a shot don't go cold turkey by
offering only this plan. Some ease into it. A 2014 study by America's Health
Insurance Plans Center for Policy and Research showed that among employers
who already offered high-deductible plans as one option, about one-third had
decided to make an HDHP their exclusive plan for 2015.
Small employers may not have the luxury of offering multiple plans. So for
them, switching to the HDHP model may involve a leap of faith. As part of the
planning process, employers who take that leap need to decide whether they
will contribute to the accompanying account, which again, is either an HSA or
HRA.
Few employers are choosing HRAs, because most consider these accounts to
violate the spirit of the consumer-empowering HDHP. Actually an HRA is not a
true account, but more of an accounting device, which involves the employer
giving a dollar amount of credit to employees. Employees can use the credit to
offset some health expenses, as well as a portion of their contribution to health
plan premiums. HRA funds can accumulate, but do not pay interest.

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HSAs
Unlike health reimbursement accounts, HSAs are true accounts and are
owned by employees. The maximum that can go into an HSA in 2015
(combining employee savings and employer contributions, if any) is $3,350 for
single coverage and $6,550 for family plans.

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The Employee Benefit Research Institute reported that last year about twothirds of employees in high-deductible plans received employer contributions
to their accounts. Among small companies, the average employer contribution
levels are greater, possibly because the deductibles tend to be higher than
they are for larger employers. However, overall employer contributions seem
to be on the decline. In 2014, these contributions dropped an average of 10%
below the previous year, possibly as HDHP sponsors seek to offset rising
premiums.
Whether a high-deductible health plan would be beneficial to your
organization requires an analysis of multiple factors, including current plan
design, employee demographics and competitor offerings.
HDHPs are not new. But because these plans have a track record of controlling
expenditures in a health care environment of rising costs it's likely that
many more employers will be giving them closer scrutiny in the future.
Consult with your employee benefits adviser to help determine if HDHPs are
right for your company.

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Phone : 281.880.6525
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