HDHPs and the Achievability of Affordability

Note to readers:  Efforts in Washington to repeal and replace the Affordable Care Act appear to have collapsed for the time being, but it's possible they could be revived. Please bear this in mind as you read the article below, and consult your benefits advisor for the latest developments.

Addressing the challenge of affordability, both from the employee and employer perspectives, is a key goal of health care reform past and present. But is affordability, by any realistic definition, actually achievable? The answer remains elusive.

One approach that's gained considerable influence in recent years, and will likely play an important role in the years ahead, is combining a high-deductible health plan (HDHP) with a Health Savings Account (HSA). (HSA contributions can be made only if an employee has an HDHP.) But this is proving to be no silver bullet.

In a Nutshell

The problem, in a nutshell, can be aptly summarized by comparing the employee out-of-pocket limits for HDHPs (presumably accompanied by HSAs) with those for regular plans. The following table summarizes the 2017 and 2018 amounts for both, under the Affordable Care Act (ACA):

2017–2018 Employee Out-of-Pocket Limits

As you can see, both out-of-pocket limits are quite high. So, even when employers decide to offer an HSA in conjunction with an HDHP, the average employee whose HDHP out-of-pocket limit is set near or at the maximum allowable level is going to have to pay a substantial amount of money before the health benefit really kicks in.

In addition, current HSA contribution limits ($3,400 combined employer and employee contributions for single coverage and $6,750 for family coverage) are lower than the typical HDHP deductibles and out-of-pocket limits set by employers. So many employees can't fully fund their deductibles, let alone their out-of-pocket maximums, with HSA funds — even if they could afford to do so.

One premise of the HDHP concept was that higher deductibles would translate into lower premiums for employers and lower contributions by employees towards those premiums. That has been the case. For example, the 2015 Mercer National Survey of Employer-Sponsored Health Plans found that median monthly employee contributions for HDHP plans accompanied by HSAs were lower than those for PPO plans by $45 and $134, respectively, for single and family coverage.

But, even when accounting for average employer contributions to employees' HSAs, employees in HDHPs still confront higher net exposure to medical expenses because of the higher deductibles and out-of-pocket maximums compared to PPO plans.

The View from the ER

Man sitting in front of a computer

One driving factor behind HDHPs' inability to improve affordability is that, when faced with high deductibles and co-pays, many employees simply forgo medical treatment. In doing so, they often eventually suffer more serious (and costly) conditions.

A survey conducted by the American College of Emergency Physicians before the 2016 presidential election revealed just how high deductible limits were playing out in the ER. Nearly three-fourths (70%) of polled emergency physicians reported that they routinely see insured patients in the emergency department who have delayed care because they believe they can't afford high deductibles and co-pays for regular medical services.

The ACA's requirement that certain preventive health services be covered on a first-dollar basis was an attempt to preclude this scenario. But the specified services appear too narrow in scope to ever fully succeed. Immunizations and health promotion only go so far in preventing diseases and injuries.

Prescription Drugs

The scene on the prescription drug side isn't much better. Pfizer, the pharmaceutical giant, is sounding the alarm about the impact of high cost-sharing levels on drug benefit programs. "Prescription abandonment rates increase with patient cost-sharing amounts over $100. Cost-sharing requirements should not be so large as to … interfere with the proper use of medications, which can lead to negative health outcomes and additional costs to the health care system," the company warned in a policy document.

These concerns aren't surprising in light of other periodic surveys indicating low savings accumulations by average Americans. One published in January by Bankrate found that only 41% of respondents had enough reserve funds to handle an unexpected $1,000 expense. Another survey, by GOBankingRates.com released last September, found that only 15% of Americans have at least $10,000 in savings, and 69% have less than $1,000.

These amounts also play back into HDHPs with HSAs. That is, with such low savings to fall back on, many people probably can't afford to make the maximum HSA contribution.

Employer Response

So how are employers responding? The most recent Society for Human Resource Management (SHRM) employee benefits survey offers some insight. On the one hand, the adoption of HDHPs with HSAs is continuing its steady march. Their prevalence has grown from 42% among sampled SHRM members in 2013 to 55% this year.

Perhaps more noteworthy, however, is the increasing number of employers that are making contributions to employees' HSAs. Over that same time span, the percentage has grown from 26% to 36%, per SHRM.

Contributing to employee HSAs obviously entails an increase in employer outlays for health benefits. But doing so could be viewed as a means of encouraging employees to assume greater responsibility for their health care — as HDHPs are intended to do —without asking them to shoulder an increasing share of the financial burden.

However, again, the expense of making such contributions must be noted. The 2013 edition of Mercer's survey puts the median per-covered-employee HSA employer contribution for employers with 50 to 499 employees at $750 for single coverage, and $1,200 for family coverage. The 2015 edition found these amounts to be $600 for single coverage and $1,250 for family coverage, but the respondents were large employers with 500 or more employees.

Other Notes on Affordability

There are, of course, factors other than HDHPs with HSAs affecting affordability. One positive trend that could make health care more affordable to employees — at least those without dependents — is changes to spousal coverage.

More employers are introducing new restrictions and surcharges for spousal and family coverage: 19% have done so recently for spousal coverage, and 6% for dependent benefits, according to the SHRM survey. A typical restriction is simply not offering spousal coverage to employees whose spouses have access to a health plan at their own places of employment.

Although the vast majority of employers (95%) still offer spousal coverage, prevalence has leveled off in recent years. The same pattern is true of domestic partner coverage (opposite- and same-sex coverage). Although the prevalence of these benefits is much lower, slightly more than 50% of employers offer it, per the SHRM survey.

In addition, employers continue to invest in wellness programs, including employee health education, in hopes of nipping medical issues in the bud. Nearly one-fourth (24%) of employers added resources to those initiatives for 2017. The hottest new wellness benefit this year: standing desks, to give otherwise sedentary employees the opportunity to stretch their legs and improve circulation. In 2013, 13% of SHRM-surveyed employers offered them. This year, the number has risen to 44%.

Overall, the employer share of health benefits costs continues to rise at average rates: 11%, according to the SHRM survey. This increase, however, typically exceeds the average rise of corporate net incomes. Employers, therefore, remain severely constrained in their capacity to stick with their total contributions to employee health benefits — let alone fund an increased share.

Best Shot

Unfortunately, HDHPs with HSAs (or other, similar accounts) haven't offered a quick or remarkable solution to the problem of affordable health care. But, as mentioned, they continue to play a central role in today's benefits landscape — and, likely, tomorrow's. Work with your financial and benefits advisors to determine what would give your organization its best shot at affordability.

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