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HDHPs and the Achievability of Affordability

08.30.2017

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 efforts 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. However, 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). It's important to note that HSA contributions can be made only if an employee has an HDHP. Even so, this move is proving to be no silver bullet.

In a nutshell
The problem 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):

As you can see, both out-of-pocket limits are quite high. 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, which are $3,400 combined employer and employee contributions for single coverage; $6,750 for family coverage, are lower than the typical HDHP deductibles and out-of-pocket limits set by employers. Even if they could afford to do so with HSA funds, many employees can’t fully fund their deductibles, or out-of-pocket maximums.

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. In 2015, a survey by the 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, for single and family coverage.

However, 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
One driving factor behind HDHPs’ inability to improve affordability is 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.

Before the 2016 presidential election, a survey conducted by the American College of Emergency Physicians revealed just how high deductible limits were playing out in the ER. Nearly three-fourths 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. Nonetheless, the specified services were too narrow in scope to ever fully succeed. Immunizations and health promotion can 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. The company warned in a policy document that “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.”

These concerns aren’t surprising in light of other periodic surveys indicating low savings accumulations by average Americans. A survey published in January 2017 by Bankrate found that only 41 percent of respondents had enough reserve funds to handle an unexpected $1,000 expense. Another survey from last September by GOBankingRates.com found that only 15 percent of Americans have at least $10,000 in savings, and 69 percent 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. Among those sampled, the adoption of HDHPs with HSAs is continuing its steady march, and the prevalence has grown from 42 percent in 2013 to 55 percent this year.

More importantly is the increasing number of employers that are making contributions to employees’ HSAs. Over that same time span, the percentage has grown from 26 percent to 36 percent.

Contributing to employee HSAs obviously entails an increase in employer outlays for health benefits. However, it 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.

Despite this viewpoint, 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.  The respondents to this survey were large employers with 500 or more employees.

Other notes on affordability
Of course, there are additional 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.

According to the SHRM survey, more employers are introducing new restrictions and surcharges for spousal and family coverage: 19 percent have done so recently for spousal coverage, and 6 percent for dependent benefits. 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 95 percent of employers still offer spousal coverage, prevalence has leveled off in recent years. The same pattern is true of domestic partner coverage for opposite and same-sex coverage. The SHRM survey found that although the prevalence of these benefits is much lower, roughly more than 50 percent of employers offer it.

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 of employers added resources to those initiatives for 2017. The trending wellness benefit this year is offering standing desks to give otherwise sedentary employees the opportunity to stretch their legs and improve circulation. In 2013, 13 percent of the SHRM-surveyed employers offered them. This year, the number has risen to 44 percent.

Overall, the employer share of health benefits costs continues to rise at average rates of 11 percent, according to the SHRM survey. This increase, however, typically exceeds the average rise of corporate net incomes. Therefore, employers remain severely constrained in their capacity to stick with their total contributions to employee health benefits and 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. As mentioned previously, they continue to play a central role in today’s benefits landscape and beyond.

Present_RonIf you have questions on determining what would give your organization its best shot at affordability, please contact Ron Present, Partner and Health Care Industry Group Leader, at rpresent@bswllc.com or 314.983.1358.

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