Large employers take nuanced approach to HDHP implementation
A new report draws on data from about 500 large Benefitfocus clients in order to benchmark how employers and employees are reacting new cost and regulatory pressures from the Affordable Care Act. The study reveals that the majority of large employers are taking a nuanced, multi-year approach to implementing high-deductible health plans.
Jeff Oldham, vice president of the Benefitstore at Benefitfocus – a cloud-based benefits enrollment and communications platform – decided to mine internal files to find out how employers are navigating this new paradigm.
“We just sort of had this gnawing feeling that medical plans were going to make a fundamental transition to high-deductible health plans. Our gut told us pretty soon they will no longer be optional. So we wanted to draw on our client information to validate that assumption,” he says.
The study of organizations with more than 1,000 employees reveals that 52% of these employers now offer at least one HDHP. Still, only about six percent have transitioned to “full replacement” of traditional plans.
“What we find in the benefits world is that larger employers generally make changes that subsequently trickle down. We know many jumbo employers – over 20,000 employees – have definitely ‘ripped the bandaid off’ and restricted employees to HDHPs with a range of deductibles. But large employers are taking a slower approach,” says Oldham.
“When you make that kind of change it is disruptive. It requires an unbelievable amount of communication and a set of consumer tools that most employers don’t have today.”
“When you make that kind of change it is disruptive. It requires an unbelievable amount of communication and a set of consumer tools that most employers don’t have today,” he adds. “The other thing is that groups like unions, school districts and municipalities currently offer immensely rich benefits for what I would consider average salaries. Transitioning these groups quickly is not an easy thing to do.”
Nevertheless, he believes that the majority of employers represented in the study are looking at a multi-year shift, so that by 2018 when the Cadillac tax is implemented, HDHPs will be the only healthcare plan they offer.
Yet in spite of the staged implementation favored by study participants, when given the choice, 42% of employees on the Benefitfocus platform selected an HDHP for 2016. Participation was strongest among younger employees, with millennials most likely to opt for the higher risk exposure that goes along with these plans.
Oldham believes that millennials selecting HDHPs often need the immediate dollar savings because the majority of them are still buried in student debt. “Also, rightly or wrongly, they believe they are indestructible,” he says. “But the fact is that millennials who only see a doctor once a year for an annual examination are definitely over-insured under a traditional plan.”
And in spite of the slow but steady swing to HDHPs, study results reveal that on average HDHP participants only contributed 40% of the annual maximum HSA amounts that would help them offset the higher upfront costs of an HDHP.
He characterizes HSAs as the American equivalent of a medical 401(k) plan, where contributions can be made on a pre-tax basis and funds can be used for medical expenses both before and after retirement. For 2016, the combined employer/employee contribution maximums for HSAs are $3,350 for single employees and $6,750 for families.
“Even with employer making contributions, HDHP participants — especially millennials, who contributed the least — are leaving on the table thousands of tax-free dollars that could help them manage their medical expenses now or later,” he says.
Furthermore, only 36% of large employers offer potentially crucial voluntary benefits like critical illness, hospital indemnity and accident insurance that can give HDHP participants added financial protection when they encounter unexpected medical expenses and where these voluntary plans are available, only 14% of employees were actually enrolled.
“Ten or fifteen years ago voluntary insurance brokers wanted an off-anniversary voluntary-benefits-only enrollment so there was no confusion with other benefits. Now with consumer-directed plans and employees taking on more risk, conditions are ripe for a voluntary benefits renaissance,” he says.
Oldham acknowledges that with employers and employees paying total average group premiums of $6,000/year for single employees and $15,000/year for families, finding additional funds to deposit in an HSA or purchase collateral voluntary benefits may seem impossible.
But with 20% of the people driving 80% of healthcare costs, he suggests that the majority of employees will be better off paying lower HDHP premiums and using the delta they are spending on traditional plans to invest in HSAs and purchase voluntary benefits.
“Boomers have been in traditional plans for their whole working career, so there is a tendency to think that like a bottle of wine, a more expensive plan is better.”
“Boomers have been in traditional plans for their whole working career, so there is a tendency to think that like a bottle of wine, a more expensive plan is better,” says Oldham. “But many knowledgeable older workers are attracted to the tax advantages and retirement savings opportunities of pairing an HDHP with an HSA and voluntary insurance.”
Benefitfocus CEO Shawn Jenkins believes HDHPs are a win-win. “These consumer-centric benefit strategies are not only being well received by the workforce –specifically millennials – but they are also shielding large employers from impending Cadillac taxes and penalties, no matter what form they may eventually take,” he says.