PPO deductibles found to be just as high as HDHP minimums
Benefit selection data from nearly 2,400 mid-size employers (100-999 employees) reveals that few of these organizations offer high-deductible health plans, but the average PPO plan carries deductibles high enough to legally classify them as HDHPs under government limits.
The study, based on internal files of the cloud-based benefits enrollment and communications platform Benefitfocus, is a follow on to an earlier report that reviewed data from about 500 of the company’s large clients (over 1,000 employees).
The two-part analysis reports that only 11% of mid-sized organizations give employees the opportunity to select an HDHP with just 2% eliminating PPOs/HMOs completely. However, 52% of large organizations offer at least one HDHP and about 6% have transitioned to “full replacement” of traditional plans.
The study shows that the average PPO at mid-size employers carries a $1,415 deductible for individual coverage and a $3,403 deductible for family coverage, which could legally classify them as HDHPs based on 2016 government minimum limits (single: $1,300; family: $2,600.)
“We call these ‘faux HDHPs’,” says Jeff Oldham, VP of consumer strategy at Benefitfocus. “These companies are pacifying older employees who have never known anything other than HMOs, PMOs and co-pays, even if they have to raise deductibles to keep them affordable.” However, he suggests that the net result is that many employees are over-insured and paying too much for healthcare coverage they may never use.
“Employees in traditional plans also have co-pays in addition to high deductibles, which HDHP members do not. Furthermore, only members of HDHPs can save pre-tax dollars in health spending accounts to minimize the impact of high upfront costs,” he says. “To put the costs in perspective, the average family could spend nearly 40% more on health care in 2016, than food.”
Oldham believes that higher deductibles in traditional plans and HDHPs have fuelled the growth of telemedicine and retail clinics at stores such as Walgreens, CVS and Target. “People quickly realize that when they wake up with a sore throat they don’t need to wait in a bricks and mortar waiting room for three hours. They can pay $50 or $60 to see a registered nurse to get a prescription which is far cheaper than $150 for a doctor’s visit.”
Furthermore, he says, “deferral of the Cadillac tax means it is not currently the primary driver of healthcare cost management for most mid-size employers but in the larger market healthcare costs represent such a significant percentage of payroll that these companies have been earlier HDHP adopters.”
Total premiums across all health plans offered by mid-size employers in the Benefitfocus database averaged approximately $14,900 for family coverage and $6,000 for individual coverage with no plans reaching more than 60% on average of the Cadillac tax penalty’s thresholds. However, healthcare inflation could significantly narrow that margin by the time the tax is intended to take effect in 2020.
“What’s complex about the mid-market is that you obviously have [companies] that are teetering on the edge of the large market space but then you have a pretty significant number under 250 lives,” says Oldham. “In the smaller space you are looking at a ton of fully insured businesses that are less likely to offer an HDHP. And even where they do, they often de-incentivize employees from selecting this alternative by keeping premium levels very similar.”
It’s not surprising that potential lack of plan adoption is a significant concern for mid-size employers hesitant to introduce HDHPs, says Oldham. “Not only are these plans foreign to a workforce most familiar with PPOs, PMOs and point-of-service plans, but they require subscribers to take on much more financial risk than the traditional plans do, which can be a strong deterrent to employee participation.”
Nevertheless, when given a choice between a traditional plan and an HDHP, 34% of employees at mid-size companies selected an HDHP, with millennials over 26 the most likely to opt for the higher financial risk exposure that comes with their selection. Yet employees of large and mid-size companies are ill-prepared to pay for unexpected medical expenses, as eligible employees contributed significantly less than half of the maximum amount allowed to HSAs and flexible spending accounts.
According to the report, even when employer contributions are added (an average of $620 for individuals and $1,220 for families) the amount is still 40% below the 2016 HSA contribution limits. The study observes that this gap represents thousands of tax-free dollars that employees won’t have to help them cover current expenses. Employees could be missing a major opportunity to save for future healthcare needs since HSA balances roll over and accumulate interest.
“Our reports make it clear that the need for a different approach to healthcare consumption is pervasive across all plan types and all size employers,” says Shawn Jenkins, CEO, Benefitfocus. “Employees who are either afraid to seek care when they need it or are forced to go into debt to cover their medical expenses can have a negative impact on both the business and the well-being of our society."