Having spent the last 15 years in the insurance industry, including many leadership positions with carriers, and now stepping into the CEO role of the nations largest organization of independent benefits advisors, Ive seen first-hand how the industry has faced unprecedented change -- change among insurers, providers, the government, employers, and employees alike. We are seeing a much greater focus on value-based and bundled care arrangements, accountable care, and the consumerization of health insurance.
Exchanges, in particular, are driving the consumerization of health care. Exchanges are creating a significant distribution shift in the benefits marketplace -- specifically, increased choice, changing funding mechanisms, defined benefit or defined contribution, and opportunities for new product offerings.
Two products that have seen significant changes as a result of the Patient Protection and Affordable Care Act and the effects of the exchange marketplace are both health savings accounts and health reimbursement arrangements.
I spoke with Elizabeth Kay, Compliance and Retention Analyst for AEIS, a UBA Partner Firm in San Mateo, Calif., about why this trend is unfolding.
LES: Elizabeth, what you are seeing in the field that is making employers adopt HSAs over HRAs? What do you think is driving this trend?
ELIZABETH: In order to understand this trend, we have to first look at why health care costs are rising in general, and what you refer to as the consumerization of health care.
The rising costs of health insurance are directly related to the rising cost of health care. One of the contributing factors has been consumers saying yes to tests or procedures that they might not really need but because the insurance companies were paying for them, they may not have been motivated to say no.
Consumer-Driven Health Plans were designed to A) make plans more affordable; and B) help the consumer make better, more informed decisions about their health care since they would be paying the first thousand dollars or more of their claims. While the strategy was great, in the small group marketplace, when HSA plans were first introduced, it sort of backfired.
LES: Why did it backfire? Can you explain what happened?
ELIZABETH: The reason it backfired was that the premiums were so affordable, an employer could move their plan to an HSA plan, fund most or all of the deductible for the employees, and still save on costs of administering their benefit plan. In this scenario, however, employees were still spending money that was not from their own pocket. The resulting claims experience on HSA plans went up higher than projected, and so did the premiums.
Then came hybrid PPO plans that had a high deductible, but came with an office and pharmacy copay as first dollar benefits (not subject to the deductible). Some carriers allowed an employer to wrap an HRA administered by a third party administrator around these plans so that the employer could still fund a portion of the deductible to make the overall plan more affordable for their employees and their families.
Unfortunately, this strategy has not always done well, either. Many carriers would only allow an employer to wrap an HRA with certain plans in their portfolios that had been rated accordingly. However, as explained earlier, when an employer funds most or all of the deductible, the carrier may see higher claims than were projected because employees are not acting as better consumers facing the loss of their own money. The result: carriers may not have collected enough premiums to cover the losses if the plan was not originally rated with this in mind.
LES: Can you give me an example?
ELIZABETH: Yes. For example, Aetna small group in California had originally allowed all of their 2014 plans to be wrapped with an HRA. Some TPAs were claiming they could take a bronze level plan and turn it into a platinum plan with the Aetna bronze plans wrapped in an HRA. However, Aetna quickly realized that this approach did not promote more engaged and cost-conscious consumers, and as of March 31, 2014, no longer allows any of their plans to be wrapped with an HRA. In fact, they now require the employer to sign a Statement of Understanding declaring that they are not funding any of the deductible unless it is an HSA plan, and that they are funding to a qualified HSA account.
LES: So by removing the consumerization aspect, costs didnt change according to how the plans were rated, correct?
ELIZABETH: Correct. Most high deductible plans are rated with the assumption that claims will be less frivolous overall than a low deductible PPO plan, and the insured will be more careful in their spending. I suspect that Aetna's quick change was due to large claim losses in the beginning of 2014.
LES: Of course, the flip side to an employer implementing a CDHP or an HSA plan with a high deductible, and not funding any portion of the deductible, is that some of their workforce may not be able to afford the new plan. How do you help them find a balance between affordability for themselves and their employees?
ELIZABETH: This is where good employee communication and education becomes a critical component of any health plan, especially with CDHP/HSA/HRA plans, which require a good bit of knowledge about proper use and utilization. Proper communication makes a huge difference in perception. In addition to that, there are other creative solutions that can be offered.
For example, if I had a group where there were employees who would be faced with a hardship moving to a new higher deductible plan, I would advise that the employer also implement another component, or ancillary product, that would create a win-win for both the employer and their employees.
Implementing a second plan with a lower deductible that may have a smaller doctor network could still offer affordable premiums, and be manageable for the employee with a lower income; or perhaps offer a Tel-a-Doc service where an employer would pay a small fee per employee per month, and the employees could have a doctor visit over the phone or via an Internet chat. The employee would simply pay a small office copay such as $10 or $20 and not have to first pay any portion of their high deductible.
McPhearson is CEO of
