HDHP: A Plan for Care Avoidance?
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October 30, 2018
Are Bonuses Affecting Your Benefit Broker’s Objectivity?
May 7, 2019As an employer looking to reduce healthcare costs while meeting employee needs, you’ve likely either considered a High Deductible Health Plan (HDHP) or are currently offering one. Many employers will go so far as to offer an HDHP as their only plan option. Proponents of this strategy argue that this is the best way to fully embrace healthcare consumerism. However, we often advocate that our clients consider the HDHP as just one option for their employees, especially if your employee group spans a wide income range.
The risk of only offering an HDHP is that statistically, instead of becoming better consumers of healthcare, a percentage of employees will choose not to seek necessary and recommended care in an effort to save money. This can put their health in jeopardy, cause stress, reduce on-the-job performance and create long-term health issues. Also, by its design, an HDHP is a nonstarter for a subset of employees for whom the numbers don’t work.
We deal with this issue regularly and want to share a few real-world examples from a recent client visit. As we walked employees through plan cost savings and tax-shelter advantages, we observed three distinct reactions to the HDHP among employees at different income levels and life stages.
Who is an HDHP Ideal For?
- People comfortable with fluctuations in their out-of-pocket costs through the year.
- Those seeking tax shelters.
- Healthy people who don’t utilize healthcare frequently.
- More frequent users of healthcare for whom the math works.
Reality 1 – Working Families
The employee that would likely be most adversely affected if the company’s only healthcare option were an HDHP was a married employee with children. Privately, she told us that while she could appreciate the eventual cost and tax savings, she couldn’t afford to set aside several thousand dollars in a Health Savings Account (HSA). This meant that those advantages were essentially out of reach for her.
However, let’s consider what would happen if the HDHP were her only option, or she willingly chose the HDHP, either because she couldn’t afford her employer’s traditional plan, or she thought she could set aside enough money each month to make the HDHP work.
If the employee and her family require no treatment or prescriptions, then she is saving on premiums from day one. However, anyone with kids knows that they see doctors regularly for illnesses, bumps, bruises and more. What happens now? She’s paying her premium, has not funded her HSA adequately, and will have to pay out of her pocket until she meets her family’s deductible (and even then, she’s still paying for co-pays and prescriptions with post-tax dollars).
The possible outcome is that she and her husband become selective about the kids’ treatment while avoiding care for themselves altogether. In fact, a recent study 1 found that 1/3 of people with an HDHP did at least one of the following in a 12-month period:
- Missed a Doctor Visit
- Put Off Recommended Procedures or Surgery
- Failed to Fill a Prescription
- Skipped a Blood Test or X-rays
Care Avoidance Risk: High
If you have employees like this, families that are “stuck in the middle,” we recommend offering a tiered or limited-network plan as an option. In exchange for reduced premiums, they’ll either have choices to make (receiving services from higher or lower cost providers with a tiered network plan) or receive services from a smaller network of providers (limited-network plan). Both of these options require some planning and sacrifice on their part but reduces the incentive to avoid care.
To see how much employees like this could save, read our post on Tiered & Limited Networks.
Reality 2 – Young Employees
Another individual we talked to that day was a young man, a year or two out of college. Like his co-worker with her family, he couldn’t (and didn’t want to) fund an HSA. However, he really liked the monthly savings of the HDHP. And while care avoidance is a possibility in his case, it’s likely true whether he chooses an HDHP, a limited network plan, or a traditional plan. He doesn’t see doctors regularly, doesn’t think he needs to, and is healthy enough that the odds are in his favor that missed treatment won’t affect his long-term health.
Care Avoidance Risk: Moderate
If offering an HDHP to employees like him, advise them that they should, at a minimum, fund their HSA before scheduled procedures – at least they’ll reap some tax benefit.
Reality 3 – Highly Compensated Individuals
In a separate session in our client’s office, we spoke with the company’s senior executives. These individuals have the means to fully fund an HSA, and in fact, are able to fully fund it year after year as an investment vehicle. They are very astute about tax-shelters and know that they are unlikely to find this type of tax advantage anywhere else. Moreover, these executives have enough cash flow to handle large, upfront costs even in the beginning of a plan year when they haven’t accumulated enough of a balance to fund the deductible.
Care Avoidance Risk: Low
Offering employees like this an HDHP makes good sense. They will understand the plan’s advantages and have the means to use it as designed. That said, an HDHP may not be for all of them, even if the math does work. What we heard from some was that the extra effort to track expenses and research treatment options might be more trouble than it’s worth.
Ways to Reduce Care Avoidance
You know your employees better than anyone and know who can benefit from a high-deductible plan. If you’re offering an HDHP, here are two actions we recommend:
- Seed the HDHP.
You can increase your HDHP rollout success by contributing to employees’ HSAs. It’s a tangible incentive and encourages members to seek care when needed. It’s also a strong retention tool. Employers also have the flexibility to design a contribution approach that meets certain goals. For example, you could require wellness program participation to earn the contribution or provide matching contributions to encourage employees to contribute their own funds into an HSA. - Educate, educate, educate.
People need to understand plan fundamentals and be willing to put in the effort to make the most of them. There are lots of simple ways to stretch HSA funds and be a savvy consumer, without sacrificing quality healthcare. Here are a few tips to help employees maximize their HDHP:- Fully Fund the HSA
Maxing out an HSA reduces taxable income. Beyond that, a fully funded HSA creates a medical reserve, helping to mitigate care avoidance. Moreover, with a certain minimum balance, employees can invest in mutual funds and earn tax-free returns. - Take Control
Show employees which expenses count toward their deductible and advise them to always stay in network when possible. Encourage them to talk openly with healthcare providers about costs for prescriptions, diagnostic tests, and health services. - Use Cost Estimator Tools
A new federal law on hospital cost transparency went into effect January 1, 2019 and is moving the industry down the path towards price transparency. You can help them by explaining the difference between list prices, negotiated rates, and what they are ultimately responsible for. Insurance carriers typically have online tools available where members can search for certain procedures in their area and it will show what each provider charges for that service. - Work the Calendar
Remind your employees that deductibles reset at the end of the plan year. If the year is drawing to a close, and the employee has not yet met the deductible, he may consider postponing a scheduled procedure to the beginning of the next plan year. This way he can begin satisfying his newly reset deductible. Similarly, if an employee has met the deductible for the year, he will want to make sure that the procedure is scheduled in the same plan year.
- Fully Fund the HSA
Will Healthcare Get Amazoned?
Amazon, Berkshire Hathaway and JPMorgan Chase & Co. caused ripples across the industry when they announced a joint venture to cut their own employee healthcare costs (and freely share any innovations they create).
The venture’s leaders seem to be looking critically at HDHPs, considering other ways to reduce costs, such as limited/tiered networks and importing drugs from Canada. In fact, according to Bloomberg, JPMorgan has effectively done away with deductibles for employees who earn less than $60,000.
Through our relationship with NFP/Benefits Partners, you can learn about the group’s decision and the potential impact on the industry in this 15-minute podcast.
How Employees Can Use an HDHP to Get the Care They Need
We believe in HDHPs and offer one to employees at Innovo. However, we know the data shows that they don’t work for everyone. If you’ve made the decision to offer an HDHP, you must help employees understand if it is a good fit for them. Explain that an HDHP requires a commitment to actively navigate their healthcare. This is the “self” portion of self-directed healthcare. It means that they must fund an HSA to 1) have the ability to pay for all necessary medical costs and 2) reap tax savings. It also requires that employees engage with providers, seek lower cost options and take advantage of what is provided for little or no cost.
If you are an employer and are worried about the impact on some employees, it’s wise to look more closely at other cost saving plan designs.
1 Guardian Life Insurance, Press Release, September 26, 2016
2 JAMA Network Research Letter, Consumer Behaviors Among Individuals Enrolled in High-Deductible Health Plans in the United States, March, 2018
3 EBRI Issue Brief, Health Savings Account Balances, Contributions, Distributions, and Other Vital Statistics, 2017, October 25, 2018