Employers Are Scaling Back Their Dependence On High-Deductible Health Plans
Everything old is new again. As open enrollment gets underway for next year’s job-based health insurance coverage, some employees are seeing traditional plans offered alongside or instead of the plans with sky-high deductibles that may have been their only choice in the past.
Some employers say that, in a tight labor market, offering a more generous plan with a deductible that’s less than four figures can be an attractive recruitment tool. Plus, a more traditional plan may appeal to workers who want more predictable out-of-pocket costs, even if the premium is a bit higher.
That’s what happened at Digital River, a 650-person global e-commerce payment processing business based in Minnetonka, Minn.
Four years ago, faced with premium increases approaching double digits, Digital River ditched its traditional preferred provider organization plan in favor of three high-deductible plans. Each had different deductibles and different premiums, but all linked to health savings accounts that are exempt from taxes. This year, though, the company added back two traditional preferred provider plans to its offerings for workers.
Even with three plan options, “we still had employees who said they wanted other choices,” said KT Schmidt, the company’s chief administrative officer.
Digital River isn’t the only company broadening its offerings. For the third year in a row, the percentage of companies that offer high-deductible plans as the sole option will decline in 2020, according to a survey of large employers by the National Business Group on Health. A quarter of the firms polled will offer these plans, sometimes called consumer-directed plans, as the only option next year, down 14 percentage points from two years ago.
That said, consumer-directed plans are hardly disappearing. Fifty-eight percent of covered employees worked at companies that offered at least one high-deductible health plan in 2019, according to an annual survey of employer health benefits released by the Kaiser Family Foundation last month. That was second only to the 76% of covered workers who were at firms that offered a PPO plan. (KHN is an editorially independent program of the foundation.)
When Digital River switched to all high-deductible plans for 2016, the firm put some of the $1 million it saved into the new health savings accounts that employees could use to cover their out-of-pocket expenses before reaching the deductible. Employees could also contribute to those accounts to save money for medical expenses. This year the deductibles on those plans are $1,850, $2,700 and $3,150 for single coverage, and $3,750, $5,300 and $6,300 for family plans.
The company put a lot of effort into educating employees about how the new plans worked, said Schmidt. Premiums are typically lower in high-deductible plans. But under federal rules, until people reach their deductible, the plans pay only for specified preventive care such as annual physicals and cancer screenings and some care for existing chronic conditions.
Enrollees are on the hook for everything else, including most doctor visits and prescription drugs. In 2020, the minimum deductible for a plan that qualifies under federal rules for a tax-exempt health savings account is $1,400 for an individual and $2,800 for a family.
As their health savings account balances grew, “more people moved into the camp that could see the benefits” of the high-deductible strategy, Schmidt said. Still, not everyone wanted to be exposed to costs upfront, even if they ended up spending less overall.
“For some people, there remained a desire to pay more to simply have that peace of mind,” he said.
Digital River’s PPOs have deductibles of $400 and $900 for single coverage and $800 and $1,800 for families. The premiums are significantly more expensive than those of the high-deductible plans.
In the PPO plan with the $400/$800 deductible, the employee’s portion of the monthly premium ranges from $82.37 for single coverage to $356.46 for an employee plus two or more family members. The plan with the $2,700 deductible costs an employee $21.11 for single coverage and the $5,300 deductible plan costs $160.29 for the employee plus at least two others.
But costs are more predictable in the PPO plan. Instead of owing the entire cost of a doctor visit or trip to the emergency room until they reach their annual deductible, people in the PPO plans generally owe set copayments or coinsurance charges for most types of care.
When Digital River introduced the PPO plans this year, about 10% of employees moved from the high-deductible plans to the traditional plans. Open enrollment for 2020 starts later this fall, and the company is offering the same mix of traditional and high-deductible plans again for next year.
Adding PPOs to its roster of plans not only made employees happy but also made the company more competitive, Schmidt said. Two of Digital River’s biggest competitors offer only high-deductible plans, and the PPOs give Digital River an edge in attracting top talent, he believes.
According to the survey by the National Business Group on Health, employers that opted to add more choices to what they offered employees typically chose a traditional PPO plan. Members in these plans generally get the most generous coverage if they use providers in the plan’s network. But if they go out of network, plans often cover that as well, though they pay a smaller proportion of the costs. For the most part, deductibles are lower than the federal minimum for qualified high-deductible plans.
Traditional plans like PPOs also give employers more flexibility to try different approaches to improve employees’ health, said Tracy Watts, a senior partner at benefits consultant Mercer.
“Some of the newer strategies that employers want to try just aren’t [health savings account] compatible,” said Watts. The firms might want to pay for care before the deductible is met, for example, or eliminate employee charges for certain services. Examples of these strategies could include direct primary care arrangements in which physicians are paid a monthly fee to provide care at no cost to the employee, or employer-subsidized telemedicine programs.
The so-called Cadillac tax, a provision of the Affordable Care Act that would impose a 40% excise on the value of health plans that exceed certain dollar thresholds, was a driving force behind the shift toward high-deductible plans. But the tax, originally supposed to take effect in 2018, has been pushed back to 2022. The House passed a bill repealing the tax in July, and there is a companion bill in the Senate.
It’s unclear what will happen, but employers appear to be taking the uncertainty in stride, said Brian Marcotte, president and CEO of the National Business Group on Health.
“I think employers don’t believe it’s going to happen, and that’s one of the reasons you’re seeing [more plan choices] introduced,” he said.