Employers are heading into "open enrollment" season when companies decide what kinds of health plans to offer to offer employees. More companies are including health plans with higher deductibles.
Though these plans have been around for nearly a decade, many employers and employees alike have little understanding of them and their impact on costs, a new analysis from the Employee Benefits Research Institute shows.
The simple reason for this is that employees have never had to think about health benefits. Each pay period money is deducted from our paychecks. We get sick, we call our doctor. Maybe we pay a $20 copay. The rest is covered by our employer.
But high-deductile health plans are a big departure from traditional benefits. When high-deductible health plans were trotted out in 2001, they were supposed to change the way we shop for health care. Instead of having a benefit-ie. unlimited health care-employers gave employees money and said, " Go figure out how much you want to spend and how." Only when the deductible was reached--sometimes as high as $5,000--did the health plan start paying for medical care.
In 2001, health reimbursement arrangements came into being: a health care checking account used by an employee until he leaves the company,after which the money reverts back to the employer. These are good for companies with high employee-turnover.
In 2003, Congress created health savings accounts: money is deposited into the account and is owned by the employee who can use it down the road when he no longer works for that employer. These allow individuals to have a greater vested interest in saving health care money over the long term, as the money in their accounts is good to keep. The money can only be used for health care, but when they reach retirement age they can withdraw it for other uses without penalty.
Both of these differ from Flexible Spending Accounts, which allow you to set aside up to $5,000 a year on a pre-tax basis and use the money for health care costs. Like HSAs, FSAs are tax advantaged and the amount you can set aside is limited. But FSAs operate as "use it or lose it" money. FSAs for 2010 expire in March 2011. Unused money cannot be rolled over the following year, unlike HSAs which are truly savings accounts.
High deductible health plans with HRAs or HSAs plans have been particularly popular among jumbo firms. A third of large firms now offer plans with health savings accounts. Small firms have been less likely to offer these plans in part because making the change requires time, energy and investment.
Still, overall enrollment is much lower than offer rates suggest. One study by the Kaiser Family Foundation estimated that enrollment in these plans was around 8 percent-slow and steady growth perhaps but not exactly transformational.
Here's the telling part: if employees have a choice, most do not enroll in a high-deductible plan. It turns out that the best way to get an employee to use a high deductible plan is to make it the company's only choice. Even though fewer smaller employers offer them, those that do generally make it their only plan. For them it's a last resort, a way to keep premiums down.
But companies that offer high-deductible plans as a last ditch effort probably aren't going to see much savings. One reason, as I've said before is that high health care costs are naturally linked to high utilization. If your employees' average health spending is higher than your deductible, enrollees will probably burn through their deductible and then continue to spend tens of thousands of dollars as they would anyway, far exceeding the savings to the company of a higher deductible.
High deductible plans, because they force changes in consumer behavior, can also have unintended consequences. As the EBRI brief shows, high deductibles can lead people to not get the medicine they need to stay healthy. That can have costly side effects, like avoidable emergency room visits and hospital stays.
As you think about open enrollment and offering new plans to employees, know that any change is big change. If a change is to a high deductible plan, your employees will be shocked and confused and probably angry. Before you go down this road, make sure to communicate the new plan and explain your rationale behind it.
Companies that offer on-site medical clinics that make it easy to get the care people need--check ups, medicine for chronic illnesses--generally have happier employees and lower costs, as I wrote here.
High deductible plans can work to get people to spend their health care dollars wisely, but unless they are also designed to keep people healthy, any savings may be short lived.