Employers raising PPO deductibles to offset costs
CDHPs affecting other plans
The line between PPOs and consumer-driven health plans (CDHP) has become increasingly blurred as employers shift costs to reduce healthcare expenses.
One figure highlighting this shift is PPO deductibles, which nearly doubled between 2007 and 2008, according to Mercer’s National Survey of Employer-Sponsored Health Plans, a survey of 2,900 private and public employers. The median PPO deductible doubled in just one year as more employers look for ways to reduce their costs. (See Figure 1 on p. 2.)
Employers in smaller companies, especially, are raising deductibles. For larger companies (those with 500 or more employees), median deductibles for indi-vidual and family coverage were $300 and $800 respectively in 2008.
PPO deductibles are a byproduct of the consumer-ism movement, says Blaine Bos, a worldwide partner at Mercer in Minneapolis. “The introduction of the [health savings account (HSA)] may have changed employers’ thinking on just how high a deductible can go without causing employees to revolt,” Bos says. “Raising the deductible has become the fallback for employers faced with cost increases they can’t handle. It’s the easiest way to reduce cost without taking more out of every employee’s paycheck.”
Meredith Baratz, vice president of market solutions at UnitedHealthcare in New York City, says high deductibles are not new to healthcare and were around before health insurers turned to managed care. Earlier designs were low-cost and catastrophic care options, which Baratz says is different from the way CDHPs work now. Consumerism is more than merely shifting costs; it’s a way to educate individuals about costs of care. It pairs fiscal accountability with support services to help people make better health decisions, she says.
“Ultimately, at the end of the day, that’s what will drive affordability in healthcare. It’s people taking the opportunity to own their health, to stay healthy, to manage a chronic illness effectively,” Baratz says.
On the other hand, PPOs with high deductibles don’t have HSAs, and they lack the member education component.
“Now, you are in a very different model, and one that is pretty revolutionary, as we have seen it take off in the past eight years, which is the idea of creating financial accountability with the net of support information that people need to get really involved in their health decisions,” Baratz says.
Health plans and employers have created Web sites that offer price and quality information, which insur-ers contend have created better-educated consumers and are even helping members not enrolled in CDHPs. “Once that information is made available, it can be used by other employees [in PPOs or HMOs],” says Garry Ramsey, chief marketing officer at Bluegrass Family Health, an integrated health plan based in Lexington, KY. “We are seeing that the employee is much more engaged in the process because he is part of the healthcare equation.”
However, Joseph Paduda, principal at Health Strategy Associates in Madison, CT, believes high-deductible accounts, camouflaged as consumerism, are simply catastrophic plans that are forcing the poor out of healthcare. Having a $1,000 deductible is the same as having a million-dollar deductible for people with limited incomes—they can’t afford either one, Paduda says.
“I think there is a significant uptick in the number of folks who can’t afford their healthcare, whether they have insurance coverage or not,” he says.
Paduda predicts more acute episodes and chronic disease, such as asthma, depression, and chronic obstructive pulmonary disease, because members won’t be able to afford care.
High-deductible plans show that health plans are no longer managing care, Paduda says. “What’s happening is the commercial health insurers, both for-profit and nonprofit, have given up any pretense that they actually manage care. It’s managing reimbursements and managing benefits. They don’t manage care,” he explains.
In previous economic downturns, health plan members have used more medical services because they were concerned that their employer was going to stop coverage. For example, a weekend warrior who wrenched his back would head to the doctor’s office when the pain would likely subside over time. Higher utilization meant more costs. That kind of utilization might not happen this time around because deductibles place a greater cost share on employees.
“Higher employee cost-sharing—like a $1,000 deductible—could prevent that spike in utilization that we’ve seen in other recessions,” Bos says.
For the fourth consecutive year, employers held health benefit cost increases to about 6% in 2008 as employers shifted costs to employees. If employers had not transferred more costs onto their employees, Mercer estimated the costs of the largest medical plan would have risen by about 8%.
Bos says health insurers have contained premium costs because of a combination of cost shifting, health management programs, and quality initiatives. “Most of these programs today are bearing a considerable amount of fruit,” he says.
Membership low, interest high
CDHPs have been the flavor of the moment, but membership remains in the single digits, although more employers are creating the plans each year.
In 2008, nearly half of jumbo employers offered CDHPs, whereas one-fifth of large employers had the plans. Small employers have not created CDHPs as quickly. In 2008, 9% of small employers offered CDHPs, but that number is expected to jump to 14% this year. (See Figure 2 above.)
Ramsey says CDHPs account for 11% of Bluegrass Family Health’s business, but that amount grows every month. In fact, the number of members with CDHPs increased by 30% between December 2008 and January 2009. “As the employers raise the costs, meaning the employee contribution to the premium, as well as reducing the benefits, [CDHPs] become a little bit more attractive to the member,” says Ramsey, adding that Bluegrass expects CDHPs will account for 40% of its business within five years.
The number of members who are actually enrolled in CDHPs remains in the single digits. Membership has increased from 1% in 2004 to 7% in 2008, which supporters point to as proof of CDHPs’ growing popularity. Not surprisingly, PPO/POS topped plan type enrollment at 69%, with HMO a far-distant second. (See Figure 3 below.)
Bos suggests health insurers with a heavy HMO membership should be aware of the shift to healthcare consumerism, as that is what employers want. “I would be cognizant that if I am going to continue to be a viable offering, I am going to need to respond to that movement,” he says.
Lower costs in CDHPs
CDHPs are costing employers less money. Costs per plan member in CDHPs increased 4% from 2007 to 2008, whereas HMOs increased by 9.1% and PPOs by 6.3%. PPO plans with deductibles greater than $1,000 still cost over $400 more than CDHPs, according to the study. (See Figure 4 on p. 5.)
“Difficult economic times may speed both the adoption of CDHPs by employers and higher enrollment rates where employees have a choice of plans,” says Bos. “With so many employers already requiring relatively high deductibles, it’s not a big step for them to put in an HSA with a $1,150 deductible—the minimum amount for 2009—and use the savings to fund the account, improving overall value to employees.”
Baratz says UnitedHealthcare performed research to compare its traditional PPO plans against CDHPs and found that the consumer-directed plans cost 7%–9% less than traditional PPO plans—mostly because CDHP members were doing the following:
Those in CDHPs were more apt to follow preventive screenings, such as mammograms, cholesterol screenings, and prostate exams, because UnitedHealthcare’s CDHP does not charge members for preventive care.
“What we’re taking from those data points is that people are making informed decisions about their health and their healthcare, but they’re being smart about it. They are not forgoing care,” says Baratz. “What we’re seeing is people getting the care they need and making decisions about saving money where they can.”
CIGNA says members of its CDHP, CIGNA Choice Fund, do not put off recommended care any more than members of traditional CIGNA plans. Will Giaconia, vice president of CIGNA Choice Fund in Bloomfield, CT, says promoting consumerism allows members to compare doctors and hospitals based on quality and costs. “We have fully integrated [the tools] and made them much more powerful and real for the consumer. It’s about engaging the consumer with the information when they need it,” Giaconia says.
Breaking down CDHPs further, HSA-based plans cost $6,027 per member, compared to $6,420 for plans with health reimbursement arrangements (HRA). Unlike HSAs, HRAs are only funded by the employer rather than the employee and/or employer. More than one-quarter of employers do not contribute to HSAs, and the employers that do contribute donate nearly $700 per CDHP member, according to Mercer.
Ramsey says members are better off in CDHPs than PPOs with a high deductible because there are out-of-pocket caps and savings accounts in CDHPs.
Additionally, CDHPs are a more attractive option for employees than traditional PPOs with deductibles, says Bos. “If your employer puts money in the account and you don’t use many services, you can end up ahead. But it all depends on how you use healthcare,” he says.
Incentives on the rise
Mercer also found that many large employers are adding incentives as a way to encourage employees to use health management programs or improve health habits. Twenty-six percent of large employers and nearly half of jumbo employers offer incentives to take part in health management programs. (See Figure 5 below.) Jumbo employers are also implementing special plan provisions related to employee smoking status, such as lowering premium contribution for nonsmokers. Although nonsmokers benefit from this approach, most employers are not actively penalizing smokers.
Employers are increasingly turning to incentives, but few have implemented disincentives. Bos says this is because disincentives create a “negative environment.” For disincentives to gain popularity with employers, research is needed to show that they have a positive effect.
“It is really going to be dependent on a lot of solid case studies that that particular methodology saves more money than the carrot methodology,” Bos says.
Large employers are also using employee health risk assessments as part of their wellness offerings. Sixty-five percent of large employers offered health risk assessments in 2008, compared to 56% in the previous year.
Retiree insurance drops
Although there has been much consternation about employers dropping health coverage, Mercer found that current employee coverage has remained steady during the past seven years. Sixty-five percent of employers offered health coverage to active employees, which was a slight increase over 2007. (See Figure 6 at left.) Bos suggests the consistency could be because employers are standing pat and waiting for healthcare reforms.
The coverage decrease has come in retiree medical plans. The percentage of large employers that offer coverage to Medicare eligibles and pre-Medicare eligible retirees has dropped sharply in the past 15 years. In fact, the number of large employers that offer coverage to Medicare eligibles has decreased from 40% in 1993 to 19% in 2008.
Bos says that trend is likely to continue and suggests the erosion of retiree coverage could force older employees to delay retirement.
“The slowing economy makes the lack of retiree coverage a bigger issue,” he says. “Companies that hope to reduce their work force through attrition rather than layoffs may find older workers hanging on longer because they don’t want to lose their health benefits.”