The Healthcare Election

Consumer-driven healthcare has become a mantra for companies fighting to contain rising health benefits costs over the last several years. But just within the past year, this mantra has taken on a tone of greater specificity as more and more employers have embraced health savings accounts (HSAs) combined with high-deductible health plans (HDHPs).

The popularity of these plans, which became available in 2004, has surged; 3.2 million people were enrolled by the end of 2005. The United States Department of the Treasury predicts that 14 million policies covering 25 to 30 million people will be in place by 2010. Much of the growth has come from businesses that offer the plans to employees.

High-deductible health plans are attractive to employers because they generally cost substantially less than traditional health plans and their premiums tend to go up at a much slower rate than non-consumer-driven models such as Preferred Provider Organizations (PPOs). According to JoAnn Laing, president and CEO of Ridgefield, N.J.-based Information Strategies Inc., high-deductible plans generally cost about a third less than traditional health plans. “It certainly depends on the location and company's history, but high-deductible/HSA models have been going up in the low single digits while premium increases for non-consumer-driven models have been running about 9 percent a year since the turn of the century.”

But while the cost component is often the primary motive for businesses to go the HDHP/HSA route — and CFOs are frequently the driving force behind their adoption — best-practice companies don't look for immediate savings and often spend the same amount of money on health benefits in the first year.

“A lot of people who aren't very informed about this issue think that the benefit of the HSA and high-deductible health plan is that by raising the deductible you're putting the burden on the employee, but that's not the case,” says Susan Relland, an attorney with Miller & Chevalier's employee benefits and employment tax practice. “Almost every employer who puts this in spends the same number of dollars. Let's say that you had a PPO before and you were spending $10,000 a year per employee on healthcare. Most employers still choose to spend the whole $10,000 on healthcare. It just takes a different form. The high-deductible health plan premium is usually less, but then maybe they put dollars into the HSA. So, they're looking more for long-term return on the investment. Most companies that do this effectively don't expect to save money in Year One. But they're going to save more money in Year Two and beyond.”

The return on investment long-term for employers is twofold, says Relland. “First, employees are making savvier, more informed choices, so utilization goes down. Studies show that people are getting the services they need, but they're more likely to use generic drugs, for example, so they're making better financial choices. The second piece is that because of smarter choices you'll have a better trend over time — smaller cost increases at the end of the year. Sometimes companies see no healthcare inflation in the second year if they offer this as the only healthcare option. The more people you have in the plan, the more likely you'll get this twofold ROI benefit.”