Health Savings Accounts (HSAs) have been in place now for more than nine years. Studies continue to show that more and more employer groups are now offering HSAs either as an option or as their lone benefits offering. In fact from January 2011 to January 2012, enrollment in HSAs rose by 18.4%. If you’re a company that has chosen not to offer one of these consumer directed health plans, are you missing the boat? Are you leaving thousands, maybe even millions of health care dollars on the table in potential “savings”? Don’t panic—even those that have already implemented HSA plans over the years may not have done so in the most effective way and are still working to improve their strategies and maximize cost savings. It’s taken employer groups, insurance companies and many insurance advisors countless tries to formulate a successful and sound HSA plan strategy.
When HSA plans first entered the market they were met with great resistance because the High Deductible Health Plans (HDHP) required to be offered along-side HSAs created sticker shock for consumers who had grown accustomed to traditional plans that focused on co-pays. Intuitively it made sense that HSA plans would cost less than the traditional co-pay plans… but how much less? Originally the insurance actuaries were able to calculate the precise cost savings based on the increase in liability that the high deductible offered, however, they were not so sure what, if any value or savings would be produced by the “consumer-directed” aspect of these plans. The concept of the HSA strategy was simply to shift some of the financial burden of paying for health care expenses to the consumer by requiring they pay for an annual high deductible before the insurance plan began to pay. The HSA itself was an account the consumer and their employer could fund on a pre-tax basis, to help pay for the liability the insurance plans did not fund. Two of the key elements that made it desirable for consumers to maintain funds in their Health Savings Accounts were, a) contribution made to these accounts were deposited on a pre-tax basis and b) all monies, once deposited into the HSA were 100% owned by and available to the consumer. Putting this control in the hands of the consumers was what proponents of this strategy hoped would cause consumers to make more informed decisions about what health care services and providers they used, thus the term “consumer-driven.”
At the time these newer plans entered the market, employer group plans were being quoted premium discounts in excess of 20% and in some cases up to 40% for switching from a traditional “co-pay” plan to the HDHP/HSA plan strategy. Coincidentally, it was the pricing of these plans that delayed their ultimate success. Employers groups were very interested in reaping the premium saving available by switching to these plans however they were concerned about the adverse reaction they would get from their workforce because of the increased out of pocket liability the employees would face with these high deductible health plans. Therefore, what many employers decided to do was to use the premium saving to fund a large portion of the employee’s annual HSA plan deductible. In doing so, the employees would certainly be more accepting of this new strategy… right? In certain business sectors such as health care and municipal government, it was common practice use the premium savings to fund 100% of the plan deductible, leaving virtually NO out of pocket costs for the employee nor their family members. Now, let’s stop and think about this for a minute… You are the CFO of a skilled nursing facility with 250 employees on your benefits program. The cost of your health insurance plan is approximately $2.5 million in gross premium. You can save $625,000 (25%) to move to an HDHP/HSA plan with annual deductibles of $1500 per single and $3000 per family. Based on your population you could fund 100% of the deductible for all enrolled employees and still save $100K. Wow… sounds like a win-win, right? Wrong. The unfortunate reality is that this is what many employer groups did from 2003 through 2009. These same groups have spent the time since then combatting annual renewal hikes by increasing HSA plan deductibles and lowering HSA account funding because of a simple miscue in strategy.
These groups treated the move to a HDHP/HSA as a “plan design change.”
The move to the HDHP/HSA model was not meant to be a just a plan design strategy. It was designed to get employees and their families involved in better understanding the high cost of health care while giving them the tools to make more informed choices when choosing providers and utilizing health care services. Because many groups used the premium savings to over-fund the HSA deductibles, employees actually enjoyed richer health insurance benefits then they had had in the past because instead of paying a co-pay when they went to the doctor or hospital or pharmacy, they now paid nothing! What followed was fairly intuitive. The insurance industry realized a spike in HDHP/HSA plan utilization from 2006-2008 because employees and their families over-utilized these plans and were forced to increase rates for these plans substantially. So what is the right formula? Many employers still have time to course correct. When considering how to move forward with your HDHP/HSA strategy you must be able to answer these questions before proceeding:
- What is the average health insurance claims utilization per capita for my population?
- What deductible level does your HDHP have and why?
- How does it tie to your utilization?
- What is your action plan to help your employees understand the health care strategy you are implementing?
- What is your plan of action to help foster the environment of better health within your organization?
Understanding the answers to these questions is critical in developing your HDHP/HSA strategy and will most definitely help to stem the tidal wave that is the rising costs of health care… and there is still plenty of time.
Ron Theriault, Vice-President and Senior Practice Leader
Ronald Theriault specializes in the healthcare and public sector markets. Ron has more than 22 years of experience as a consultant in the insurance industry. Elements of his work include managing RFP processes, developing annual budget projections, disciplined understanding of insurance underwriting, formulating progressive plan designs, creating collective bargaining strategies and providing expert testimony at arbitration hearings. Ron is an active member of the Connecticut Association of Boards of Education, Connecticut Association of School Board Officials, Connecticut Government Finance Officers Association and Connecticut Association of Healthcare Facilities. He graduated with a B.A. in Mathematics from Bates College.