High Hopes For High-Deductible Plans

How many health care dollars can be saved when consumers have an incentive to create those savings? In one particular knee replacement surgery, $20,000.

That’s according to Dr. Eric Bricker, chief medical officer of Dallas-based Compass Professional Health Services, which helps employers and their employees control costs as they navigate the health care system.

Compass encourages employers to offer consumer-driven plans – ones with high deductibles and cheaper premiums – because employees have more “skin in the game,” Bricker said.

Case in point: An employee of one of his Arkansas clients needed knee replacement surgery. The cost at a Hot Springs facility would have been $35,000. He instead chose an orthopedic facility in Little Rock that cost $15,000.

The employee shopped around because he was paying 20 percent of the costs. Otherwise, he probably wouldn’t have taken the time.

“When somebody else is paying for it, then you really don’t pay much attention to the value or to the cost, but now when you’re financially aligned to be a consumer, then actually wonderful things happen,” said Bricker, a general internist and former hospital finance consultant. “You actually get higher quality care when you act as a better consumer. You actually get that higher quality care at lower cost.”

Tom Kane, senior vice president with Stephens Insurance, LLC, contrasts high-deductible plans, where employees have an incentive to act like consumers, and low-deductible plans, where they are charged a higher premium but then can pay little for their actual care. Low-deductible plans, he said, give them little reason to consider the costs of consumption.

“People go to the pharmacy, and they’ll pay a $30 copay for a brand drug,” he said. “They think it costs $30. But it might actually be charging back to that employer’s health plan $500.”

Bricker and Kane say interest is rising in consumer-driven plans. According to a 2012 Kaiser Family Foundation report, 34 percent of insured employees were enrolled in a plan with a deductible of at least $1,000 in 2012, compared to 10 percent in 2006, and 14 percent were enrolled in a plan with at least a $2,000 deductible, compared to three percent in 2006. For employees in a single coverage plan with a deductible, the average amount in 2012 was $1,097, compared to $584 in 2006.

Bricker said high-deductible plans are gaining momentum because health care costs have finally reached the tipping point for employers, who also have seen their bottom lines suffer through the Great Recession and slow-growth recovery.

Raymond Raphael, a principal with The Legacy Capital Group corporate benefits consulting firm, remembers quoting individual employee rates at $90 a month, and now they are $400. Year over year, costs have increased about six percent, but this year, as more health care reform provisions in the Affordable Care Act take effect, they are increasing about 10 percent. As the high-deductible plans have become more popular, more employers, and not just the early adopters, have been willing to consider them.

Stephens Insurance’s’ Kane, who tends to work with clients with more than 100 employees, said the plans typically have individual deductibles of $2,000 to $4,000, with family deductibles twice that amount. Many plans have a 100 percent co-insurance option so that once a payer has met the deductible, all future medical expenses are covered. Others have an 80-20 split. Meanwhile, premium savings can range from 10-15 to 30-40 percent.

“When you factor everything in, over a 12-month period, it’s not uncommon for the high-deductible plan, which people perceive to be a lower benefit, to actually pay more. … And it’s cheaper,” he said.

Raphael said his firm has been advising clients to implement consumer-driven health plans for about five years, with a caveat.

“We do tell our groups this, too: ‘You’re not going to eliminate the increased cost of health care just by switching to a high-deductible health plan. All you’re doing is trying to bend the curve, bend the costs of it, so instead of the care going up seven, eight, nine percent a year, you’re going to take it down to four, five, six percent a year,” he said.

How have health insurance rates kept rising when part of the reason the health insurance system exists is to control costs? According to Bricker, insurance companies that wanted to add value for their customers grew their provider networks so large that they lost the ability to negotiate lower prices.

Meanwhile, providers negotiate rates with insurance companies knowing they will make larger profits on some procedures than others, resulting in fee structures that can vary widely by providers for the same procedure.

The price of an MRI scan, for example, can range from $500 to $1,500 within the same network. But that is changing.

“We think that the window on this disparity in cost is going to close over the next several years,” Kane said. “A lot of it is going to be driven by health care reform and Medicare reform, but right now there is a significant difference for the same exact service provided by different providers.”

Raphael said employers are more receptive to high-deductible plans than in the past. Why have some been reluctant? High-deductible plans require employees to be educated about their options, and some employers are reluctant to take them off the job for that amount of time. But many also worry their employees will have cash flow issues if hit with a large medical bill in a high-deductible plan.

“Over the years, I can honestly tell you that most of the employers that I have as clients really do care about their employees, or they wouldn’t be in business, you know?” he said. “They don’t ever give away the kitchen sink. Business owners are in business to make a profit, but they certainly do want to do as much as they can overall for their employees.”

High-deductible plans are often paired with two other vehicles: health savings accounts, or HSAs, and health care reimbursement accounts, or HRAs. The primary difference between the two: HSAs are owned by an individual, while HRAs are owned by an employer.

Health savings accounts operate like individual retirement accounts. Employees with a high-deductible plan contribute money into a tax-free HSA account from which they can draw to pay health care expenses.

According to Raphael, most doctors own HSAs because they can self-treat, have high incomes and need the tax breaks. Because of that, they understand when patients with HSAs ask if there is a cheaper alternative.

HRAs are owned by employers and lack some of the design limitations inherent in an HSA. For example, they can have co-pays and drug co-pays.

According to Raphael, an employer who wants his employees to have a $1,000 deductible can instead offer a plan with a $3,000 deductible and have an HRA . An employee who reaches $1,000 in medical costs can inform the company’s HRA administrator so it can pay the difference.

“It allows the employer to buy a higher deductible plan from the insurance company and therefore save the premium and then just self-insure,” he said.

One hurdle affecting the move toward consumer-driven plans is the Affordable Care Act, otherwise known as Obamacare. Some employers have been too preoccupied with complying with the law to make a move toward consumer-driven plans, slowing the progress.

But the Affordable Care Act also has accelerated the move to consumer-driven health plans because it has increased medical costs for employers. Medicare reimbursements have been reduced, so hospitals have raised prices for the insured.

“I think through 2014 and 2015, as employers kind of work through the remainder of Obamacare, that people are just going to come up with more and more creative solutions to the health care problems,” Bricker said. “So I’m very optimistic.”

The Affordable Care Act also encourages companies to adopt health savings accounts because employers will be looking to avoid paying a penalty to the federal government if their plans aren’t qualified and affordable. The plans must provide essential health benefits, limit the annual out-of-pocket payment after premiums to $6,350 for an individual and $12,700 for a family, and charge premiums that are no more than 9.5 percent of an employee’s annual income.

“What some employers are doing is benchmarking their contributions to the lowest qualified plan that they can offer and still meet the qualification standards, and typically that’s going to be a consumer-driven health plan with an HSA,” Kane said.

According to Kane, larger employers “absolutely” will have an easier time complying with the Affordable Care Act than smaller ones. Larger employers can be at least partially self-insured, and those plans are exempted from some of the act’s more difficult requirements, including the health insurance tax that will equal about two percent on other plans. Unlike smaller firms, larger employers that offer benefits through the state-federal insurance exchanges won’t have to provide the same minimum essential benefits. Instead, those plans are required merely to pay out at least 60 percent in benefits versus the approved expenses.

Raphael said he has read the Affordable Care Act numerous times and decided that it does encourage HSAs, in part because of the advantages HSAs offer but also because fully insured companies must pay out 85 percent of receipts for larger groups and 80 percent for smaller ones.

“Because of that, we’ve taken away the profit motive or the claims management motive away from the insurance company, which is a very scary thing,” he said. “So they have no inducement or encouragement to manage their claim any more. They just have to prove that they paid out 80 or 85 percent of what they take in. So the only way then, if I’m charged by the employer to try to control the claims cost … to have some way to do that is to get the employee, the consumer of care, to be a better consumer of care.”

Choosing a health care provider is much more difficult than choosing which item to order off a restaurant menu. How can a consumer know if one surgeon is better than another, or if one simply was operating on a healthier patient?

Companies like Compass, Stephens Insurance and The Legacy Capital Group can help employers and employees navigate the system.

Technology also will remove barriers. In recent years, major carriers have been providing costs and quality ratings on their member websites.

According to Raphael, while some of those terms may be “somewhat ambiguous,” they also are becoming more standardized. Employees can be directed to those sites. “You can pay $1,500 for an MRI, or you can pay $900 for an MRI within a five, eight, 10 minute drive of each other, and you can see that on these carriers’ websites,” he said.

Bricker believes the trends will continue so that fewer employers offer a low-deductible plan while more offer consumer-driven plans. He believes that physicians and hospitals will become more responsive to health care consumers because the public will demand it.

Kane agreed, pointing to changes that are already occurring in government health plans. Medicare, which is federally administered, will penalize hospitals for readmissions because of secondary infections. Arkansas is reforming Medicaid so that medical teams are paid a set amount for certain episodes, creating a financial incentive for them to treat patents efficiently.

Consumer-driven plans will become more pervasive in the individual market as well.

“There are some people who think that in a few years that most of us will be covered under some type of consumer-driven health plan,” Kane said.