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‘Consumer-driven’ health plans continue to gain ground in CT

October 12th, 2015

It appears high-deductible health plans are here to stay.

Since 2008, enrollment in so-called “consumer-driven” plans has grown 10 percent per year in Connecticut as companies have felt the pinch of higher healthcare costs.

As of last year, the number of Connecticut workers enrolled in high-deductible plans, as defined by the IRS, reached 264,219, according to data from industry association America’s Health Insurance Plans (AHIP).

That’s the highest number in New England and represents more than 11 percent of total commercial health insurance enrollment in the state. Connecticut’s high-deductible plan enrollment nearly doubled from 2008 to 2014.

None of that is particularly surprising to Mark Adams, human resources director of the Employers Association of the Northeast (EANE).

Adams said long-rising prices of more traditional health plans, like HMOs, have forced employers’ hands.

“Something just simply has to give. Companies are challenged to provide products and services at competitive prices and trying to do so in as lean a fashion as possible,” said Adams, who added that high-deductible plans gained an early foothold in Connecticut in the early 2000s.

EANE, which offers HR consulting and other services, recently surveyed its more than 900 member companies in Massachusetts, Connecticut and Rhode Island about their experiences with health insurance.

It found that 13 percent of the 121 respondents are currently offering a high-deductible plan to employees, but that a majority are considering adding one of the plans by next year.

Simone Torneo, a senior advisor at Farmington broker Ovation Benefits, said virtually all of her Connecticut clients offer high-deductible plans, either as one of several options, or increasingly, the only option.

The shift, according to Ovation senior advisor Christine Gaiser, is the result of traditional co-pay plans and hospital-deductible plans becoming unaffordable.

Besides immediate cost savings, Adams said some employers may be offering high-deductible plans to lower their premium costs below the “Cadillac tax” cap, which is an Affordable Care Act measure that goes in effect in 2018. That’s when individual plans with annual premiums of $10,200 or greater ($27,500 family) will face a 40 percent tax on the difference between the plan’s premiums and the cap.

Phil Vogel, president of the Connecticut Business & Industry Association’s insurance exchange arm, CBIA Service Corp., said high-deductible enrollments are growing in his organization’s private exchange. He wouldn’t give an exact proportion, but he said high-deductible enrollments are greater than the 11 percent statewide number cited by AHIP, but less than half.

“Yes we offer it, yes we’re seeing it and we’re seeing somewhat of an increase,” Vogel said.

Connecticut’s relatively high cost of health insurance makes things even more difficult for companies, many of which offer employee insurance anyway, to their credit, Vogel said.

“Employers are responsible in providing plans, but they also have to figure out what is affordable and how they can compete in a worldwide economy,” he said.

The high-deductible tradeoff

Employers are drawn to high-deductible health plans because it often saves them money in the form of lower employee premiums. In Connecticut, employers paid about 79 percent of their employees’ premiums across all commercial plans last year, according to federal data.

A Connecticut employer whose employees moved to a high-deductible plan in 2009 would have saved approximately $579 per year since then compared to the average for all types of commercial plans, according to AHIP, whose member insurers have advocated for the plans as a way to reduce healthcare costs.

The tradeoff for lower up-front premiums is higher deductibles and other employee-borne costs, like co-pays.

Employees, too, have seen an increasing portion of their earnings go towarod health insurance, according to a recent national report by the Kaiser Family Health Foundation, which found that premiums and deductibles have climbed 24 percent and 67 percent, respectively, since 2010. Meanwhile, wages rose 10 percent and inflation rose 9 percent, Kaiser said.

What helps employees in high-deductible plans hedge against potentially high out-of-pocket costs is that they’re permitted to sock away $3,350 in pre-tax earnings ($6,650 for a family plan) in a health savings account, which can be spent on healthcare expenses. Unused balances roll over each year. Employers, too, can contribute money to HSAs. Another option for employers offering a high-deductible plan is a health reimbursement account (HRA), which allows them to reimburse portions of employees’ deductibles.

The idea of a consumer-driven plan is to make customers more aware of the cost of health care. The potential for paying hundreds or thousands of dollars out of pocket for care forces many consumers to consider whether they truly need to go to the emergency room or doctor for an ailment, or if a generic drug might be just as good as a brand-name drug, insurers say.

Consumer-driven plans have their critics too. A 2014 study by the Commonwealth Fund found that 40 percent of adults with annual deductibles equal to 5 percent or more of their incomes skipped needed care, recommended tests or specialist care because they wanted to avoid paying the deductible. Meanwhile, 23 percent of consumers with deductibles equal to less than 5 percent of their incomes skipped care.

The median individual income in Connecticut is $37,726 per year, which would mean the cheapest qualifying consumer-driven plan would have a deductible equal to about 3.4 percent of median annual income. Someone making $26,000 would be at the 5 percent line cited by the Commonwealth study.

Insurers put the concept of consumer-driven care into action in the early 2000s and have sold an increasing number of high-deductible plans since.

Bloomfield-based Cigna, which reports more than 3 million customers enrolled in its high-deductible Choice Fund plans, periodically releases studies on its consumer-driven insurance customer base.

One study last year said Choice Fund patients weren’t skipping care in the first two years and that they were actually paying less out of pocket — 21 cents of every dollar — than their counterparts in more traditional plans, who paid 24 cents.

But the study also indicated that the plans tend to attract employers with healthier workers — employers who switched solely to a high-deductible plan had 28 percent fewer employees with “high-risk” health conditions than traditional-plan customers, according to Cigna.

Though high-deductible plans are becoming more common in Connecticut and other states, EANE’s Adams said employers are sensitive to how employees might react to a switch.

Health savings accounts will feel foreign to some employees, he said, and they also may not appreciate that using healthcare services will likely mean higher out-of-pocket costs, even if premiums aren’t as high.

“For companies that have relied on richer benefits as a way of attracting and keeping top talent, and are realizing they can no longer sustain traditionally low-copay, low out-of-pocket plans, they are challenged in how to learn these new plans and educate employees,” he said.

Torneo, of Ovation Benefits, conducts info sessions for clients’ employees, many of whom have never had a health savings account.

Some clients, particularly those with drug prescriptions, worry about the cost impacts, she said.

Torneo said she has seen workers warm to the plans, particularly after a few years of building up a nest egg in their health savings accounts.

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