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Health reform costs drive employers to migrate toward consumer-driven plans

New fees, coverage requirements drive moves to CDHPs

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Health reform costs drive employers to migrate toward consumer-driven plans

A growing percentage of mid-market employers are migrating toward high-deductible, consumer-driven health plans, partly in response to added financial burdens resulting from the federal health care reform law.

About 34% of employers with between 500 and 4,999 employees offered such a plan linked to either a health savings account or health reimbursement arrangement in 2012, compared with 31% in 2011, according to data compiled by New York-based Mercer L.L.C. Among those employers, 31% offered an HRA-based consumer-driven health plan as their sole group health benefit option in 2012, while 16% of employers had converted from a traditional benefit structure to a consumer-driven plan linked to a health savings account.

“For a lot of employers in the mid-market, we're seeing the consumer-driven plan become the centerpiece of their benefit offerings,” said Tracy Watts, a Washington-based senior partner at Mercer. “Employers all have said that they want to continue to provide benefits, but the challenge is that they can't grow their health benefit budgets as fast as the costs are growing with the combination of the overall trend and the Affordable Care Act.”

Experts said the growing integration of consumer-driven health plans among midsize employers is likely due in large part to the onset of new fees and coverage requirements under the Patient Protection and Affordable Care Act. Next year, employers will have to pay a fee of $63 per health plan participant — either through their group plan's insurer or directly, if the plan is self-funded — to fund the reform law's three-year Transitional Reinsurance Program. The per-participant fee will be reduced in the second and third years of the program, though federal regulators have yet to finalize the amounts.

Also beginning next year, health insurers will be taxed 2-2.5% of their net premium growth, with the tax rate growing to 3-4% in 2015 and years beyond. Experts said it is all but certain those costs will be passed along to plan sponsors and individual consumers.

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“Mid-market employers have been struggling from an economic standpoint to manage their health care costs, and they've been looking for lower-cost plans that they can offer to their employee populations,” said Maureen Fay, a New York-based senior vice president at Aon Hewitt. “Health care reform has certainly accelerated that, with all the new fees that are included in the law.”

Additionally, beginning in 2018, self-funded plan sponsors and insurers of fully insured group health plans will be assessed a 40% excise tax on the premium value of health care plans exceeding $10,200 for individual coverage and $27,500 for family coverage.

Though the reform law's excise tax on “Cadillac plans” will not take effect for another four years, experts said the tax is another key factor in many mid-market employers' decision to outright replace their existing HMO or PPO plans with a consumer-driven health plan or, at the very least, include a consumer-driven health plan option alongside their traditional benefit offerings.

According to Mercer's 2012 National Survey of Employer-Sponsored Health Plans, the average per-active employee costs of health coverage in PPO and HMO plans last year among midsize employers were $10,624 and $10,421, respectively.

By comparison, mid-market employers in 2012 were charged an average $8,263 per-employee for coverage through an HSA-eligible consumer-driven health plan and $9,397 per employee for coverage through a consumer-driven plan linked to a health reimbursement account.

“Those excise assessments, which are based on a percent of premium as opposed to the plan member headcount, are where employers are looking to reduce their overall costs,” said Patrick Haraden, a principal at Boston-based Longfellow Benefits. “Employers are looking to offer plans with the lowest premium possible within the confines of the law.”