When J.C. Penney Co. replaced its preferred provider organization health plan with a high-deductible health plan for all benefits-eligible employees in 2010, it was one of the few large employers to make what is known as a “full replacement” of its health plan.
But the Plano, Texas-based retailer soon could have lots of company, as more than half of employers may make HDHPs their sole health plan offering by 2018, replacing health maintenance organization plans and preferred provider organization plans.
While the rising cost of health benefits has driven this movement, the health care reform law's excise tax on high-cost health coverage in 2018 is accelerating the migration to full-replacement HDHPs, benefits consultants say.
Separate surveys conclude that high-deductible plans will be the only offering by one-quarter to one-half of employers in the coming years.
The larger the employer, the more likely they are to consider going full-replacement, Mercer L.L.C. found, with 29% of employers with at least 20,000 employees saying that a high-deductible plan will be their only health insurance option offered to some employees in the next three years.
“For Fortune 500 companies, that number grows to 33%,” said Sander Domaszewicz, a senior consultant and leader of Mercer's U.S. consumerism practice based in Irvine, California. “Among Fortune's 100 Best Places To Work, it was 30%.”
This compares with just 12% of employers with 500 to 999 employees; 18% of employers with 1,000 to 4,999 employees; 21% of employers with 5,000 to 9,999 employees; and 17% of employers with 10,000 to 19,999 employees, according to the Mercer survey.
Implementation of full-replacement plans varies by region (see related story).
“Cost has always been a driving force” behind the introduction of HDHPs, Mr. Domaszewicz said. “Companies want to provide the best health benefits they can for everybody, but they have limited ability to pay for it. They are looking at their options to figure out how to make their money go as far as possible, and this seems like an option that can help.”
While the cost of a high-deductible plan “might cost the same the first year,” he said, “the increases seem to be lower year after year with consumer-directed plans because people are more careful with how they use care.”
Indeed, “since J.C. Penney's move to a full-replacement consumer driven health plan strategy in 2010 — in concert with other strategic health and wellness initiatives — we have successfully changed from a steeply increasing to a decreasing full-time medical cost trend,” said Matthew Harmon, human resource benefits delivery and retirement director at the retailer.
“Every employer strives for a healthy, engaged and productive workforce, but must recognize negative health realities such as diabetes and obesity. With monumental change in health care and related legislation, our strategy as a company is to continuously evolve,” Mr. Harmon said.
Due to the Patient Protection and Affordable Care Act's imposition of a 40% excise tax in 2018 on insurers that provide fully insured plans and plan adminstrators for self-insured plans that cost more than $10,200 for individual coverage and $27,500 for family coverage, many employers are considering full-replacement high-deductible plans as part of a multiyear strategy to avoid hitting those limits, Mr. Domaszewicz said.
And thanks to the success of early adopters such as J.C. Penney, “I would say it has become an easier path for employers to take,” he said. “As it becomes more mainstream, employers have gotten more willing to consider going to only consumer-directed plans” with high deductibles.
“Compared to every other risk in our lives, we're overinsured for medical coverage,” said Michael Thompson, a principal in PwC's human resource services practice in New York. “Most of us carry significant deductibles on our auto and homeowners insurance. I predict that over time, we're going to see people right-sizing deductibles on their medical insurance, in part because of the Cadillac tax” on high-cost health coverage.
“No matter how much (employers) want to offer a richer plan ... they're more likely to hit the excise tax,” Mr. Thompson said. “Even if an employer chooses to fill in part of that deductible with contributions to either (health reimbursement arrangement or health savings account), the plan itself is better positioned to adjust when they hit that threshold because they can always reduce how much they put into the account.”
Maureen Fay, senior vice president at Aon Hewitt's health and benefits consulting practice in Norwalk, Connecticut, said because health care continues to be one of the fastest-growing expenses for employers, benefit managers are feeling pressure from their executives to “manage that spend.”
“Whereas historically employers might have been offering (preferred provider organization and exclusive provider organization health plans), they're having to modify those plans every single year,” she said. “So we're seeing them be more aggressive moving to HDHPs, but then also try to engage employees.”
“HDHPs are driving positive changes, making employees more conscientious health care consumers,” Ms. Fay said.