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High-deductible health plans surge in popularity

Employers nudge workers away from traditional plans to avoid Cadillac tax

High-deductible health plans surge in popularity

To stem ever-escalating group health plan costs and avoid the hotly debated Cadillac tax, employers have escalated adoption of high-deductible health plans, which may mean preferred provider organization and health maintenance organization plans are on their way out.

Employers last year continued to tweak their group plan designs as growth in health costs, plus the pressure of the 40% excise tax, made changes a priority.

But even with the fear of the Cadillac tax, employers have steered clear of sweeping measures.

“Because there's been relatively modest (health care cost) trend year over year, employers have not done drastic things with plan design, with or without the Affordable Care Act,” said David Fortosis, Chicago-based senior vice president and health care consultant at Aon Hewitt.

Health care costs increased 3.2% in 2015 after employers made plan design changes, down from 4.4% in 2014, Aon Hewitt said in a November survey. That's the lowest increase recorded since Aon Hewitt began tracking the data in 1996.

Many employers are waiting to see whether the Cadillac tax, now delayed until 2020, will be repealed before making major design changes, sources said.

Employers most often have been “tweaking” their plan designs, Mr. Fortosis said.

Still, small adjustments can lead to big savings, sources said. And shifting costs to employees is an obvious starting point to limit rising costs.

“More employers are adding the high-deductible plan option, and more employers are creating stronger financial incentives for employees to enroll in that plan,” said Ed Kaplan, national health practice leader at The Segal Group Inc. in New York. HDHPs “tend to lower claim costs so that you either avoid the tax or push out the potential tax liability several years.”

The National Business Group on Health pegs the percentage of large employers planning to offer a consumer-driven health plan in 2016 at 83% and more than one-third intend that CDHP to be the only option, according to an August survey.

To illustrate, the medical cost per employee enrolled in a CDHP linked to a health savings account averages $9,228 compared with $11,212 for PPOs and $11,248 for HMOs, Mercer L.L.C. said in a November survey.

Employers also are charging more to cover employee's spouses, and interest is growing in self-funding health coverage, experts say. The trend does not bode well for conventional PPOs and HMOs, some say.

Bruce Elliott, Alexandria, Virginia-based manager of compensation and benefits at the Society for Human Resource Management, said traditional PPOs with low deductibles could eventually “could go the way of the dodo” bird.

If PPOs and HMOs continue, “we're going to see increased deductibles, (and) we're going to see reduced coinsurance rates. In other words, they are going to put more on the employee,” he said.

“It depends on the industry you're talking about,” said Segal's Mr. Kaplan. In retail, where salaries are lower and turnover is higher, workers may be moved into lower-cost plans. But in industries with richer benefits, such as the public sector, workers “want a rich option,” he said.

Sometimes employees make the choice.

At Tamarac, Florida-based City Furniture Inc., 80% of workers are in an HDHP linked to a health reimbursement arrangement, said Janet Wincko, City Furniture's vice president of employee benefits. Only 20% remain in the firm's HMO, which is extremely pricey, Ms. Wincko said.

Also hanging in the balance is the fate of HSAs and HRAs. Without them, employees would shoulder the entire deductible and be more likely to skimp on necessary care, and employers would not be as attractive to prospective workers.

“If (employers) are approaching the Cadillac tax thresholds, the low-hanging fruit is the HSA, which is upsetting because that's the way (employers) are offsetting the high deductible,” said Brian Marcotte, president of the NBGH in Washington.

Employer and employee pretax contributions to HSAs, HRAs and flexible spending accounts are to be included in the Cadillac tax calculation.

According to the NBGH survey, 58% of employers will contribute a predetermined amount to each plan participant's HSA and 59% will do so for those enrolled in HRAs in 2016.

Those accounts are “the easiest thing for the employer to eliminate if they're either going to trigger the tax or if it's looking like it's getting close,” said Riverside, California-based Sibyl Bogardus, Hub International Ltd.'s chief compliance officer for the Western region. While only pretax contributions are counted now, she said post-tax employer contributions “may be pulled in to that calculation as well” in the future.

And while private exchanges haven't seen the uptake initially predicted, interest continues to climb.

According to Mercer's November study, 6% of large employers already use a private exchange for active employees or will by next year's open enrollment, a 50% increase from the year before. Furthermore, 27% of large employers are considering switching to a private exchange in the next five years.

Much of the movement depends on the future of the Cadillac tax, sources said.

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