Plan design, deductibles, cost limit HSA enrollment

While the introduction of high-deductible health plans linked to health savings accounts has sparked substantial interest among employers, participation in these plans for employers that have implemented them has often been disappointing.

But employers can take several steps to boost HSA plan enrollment, such as funding these accounts and setting the price of these plans at levels that are favorable vs. other health plans they offer.

A substantial increase in enrollment, though, could be driven by regulatory changes that would make these accounts more attractive to employees, including broadening the definition of preventive drugs to exempt more medications from the requirement that they apply toward the deductible.

Enrollment in HSA plans among large employers is generally low, hovering in the single digits for many companies. Tom Hricik, national director, HSA product distribution for ACS/Mellon HSA Solutions based in Pittsburgh, said he is seeing enrollment rates generally in the range of 1.5% to 3.5% for large employers.

Several factors influence enrollment rates for employers that offer HSA plans as an option alongside other health plans.

A major cause of low enrollment rates relates to the plan design, specifically the deductible levels and how they compare with employee contributions to health care expenses featured in traditional health plans. A key part of this equation is the regulatory requirement that employees pay the retail cost of prescription drugs until they reach the deductible, consultants say.

"We suspect the major reason for low enrollment is people aren't comfortable with that design yet," said Scott Keyes, a Stamford, Conn.-based senior health care consultant for Watson Wyatt Worldwide. "They're not comfortable with the high deductible and they're probably not comfortable with the way the prescription drug plan works."

The price differential between HSA plans and other health plan options also impacts enrollment because the differential must be significant enough to move people away from traditional health plans into the consumer-directed health plans, consultants say. "That pricing is paramount," Mr. Hricik said.

Employer contributions are another key factor because employees seem to be more attracted to plans with money already in the account rather than those that they must fund entirely themselves. "I think without a funded HSA, the high deductible tends to scare people away," Mr. Keyes said.

Of the 60% of UnitedHealth Group Inc. employer clients funding the accounts at some level, about 90% of eligible employees open an account and two-thirds of these employees contribute to the account, said Meredith Baratz, vp, market solutions, for Definity Health Corp., a unit of the Minnetonka, Minn.-based insurer. For employers that do not fund the HSA, fewer than 30% of employees open the account, she noted.

About 35% of ACS/Mellon employer clients either contribute to accounts or pay account fees, Mr. Hricik said. Of those contributing, the typical amount is about $400 for individuals and $800 for families. "Typically, the higher the deductible, the more money you're going to want to see coming from the employer," Mr. Hricik said. "I think we're going to see higher employer contributions as the deductibles go up."

One way to spur enrollment would be to have employers contribute a matching percentage based on salary levels rather than fixed dollar amounts, making the plans more of a viable option for low-income employees, said Jay Coldwell, the Wausau, Wis.-based director of product management at Fiserv Health Inc., a Minneapolis-based unit of information management services company Fiserv Inc.

After reaching higher income levels, the contribution can be phased out, he said.

"The ideal, in my mind, would be a match that's scaled by income," Mr. Coldwell said. "You're changing the whole benefit plan paradigm, but doing it in a way that makes it more affordable."

Employees' reluctance to transition from health plans with which they are familiar and comfortable to plans that may bear more risk for them is a barrier that needs to be overcome through an effective communications campaign, consultants say.

"People are accustomed to what they have," Mr. Hricik said. "They like their HMOs, their traditional PPOs. It's hard to get people to change. It takes a very concerted effort to get that change to occur."

Watson Wyatt encountered this issue when it told employees it was moving from a preferred provider organization plan to a high-deductible health plan linked to an HSA, receiving a mixed reaction from its employees, Mr. Keyes said.

The firm started an education campaign three months ago, informing its employees of the change and the business rationale for the transition. "Watson Wyatt isn't any different from any other employer," Mr. Keyes said. "Our health care costs are growing and we have to manage them like our clients."

One of ACS/Mellon's clients with about 25,000 employees got more than 60% of them to sign up for its high-deductible health plan because it tackled all these factors, Mr. Hricik said. For example, the company priced the plan aggressively compared with its other plans and spent well into the six figures to communicate the plan, discussing the preventive services covered and sending customized compact discs with information about the plan to its employees.

Regulatory changes

Several regulatory changes would spur increased enrollment in high-deductible health plans linked to HSAs, experts say.

While recognizing that the HSA guidelines developed by the government were "thoughtful and sensitive to the issues raised by the business community," there is still an opportunity to improve some of the technical issues, Ms. Baratz said. For example, announcing the annual adjustment of deductible amounts, out-of-pocket expense limits and contribution limits early enough to give employers sufficient time to determine their plan offerings for the following year would be beneficial. America's Health Insurance Plans, a Washington-based trade association, suggests these figures be announced by June 1.

Another change promoted by AHIP is to allow individuals to establish an HSA even if their spouse has a flexible spending account.

The key regulatory change that would impact enrollment would be a more expansive definition of preventive drugs or perhaps exempting prescription drugs from the deductible altogether. The current guidelines are confusing because prescription drugs can be considered either preventive or treatment-related, consultants say.

"From a logical perspective, most drugs are being taken to prevent something," Mr. Keyes said. "They may not be preventive in the way the IRS considers them to be preventive."

Watson Wyatt is using a list of preventive drugs developed by its pharmacy benefit manager and helping its employees find ways to let the company know if their doctors think their drugs are preventive, Mr. Keyes said. Not having clear guidance, though, puts employers in the uncomfortable position of having to interpret regulations, he said. Some employers, rather than having the discussion, will simply allow all drugs to apply toward the deductible, Mr. Keyes said.

Wendy's International Inc. will integrate a preventive drug plan into its HSA offerings in 2007 because the benefit to employees is more important than any potential fallout from incorporating a plan not yet sanctioned by the government, said Jeff Cava, executive vp, human resources and administration for the Dublin, Ohio-based company.

"We are in good company and we are acting in good faith," Mr. Cava said. "If we have to address that for a contrary decision at a later date, we can do that with a clear conscience."

Another potential change would be to give people an opportunity to increase their savings in their accounts to the out-of-pocket maximum rather than the deductible, employers say. For employees who have the ability to increase their savings, it would allow them to plan ahead for future health care expenses, Mr. Cava said.

Increasing the amount people can save, though, would not stimulate more enrollment because the people who can afford to enroll in the plans have already enrolled, Mr. Coldwell said.

A legislative change that would make HSAs more attractive would be to allow FSAs to pay for the deductible so employees could use the HSA for future expenses, capitalizing on the HSA's advantage of being a vehicle to accumulate assets that allows people to save money for health care expenses in retirement, he said. "That would make a big difference," Mr. Coldwell said.

Another policy recommendation made by AHIP is to allow employers to assist employees or their family members who suffer from chronic conditions by permitting increased HSA contributions for individuals who are enrolled in disease management or care coordination programs.

Alleviating comparability requirements to allow employers to make higher contributions for chronically ill employees would enable them to get the coverage they need, Mr. Cava said.

While this type of change could be beneficial, it could also bring a lot of administrative complexity, such as ensuring that excess funding does not occur, Mr. Coldwell said.