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Enrollment in consumer-driven health care plans linked to health savings accounts continues to gain ground as more employers offer the plans to reduce benefit costs and employees seek ways to save money in a down economy, experts say.
Enrollment in HSA-linked CDHPs, or health care plans with high deductibles, grew to 8 million lives at the beginning of this year, according to a May report from America's Health Insurance Plans. This compares with 6.1 million in 2008, 4.5 million in 2007 and 3.2 million in 2006.
Between January 2008 and January 2009, the fastest-growing market for such CDHPs was large groups, where penetration grew by approximately 35%, followed by small groups, which rose 34%, according to AHIP.
The Washington-based health insurance industry trade group does not track CDHPs linked to health reimbursement arrangements. HRA-linked plans would add to the 8 million lives covered by CDHPs.
Even in once hard-to-penetrate areas such as the U.S. Northeast, “almost every employer is offering a consumer-driven health plan as an option,” said Laurel Pickering, executive director of the New York Business Group on Health, an employer health care coalition with 2,500 members.
Since Minnetonka, Minn.-based UnitedHealth Group Inc. in 2004 acquired pioneer CDHP vendor Definity Health Corp., it has become the market leader with nearly 3 million members, according to industry sources. WellPoint Inc. is No. 2, followed by Aetna Inc. and CIGNA Corp. (see chart, page 11).
Even though HSAs did not come into being until 2004 under the Medicare Prescription Drug Improvement and Modernization Act of 2003, they are more prevalent than health reimbursement arrangements, the type of account the plans used when they were introduced earlier in the decade. According to a National Business Group on Health/Watson Wyatt Worldwide survey, 60% of CDHPs have HSAs, while 40% have HRAs.
“Four out of five employers are choosing HSAs over HRAs if they're introducing a plan today,” said Alexander Domaszewicz, a principal and senior consultant with Mercer L.L.C. in Newport Beach, Calif. However, “Most large employers start with an HRA because they see it as the core offering, which they will build their health benefits around in the future.”
This is because HRAs permit more flexible arrangements, he said. For example, although prescription drug expenses are subject to the deductible in CDHPs with HSAs, employers can offer a separate drug plan if they have a CDHP with an HRA and avoid the deductible and copay, he explained.
Employers and employees can deposit funds into HSAs, while only employers can contribute to HRAs. Moreover, HSAs are owned by employees, so they can take them with if they leave their employer. By contrast, HRAs are the property of employers, which can choose whether to make them portable. Another significant difference between the two accounts is that money in HSAs cannot be tapped until it has been deposited; HRA funds are available at enrollment, just as with flexible spending accounts.
Benefit experts say the economic downturn has helped fuel the recent surge in employers offering CDHPs. Besides their premiums that are about 10% to 15% less than the typical preferred provider organization plan, CDHP annual claims costs are less than traditional health care plans.
“We see a 10% to 12% savings on claims experience in the first year” in moving to a CDHP, said Will Giaconia, vp of CIGNA's Choice Fund product. “There's a dividend in future years because the population is more engaged.”
These lower-cost plans have boosted employee enrollment year after year.
“Initially, a 10% enrollment rate was considered good,” recalled Meredith Baratz, vp-market solutions at UnitedHealthcare in New York. Today, “at companies with 3,000 or more employees, we see an average 22% enrollment with the HRA model and 45% with the HSA model. Employers that offer both models get 48% enrollment rates,” she said.
By comparison, about 39% of midsize employers enroll in a CDHP linked to an HRA while CDHPs linked to HSAs average about 21%. When both are offered, enrollment climbs to 69%, Ms. Baratz said.
“Depending on how the plan is structured, you may see a 12% to 15% median enrollment in HSAs vs. 20% to 25% in HRAs,” said Mr. Domaszewicz, citing data from Mercer's annual survey. This compares with 2008 median enrollment rates of 11% for HSAs and 23% for HRAs, he said.
“Since it's gone up for 2009, we could see another big jump for 2010” in HSA-linked CDHPs, he said.
Often, financial incentives offered by employers are driving growth.
“If all health plans are being offered at a 20% employee contribution, they may offer a CDHP at 15% to make it more attractive,” Mr. Domaszewicz said.
In addition, most CDHPs provide first-dollar coverage of preventive care, such as mammograms and annual checkups. In some cases, employers are taking advantage of a U.S. Treasury Department letter allowing certain drugs to be treated as “preventive” and therefore exempt from the deductible, said Kathy Campbell, head of product development at Aetna in Hartford, Conn.
At Black & Decker Corp. in Towson, Md., the employer made HSA contributions sizable enough to eliminate the difference between the PPO deductible and the CDHP, said Raymond Brusca, vp of benefits. As a result, its enrollment grew from 4% to 8%, but Mr. Brusca said he expects an even bigger jump in 2010 because of incentives that will make family coverage payroll contributions $2,000 less than Black & Decker's traditional PPO plan.
“It's clear that the economy has accelerated a lot of the movement toward consumer-driven health plans and consumerism in general,” said Michael Thompson, a principal with PricewaterhouseCoopers L.L.P. in New York.
Although only about 6% of employers make CDHPs their sole health plan, “what you're starting to see is employers using the CDHP as the benchmark or core plan; and while they might offer other options, they require employees to pay more for them,” Mr. Thompson said.
“We're seeing a lot of employers that may have been on the fence either coming to us and talking about it or moving into (CDHPs) because of cost pressure,” said CIGNA's Mr. Giaconia. “The economy is putting a kick start into the product.”
Scott Keyes, a senior consultant at Watson Wyatt Worldwide in Stamford, Conn., said two things are driving CDHP popularity: They've been around for more than five years, so they're gaining acceptance. Meanwhile, deductibles on PPO plans have grown significantly, narrowing the gap between the average PPO deductible and CDHP deductibles, which, by law, must be at least $1,150 for individuals and $2,300 for families in 2009.
According to Mercer's National Survey of Employer-Sponsored Health Plans, the median deductible for individual coverage in PPO plans is $1,000.
“I never thought I'd say making the other plan look bad would make (CDHPs) look more attractive, but PPOs are looking less attractive,” said Tom Lerche, senior vp at Aon Consulting in Chicago.
Greg Scandlen, senior fellow and director at the Heartland Institute's Consumers for Health Care Choices in Hagerstown, Md., described the CDHP situation this way: “In the early days, the satisfaction was not very high because people had to learn a whole new way of doing things, and they were suspicious of it. Over time, they've become more accustomed to it.”