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High-deductible CDHPs likely to gain popularity

Plans meet PPACA's minimum requirements


Health care reform is likely to spur the growth of high-deductible consumer-directed health plans, employee benefit experts say.

Although CDHPs cost considerably less than traditional preferred provider organization or health maintenance organization plans, they still meet the minimum requirements of the Patient Protection and Affordable Care Act, the experts say.

Moreover, employers could gradually reduce their contributions to either the health reimbursement arrangements or health savings accounts that usually accompany the plans, to avoid becoming subject to the excise tax that will be assessed beginning in 2018, the benefits experts say.

“Unless there’s a significant change in any of the legislation, CDHPs will remain a viable option post-health care reform,” said Nick Calabrese, vp of CDHP product management at CIGNA Corp. in Bloomfield, Conn. “If you rewind the clock back to before health care reform, there was concern on our end whether they would be eliminated. But, by and large, they were left untouched.”

In fact, the number of CIGNA clients offering CDHPs surged after health care reform, along with enrollment in those plans, according to Mr. Calabrese.

“If we look at the results through the first quarter of 2011, CDHP membership (among CIGNA clients) grew about 29%,” he said. Perhaps the largest enrollment growth was among employer groups with 50 to 250 employees, which grew 35% between Dec. 31, 2010, and March 31, 2011.

In focus groups that CIGNA has conducted, the insurer learned that clients are looking for a double-duty plan that “will help them reduce costs and get employees more engaged and accountable for their health care. These plans do that, so it’s been an attractive solution,” Mr. Calabrese said.

“One of the interesting things about CDHPs is that even before health care reform, there was a trend toward employers using them as part of a cost-containment strategy,” said Anna Turner, product manager at Benefitfocus in Charleston, S.C. “With reform, there’s a lot of concern that premiums are going to be increasing as a result of the new benefit requirements. This is continuing to drive the existing momentum.”

Research conducted during the past month by Aon Hewitt Inc. also confirms the growing prevalence of CDHPs.

“A huge amount—almost half—offers CDHPs,” said Cathy Tripp, a senior consultant at Aon Hewitt in Minneapolis. “Eleven percent are full replacement (of health plan options), and 35% are looking at full replacement in the next three to five years.”

In a survey Towers Watson & Co. conducted last fall, 66% of employers said they were planning to offer a CDHP in 2012, up from 53% in 2011.

“In some significant ways, health care reform is good for consumer-directed health plans since they tend to be more affordable,” said Helen Darling, president and CEO of the National Business Group on Health in Washington. “On the employer side, we are seeing more interest in, and transition to, full replacement CDHPs,” she added. “We also see more CDHPs as a choice and, as employee costs climb, we anticipate that more employees will find them attractive, because the contributions tend to be lower.”

One of the primary reasons CDHPs are gaining in popularity is the fact that “they provide the most affordable option to satisfy the coverage mandate. In today’s world, the lowest premium plan is an HSA-compatible alternative,” said Jay Savan, a senior consultant at Towers Watson in St. Louis.

Moreover, the average CDHP’s actuarial value exceeds the minimum coverage requirements for the lowest-cost plan that employers will be required to offer under PPACA, he said.

Under PPACA, employers will be required to offer at least a basic health plan with an actuarial value of 60%, also known as the “bronze plan.” That’s the equivalent of a plan covering 60% of the cost of an employee’s health care, with the employee responsible for the remainder, Mr. Savan said.

“When the (Senate) Finance Committee did its due diligence, it found CDHPs had a 72% actuarial value, which puts it ahead of the bronze-level requirement of 60%,” he said.

CDHPs also meet the PPACA requirement that the plans be affordable, according to Mr. Savan.

“Employee contributions to premiums cannot exceed 9.5% of adjusted gross income for people at 400% of the poverty line. In 2011, that means the premium contribution cannot exceed $8,492 annually for a family of four,” he calculated.

Because of their lower cost, CDHPs also are less likely to become subject to the “Cadillac tax” that will be levied on high-cost plans under PPACA, benefit experts say.

Beginning in 2018, a 40% tax will be assessed on the portion of plan costs that exceed $10,200 for single coverage and $27,500 for family coverage. The threshold will be indexed to the consumer price index plus 1% in 2019, with increases tied to the index in subsequent years.

For example, if the single premium for a CDHP is $9,000, and the employer deposits $1,200 in an HSA, the plan’s value grows to $10,200. But if the plan’s cost grows 5% the next year to $9,450, and the employer deposits another $1,200 in the HSA, the value of the plan will grow to $10,650, making $450 subject to the excise tax. However, the employer can avoid this tax if it reduces the HSA contribution accordingly.

“That account allocation becomes a little bit of a shock absorber and allows me to calibrate the total value of the plan right up to the threshold and not a nickel over. That’s what you can do with an account-based health plan,” Mr. Savan said.