Nearly One-Third of All Workers Now in Consumer-Driven Health Plans
The Kaiser Family Foundation recently released its annual survey of employer health plans. This is the “Big Daddy” of all of the employer surveys. It has been conducted under a variety of sponsors for over 20 years and is as comprehensive as any survey could be.
This one finds a remarkable continuation of the private market’s conversion to consumer-driven health plans. Thirty-one percent of all covered workers now have an individual deductible of at least $1,000. This is up from 27% just one year ago and 10% in 2006. Twelve percent now have deductibles of $2,000 or more.
More than half of these workers (17%) also have a savings option: 8% have a Health Reimbursement Account (HRA) and 9% have a Health Savings Account (HSA). According to this survey, HSA enrollment grew by 50% in the past year (up from 6% of the work force in 2010.)
The reason for the surge in HSA enrollment is pretty clear — money. Total family premiums for HSA-qualified coverage are $12,685 versus $15,363 for non-CD health plans, and employee contributions to premium are nearly $1,200 less ($3,076 vs. $4,234.) Plus, on average employers contribute $1,069 to the family’s HSA. These savings go a long way to filling the employee’s deductible obligation.
A couple of notes on all this:
- The survey does not track HRAs that have less than a $1,000 deductible, even though those, too, should be considered “consumer-driven.” The point of consumer-drive health is to give people financial incentives to be cautious in their spending and allow people to have more control over their own health care decisions. A higher deductible is a good way to do that, but not the only way. Many employers use HRAs when they want to maintain coverage for some services below the deductible, such as prescription drug co-pay programs. These designs still empower consumers to be wise shoppers.
- Similarly, I consider a high deductible without a savings option as part of the consumer-driven health universe. A tax-favored savings account is only attractive if one pays income taxes, and nearly half the population does not. Even without an official account, these workers still benefit from lower premiums and those savings may still be used for the direct payment of services.
I spend a lot of my time in my blog posts discussing what the so-called “research community” has been doing over the years. It is astounding to me that these researchers continue to virtually ignore the transformation in health care financing that is happening under their noses. They all opposed consumer driven health for political reasons, and now they seem to resent that it is happening despite their disapproval. Maybe they are hoping it will all just go away.
This is a good trend and I think it will continue. If people could be discouraged from having first dollar coverage, probably 75% of insurance billing would be unnecessary. In addition, patients would ask pesky questions such as… “how much does this cost?” “do I really need that?” “can we wait and see if this goes away by itself before I get an MRI?”
However, the Obama Administration may intervene because the Administration and its public health advisors dislike the concept of high deductibles and consumer-directed plans. Public health advocates believe high deductibles are a barrier to access to care. They dislike cost-sharing. Advocates also dislike the idea that I can put money into a personal health account and keep should I not use it all during the year. They would prefer I pay (higher premiums) for a low-deductible plan where I cross-subsidize other people when I don’t require a lot of care in a given year.
Greg or John,
I wish someone would do some research into the issue of prescription drug coverage in HSAs. I’ve had an HSA for the last 3 or 4 years. I’ve been fairly happy with it until the last 18 month or so when my 16 y.o, son required Accutane for severe cystic acne. It was not until this experience that I have realized a major downfall with HSAs.
Apparently, there was some kind of legislation back in 2004 that made it illegal for any kind of prescription drug coverage (including a contracted rate) within an HSA until the deductible is met. So, for example, I had to pay full retail price for my son’s 6 month Accutane Rx which ran about $750/mo. I had to pay the same amount as someone uninsured paying cash for Rx. (And it was the generic brand-Claravis. Rochelle’s Accutane was run out of the country by too many lawsuits, yet, Claravis price was the same retail as Accutane–something’s up with that too:(
This requirement is only for Rx drugs. I receive contracted rates for everything else–office visits, labs, Xrays, MRIs, PT, etc. even before I meet my full deductible, after which time, it becomes an 80/20 with a maximum out of pocket.
And, in case anyone has not noticed, the retail price of Rx drugs is as off the charts as are listed hospital rates which are reimbursed at perhaps 50% of that rate or less. I felt angry and gouged every time I had to pay that ridiculous price even with before tax money when I knew most every other insurance plan includes some kind of Rx drug coverage before meeting deductible.
Anyway, I find this atrocious that our legislators placed this kind of limitation on HSAs and would love to find the actual Congressional hearings/legislation on this and why this came to be (and what can be done to reform this law).
Here is a description of this ruling:
http://www.americanhealthvalue.com/Documents%20and%20Settings/28/Site%20Documents/PDFS/Legislation/Revenue_Ruling_2004_38.pdf
This is amazing.
Does your plan have drug coverage?
Some HSA qualified plans with drug coverage certainly do offer their network rates when their insured purchase prescription drugs using cash outside their HSA.
Linda, Yes, I have Rx drug coverage however, it pays nothing until I meet my $6000 deductible nor do I receive any contracted rate for Rx drugs whatsoever until deductible met. I must pay the same as if I was uninsured and unless there is some loophole, apparently that is the law. Read about it from the link above. It even says if you have secondary health insurance plan that covers Rx drugs, you cannot be eligible for HSA tax deduction if you receive Rx drug benefits before you meet your HSA full deductible.
Unless I’m mistaken, my HSA lets me take advantage of BlueCross’ negotiated rates on procedures and drugs.
Hoads,
You were extremely misleading in your summary of the the IRS ruling that you linked to.
The ruling discusses a case in which an HSA qualified high deductible plan WITHOUT prescription drug coverage is coupled with a separate prescription drug plan that does NOT meet qualified high deductible plan requirements.
A person with this coverage is not eligible for untaxed HSA contributions because his coverage does not satisfy the high deductible requirements. This is true whether the prescription drug plan is stand alone or one is covered by a spouse’s non-HDHP plan for Rx.
I am covered by an HSA qualified high deductible plan that includes prescription drugs. I get network prices when I pay cash for prescription drugs regardless of my progress towards the deductible.
Responding to Hoads.
1. Rx may not be covered below the deductible.
2. However, any sort of discount program (mail order, negotiated discounts, etc) would still apply.
3. If your employer doesn’t offer such a discounted plan, there are a number of free-standing programs you can access. DestinationRx is one, there are others.
4. Money spent on Rx may be paid from the HSA on a tax-favored basis.
Linda, Sorry, that was not the correct link. Here’s better ones:
****link removed by administrator****
And here is what is says:
“Starting in 2006, no plans that are qualified to work with health savings accounts may cover prescription drugs as an insured benefit until after the deductible is met. So for HSA owners, one of your biggest health expenses could be for prescription drugs.”
It goes on to say that drug discount cards are not considered to be insurance and can be used with HSA’s but it sounds like the discount is off the full retail price and is not a contracted rate.
However, further reading shows that some HSAs will cover some Rx drugs for disease prevention but not for treatment of current disease/illness until deductible is met and here’s some info from a survey of HSAs by AHIP:
http://www.ahipresearch.org/pdfs/HSA_Preventive_Survey_Final.pdf
Prescription Drug Benefits: Very few (less than 6 percent) of the HDHP policies in the survey included coverage for prescription drugs as a preventive benefit on a first-dollar basis. IRS guidance (Notice 2004-50) prohibits drugs from being considered preventive if they “treat an existing illness, injury or condition.” According to comments from survey respondents, it is not always apparent whether a drug is being used for “treatment” or for “prevention.” Therefore, most HSA/HDHP policies have been cautious about including prescription drugs as a preventive benefit, despite clinical evidence suggesting that greater use of particular drugs in certain circumstances could improve health, reduce claims, and lower premiums.
And here’s from IRS Publication 969:
http://www.irs.gov/publications/p969/ar02.html
Prescription drug plans. You can have a prescription drug plan, either as part of your HDHP or a separate plan (or rider), and qualify as an eligible individual if the plan does not provide benefits until the minimum annual deductible of the HDHP has been met. If you can receive benefits before that deductible is met, you are not an eligible individual.
Again, it says you must meet the deductible before you can receive Rx drug benefits.
But they still say “it’s an intriguing idea that needs more study”.
Greg, what I am interested in is why Rx drug coverage is subject to the deductible but nothing else. What kind of lobbying is responsible for this ruling?
As it is, it seems like insurance companies have carte blanche to determine if they will cover a particular drug below the deductible only if they classify it as a preventive measure.
I find this rule within HSAs places an undue risk onto the insured because you could very easily be diagnosed with some type of acute illness, chronic disease or acquire some strange infection requiring IV drugs ( or in my case–teenager with cystic acne) and have to spend thousands of dollars on retail priced Rx drugs before Rx drugs are covered.
It makes me question whether the 20% or so savings of an HSA over a PPO or other insurance plan is worth it. Those with HSAs are willing to take a high deductible if you are reasonably healthy and confident you would only have to pay high deductible only if stricken with serious accident/health problem. It is aggravating to have to spend thousands on non- emergent routine health problem because of over priced Rx drugs.
Let me clarify: my reference to “Rx drug coverage” below deductible means paying a negotiated/contracted rate for drug up to deductible vs having to pay full retail price until deductible met.
Devon Herrick says: “…..Unless I’m mistaken, my HSA lets me take advantage of BlueCross’ negotiated rates on procedures and drugs……”
That’s what my BC/BS HDHP does. Below the deductible, I pay the negotiated Blue Cross/Blue Shield rate, assuming in-network.
Hoads,
First, Rx is not singled out. Everything is subject to the deductible, except as you mention, anything that is considered preventative. It isn’t the insurers that define what is “prevention,” but the IRS.
I grant you that there is a problem when politicians start defining what should and shouldn’t be covered. But I personally like this provision. When I was prescribed HBP meds, my doctor first wrote the script the the most expensive one on the market, until I complained and he switched to something a WHOLE lot cheaper. Until I made an issue of it he had no idea what things cost.
As my post indicates, many employers are choosing HRAs because of this very issue. They want to keep the Rx copay programs. You might want to talk to your employer about this.
His original comment lamented the fact that he wasn’t able to get insurer discount pricing for drugs that he purchased with cash until after he met his deductible amount.
This is clearly not the case for QHDHPs that include Rx coverage.
Greg, Yes, I know everything is subject to the deductible but, in my case at least, I pay the negotiated rate below the deductible for EVERYTHING except prescription drugs. We are self employed but have group coverage with anthem HSA and 40s/healthy- $14,400 annual premium – 2adults/2 kids. And, the links from above state clearly that starting in 2006, HSAs cannot include Rx drug coverage until after deductible met.
It appears others are saying they are getting Rx drugs at negotiated rates below deductible with their HSAs. Perhaps their drugs are classified as preventive? I’ve already gone over this with anthem and the pharmacy mgr. who conferred the above.
I’m all for making direct payment for medical care, however, I’m against having to pay listed astronomical prices for healthcare that has no relation to cost+profit.
And, perhaps there’s a difference between HSA & HDHP and therefore a HDHP is not subject to the exact same rules as HSA.
Hoads, you should be getting a discount on your RXs. Make sure the pharmacy is submitting properly to ExpressScripts (the Anthem PBM).
Greg, Employers need to offer full replacement HDHP to avoid selection problems with employees, otherwise savings is negated and the benefit plan saves little if anything. Total allowed charges (paid claims + member share) won’t be much different if employers continue to offer HDHP’s as options to rich plans.
I agree that we’re getting to critical HDHP mass that will lead to provider competition. The truth about the power of markets will become too hard to ignore.
$2,000 still seems way to low to me. One needs insurance for what they cannot afford. I have a $10,000 deductible.