CDHP cost advantages extend for years

Originally posted March 30, 2015 by Alan Goforth on

Consumer-directed health plans can help contain health care spending for years after they're put into place, according to the first major study of its type.

“Do ‘Consumer-Directed’ Health Plans Bend the Cost Curve over Time?" released by the National Bureau of Economic Research, analyzes the three-year effects of CDHPs.

“We estimated spending trends for three years across … the country in an analysis estimating CDHP impacts, without the threat of individual level selection bias,” the authors of the study wrote. “We find that health-care cost growth among firms offering a CDHP is significantly lower in each of the first three years after offer. This result suggests that, at least at large employers, the impact of CDHPs persists and is not just a one-time reduction in spending.”

An unrelated study by the Society for Human Resource Management found that 19 percent of respondents that offer employee coverage said consumer-driven plans were the most-effective means of controlling the rising cost of health coverage.

Annual health care spending, according to the research bureau's findings, was 6.6 percent, 4.3 percent and 3.4 percent lower on average for the first three years, respectively, for companies with CDHPs when compared to companies without them.

CDHPs, which combine high deductibles with personal medical accounts, were designed to reduce health-care spending through greater patient cost-sharing. Several studies have shown that they reduce spending during the first year, but little research had been conducted into the longer-term economic impact. One concern was that CDHP enrollees would decrease their use of necessary care, which would lead to increased spending in the long term due to greater complications.

The National Bureau of Economic Research analyzed data from 13 million individuals in 54 large U.S. firms.

“We find that spending is reduced for those in firms offering CDHPs in all three years,” the report said. “The reductions are driven by spending decreases in outpatient care and pharmaceuticals, with no evidence of increases in emergency department or inpatient care.”

Researchers found that the CDHP savings effect varied considerably across spending category:

  •  Prescription drugs. Compared with firms not offering CDHPs, annualized spending growth on pharmaceuticals was 5 to 9.5 percentage points lower in the three years after firms offered CDHPs.
  •  Outpatient services. Spending growth on outpatient care was 3 to 6.8 percentage points lower in the first three years relative to non-offering firms.
  • Emergency room use. No differences were detected in cost growth for emergency room care in any of the first three years after a CDHP was offered.

Researchers caution against drawing implications for populations other than the ones studied.

"The results presented here are limited to large employers," the report said, "and therefore may not extend to Medicaid beneficiaries, the individual or small group market, or to the health insurance exchanges where, on average, deductibles and out-of-pocket maximums are higher and/or enrollees have fewer financial resources."

However, the longer-term study should alleviate some previous concerns.

“These findings do not support either the concern that decreases in spending will be a one-time occurrence or that short-term decreases in spending with a CDHP will result in increases in spending in the long term due to complications of foregone care,” it said.

Employer-Sponsored Health Care Facts of Life

Originally posted May 23, 2014 by Donna Fuscaldo on

High deductible health insurance plans are a fact of life, particularly for the employees of small businesses. But it doesn’t have to hurt morale or loyalty among workers. There are ways small business owners can help defray some of the costs if high deductible insurance plans are all they can offer.

“With the Affordable Care Act there is clearly a movement toward higher deductible plans,” says Barry Sloane, CEO of Newtek, a health insurance agency for small businesses. “Unfortunately higher deductibles are a fact of life whether you live in New York or Nebraska.”

In an effort to keep costs down and incentivize employees to curb some of the unnecessary visits to the doctor or specialists, employers of all sizes are making high deductible plans an option, and in some cases the only one.

That’s particularly true with small business owners who can barely afford to offer health insurance, let alone plans with low deductibles and limited cost sharing. As a result, experts say the era of high deductible health insurance plans and more of the burden being passed on to the employee is here and will likely stay. That change in the way health care is offered to employees can breed resentment and anger among workers, which in turn can have a negative impact on the overall business.

But there are things small business owners can do to reduce the burden. One way, according to Kevin Luss, owner of Luss Group, is to offer employees a medical bridge policy to neutralize the deductible and other out-of-pocket costs employees face.

At Luss Group, brokers work with employers to create a health plan that limits the cost sharing for the least frequent things like hospitalization, surgeries and outpatient procedures and with the savings, a medical bridge policy is taken out to insure employees from high deductibles associated with those expensive but less frequent medical needs. There are numerous ways to design the plan, but one option could be if one of the employees is admitted to the hospital he or she gets a lump sum of $3,000 in addition to a daily amount for the length of the admission.  In that case, an employee who has a $5,000 deductible would only pay part of that out of pocket because the medical bridge policy covers the rest.

“The employer saves money by offering high deductible plans and uses part of the savings for the bridge plan,” says Luss. “These plans aren’t very expensive and in the long rung the employer saves money.”  The rules and what is offered varies state by state.

For many small businesses footing the bill for a medical bridge policy isn’t an option, but they can offer it as a supplemental choice for employees. According to Nancy Thompson, senior vice president and director of sales at CBIZ Benefits and Insurance, employers who are providing high deductible plans can also offer the option of hospital indemnity and critical illness insurance, which will defray some of the costs associated with the high deductible plan. While it will cost employees more money, albeit not a lot, in exchange they’ll get one-on-one counseling with a benefits consultant, so they are making the right choices when it comes to their healthcare.

“Employees are going to experience gaps in coverage that they haven’t in the past,” says Thompson. “The right supplemental product is paramount when you go to a high deductible plan.”

Hand in hand with offering high deductible plans is providing the ability for employees to use pretax dollars for medical costs, which is where health savings accounts come into play. With a health savings account, funds contributed aren’t taxed and the money accumulated can be rolled over to the next year. Some employers who contribute to health savings accounts can increase their contribution to offset any bad feelings from offering a high deductible plan, says Sloane.

Another option, according to Richard Mann, Chief Product Officer at PlanSource, is offering a defined contribution toward benefits. Basically it’s a predetermined amount the employer agrees to contribute to each employee’s benefits spending.

“This helps employers control spending because the amount is fixed, but allows employees to use the amount in whatever way they think is best,” says Mann.

At the end of the day, knowledge may be the best way a small business owner can help their employees with their health-care costs. The whole idea behind these high deductible health plans is to get people to think before they get that test done or have blood drawn.

According to Sloane, arming employees with all the information about the plan, ensuring they know which doctors are in network and out of network, and all the benefits associated with the plan (including preventive care), can go a long way in keeping out of pocket costs down. It’s also a good idea to give employees access to the actual costs of health-care services, adds Mann. Knowing, for example, that the cost of a MRI can vary by as much as $1,000 will make employees more savvy consumers of health care, he says.

“It’s very valuable for the business to make an investment in the HR department and educate their staff as to how to keep claims down,” notes Sloane. “People need to pay more attention to health care. It’s not as simple as it used to be.”