Friday, October 05, 2018

For high out-of-pocket costs in employer plans, 3 shock absorbers

The Kaiser Family Foundation's annual Employer Health Benefits Survey was released this week. There are no big surprises. Premium growth remains relatively modest compared to the immediate pre-ACA era - 3% for single coverage and 5% for family -- though still outstripping wage growth. The percentage of workers covered by employer insurance is stable, as is total ESI enrollment, at 152 million. 79% of workers are offered coverage, and 76% take it up -- similar to last year.

Kaiser does emphasize continued rapid growth in deductibles: the average annual deductible has increased 53% in five years. That's a proxy for out-of-pocket costs continuing to rise. Here I want to quickly point out three partially mitigating factors.

1. Increase in HSAs and HRAs (Section 8) - the percentage of workers who hold these accounts dedicated to paying medical expenses, which are linked to high deductible health plans (HDHPs), spiked from 20% in 2014 to 29% in 2016 and has stayed at that higher level. Since employers generally fund these accounts, they partly offset high deductibles while also shrinking the employee's premium. In 2018, the average employer contribution to an HRA for a single person plan, $1149, outstripped the average employee share of the premium, $1142, and covered about half the average deductible, $2245. The average contribution to an HSA, $603, covered more than half the employee's average premium share, $1024, and about a quarter of the deductible. For family coverage, the average HRA employer contribution was $2288, and the average HSA contribution was $1073. HRA contributions are bigger because these accounts are "use it or lose it" for the employee -- whereas an employee owns an HSA, and contributions are tax-sheltered.

While deductibles are higher on average in HDHPs than in conventional plans, the employer contribution, on average, more or less zeroes out the difference. And while an HDHP linked to an HSA offers no services not subject to the deductible, the employer contribution to an HSA or HRA, where it exists, amounts to first-dollar coverage. Since the employer contribution generally doesn't cover the deductible, there's in effect a kind of donut hole when the contribution is used up and the deductible isn't reached.

Kaiser summarizes the aggregate impact: "If we reduce the deductibles by employer account contributions, the percentage of covered workers with a deductible of $1,000 or more would be reduced from 58% to 48% [Figures 7.13 and 7.14]."

HDHPs are arguably a bad idea, founded on a presence that's been largely discredited: that high up-front costs will induce plan holders to price-shop and avoid unneeded care. Research indicates that enrollees simply avoid care, needed and unneeded. On the other hand, once you have the high deductible, as most Americans now do (the average ESI deductible exceeds the minimum required for an HDHP), the savings account can only help, especially if an employer seeds it. It may seem ridiculous to impose high costs with one hand and partially reimburse them with the other, but that's the kind of kludge our uniquely expensive healthcare system necessitates.

2. Annual out-of-pocket maximums (Section 7) - the ACA made these mandatory, and imposed a maximum allowable "OOP max" of $7350 individual/$14,700 family.  Most employer plans had OOP maxes pre-ACA, but some didn't: in 2009, 19% of plans had an OOP max above the current $7350 limit, and some had none at all. The elimination of plans without OOP maxes has doubtless lowered overall average out-of-pocket spending somewhat. The ACA also banned lifetime and annual caps on coverage. In 2009, according to the Kaiser employer survey of that year, 59% of employers had lifetime caps.  According to a PwC estimate, 20-25,000 people in 2009 would lose coverage because of the caps.

3. Services not subject to the deductible (Section 7) - outside of HDHPs, these are common. General deductibles usually don't apply to doctor visits or prescription drugs (the latter may have a separate deductible):
Figure 7.28: Among Covered Workers With a General Annual Deductible, Percentage With Coverage for the Following Services Without Having to First Meet the Deductible, by Plan Type, 2018

These caveats don't mean that American workers' out-of-pocket healthcare costs aren't burdensome, and rising. Moreover, the averages include plans that impose much higher cost-sharing, often for low-wage workers. Still, these shock absorbers are worth noting.

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