The One Thing Scarier Than Exchanges for Healthcare Providers — Employers Offering Only High-Deductible Plans

A study released last week by an association of large U.S. employers found that more than 1 in 5 of U.S. employers (22 percent) plan to offer only high deductible health plans to their employees next year as a way to rein in the costs of providing health coverage. This year, these plans have a minimum deductible of $1,250, though many employers opt for higher deductibles in their benefit plan design. In 2012, for example, 14 percent of U.S. workers had health plans with a deductible of $2,000 or more, according to the Kaiser Family Foundation. These high deductibles bring major concerns for healthcare providers, who will be responsible for payment from individual policyholders rather than insurers — a task that, at least in the past, has proven challenging.

High deductible plans, sometimes refered to as consumer-directed plans, cut health benefit costs for employers by shifting more responsibility onto employees. While HDHPs have been becoming more popular in the last 10 years, changes brought on by health reform are leading more employers to consider them — in some cases as the only type of coverage offered. (Whether or not ObamaCare is to blame for the rise in HDHPs is debatable, but we'll get to that later).

Some of the largest companies in America have recently made waves for blaming ObamaCare for increases in healthcare costs that they say leave them with few options other than cutting health benefits. UPS has received the most media attention so far, announcing it would cut spousal health benefits for spouses that have access to other health insurance. UPS blamed increases in health benefit costs resulting from healthcare reform as a key reason for the change, according to a CNN report. Many other employers, including Delta, have cited healthcare reform as a key driver of healthcare premium increases for 2014, though they have not yet changed benefit design as drastically as UPS (at least not yet). As a whole, employers estimate healthcare costs will increase by 7 percent for them in 2014, according to a recent survey.

While its true that the Patient Protection and Affordable Care Act increases new fees to insurers and some employers that provide expensive "Cadillac" plans (starting in 2018), the intent of the Patient Protection and Affordable Care Act is to slow the growth of healthcare costs. So what gives? Are employers using ObamaCare as a scapegoat, or is health reform really to blame for healthcare premium increases for employers and employees?
When I initially saw the headlines, I had a hard time believing that the PPACA would increase costs as drastically as suggested by some of these employers (Delta has estimated an additional $38 million in costs in 2014 directly attributable to health reform). As more individuals are insured, the thinking is that insurers' risk pool is expanded and health insurance costs will slowly come down. And on the provider side, fewer uninsured patients means hospitals don't have to absorb the costs of caring for patients who can't pay, and the hospitals will no longer need to pass those costs.

However, as I dug in, I realized, like these employers did, the potential cost savings (or at least lower growth rates) of ObamaCare will take some time to experience, and for 2014, the fees created by ObamaCare to cover the costs of its reforms will likely drive up costs for most large employers.

As the CNN report details, there are a handful of fees that go into effect in 2014 that will increase benefit costs for employers. The two directly levied on employers are:

  • Transitional insurance fee. A three-year fee levied on employers to help fund state-based health exchanges. The rate for 2014 is set at $63 per worker.
  • Patient Centered Outcomes Research Institute fee. A seven-year fee levied on employers to fund the Patient Centered Outcomes Research Institute. The rate for 2014 is $1 per  worker.

2014 also marks the beginning of the fee levied on insurers to implement the PPACA. Insurers will must pay a fee equal to 2.5 percent of total premiums next year, and it's expected that this cost will be passed on to employers. Additionally, the individual mandate means that the few workers (and/or family members) that opted out of employer coverage and went uninsured, will now opt in to those plans, further increasing employer costs.

So, how will employers react? As mentioned earlier, many are expected to shift costs to employees through HDHPs. Seventeen percent of employers currently offer HDHPs as their only coverage option, and if that grows to 22 percent  next year, the impact on providers could be devestating, for two core reasons.

First, as explained by our publisher Scott Becker in a recent article, individuals enrolled in these plans may put off health services. While the PPACA requires many preventive services be covered before the deductible in HDHPs, many other services will mean high out-of-pocket costs for patients.

"HDHPs will likely lead to more caution in consumer spending immediately. That is, providers often see a slowdown in the first couple months of the year as patients are paying for their own services out of pocket. This period of spending caution may extend for several more months," wrote Mr. Becker.

Secondly, providers will have to significantly alter their business practices to obtain payment from individuals. Obtaining payment directly from individuals often means claims will take longer to pay, or financial practices must be alterted to demand payment upfront in non-emergency situations.

Taken together, these two issues mean major headaches for healthcare providers.

But, is ObamaCare to blame?

While health reform does impose some additional fees on employers, the use of HDHPs and employers' desire to decrease health benefit costs has been a long time coming. The increased fees that are set to take effect in 2014 are likely to force employers who were considering HDHP-only benefts toward that decision. However, without ObamaCare, the year-over-year growth in premiums would likely continue to skyrocket, and I'd expect we'd see just as many employers offering HDHP-only health benefits, if not more, over the next 5-10 years.

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