By Mark Miller
CHICAGO, April 19 There may not be a consensus
in the nation's capital on how to control the cost of health
care, but businesses and their employees are not sitting around
waiting for clarity. They are voting with their wallets for one
approach that's already available: Account-based health
insurance plans, which offer lower premiums in exchange for high
Consumer-directed health insurance is a cornerstone of
Republican-backed market-oriented health reform solutions. It
will also be offered as an option to shoppers in the public
health insurance exchanges under the Affordable Care Act (ACA),
if the law isn't struck down by the U.S. Supreme Court in June.
Currently, 59 percent of major employers have an
account-based health plan option in place, up from 53 percent a
year ago, according to a survey by Towers Watson and the
National Business Group on Health. They queried companies with
1,000 or more employees across a range of industries.
More significantly, employee enrollment in ABHPs has spiked
at companies offering them as a choice. This year, 27 percent of
eligible employees are enrolled, a 35 percent increase from
2011. That finding mirrors a Fidelity Investments report last
week showing a 61 percent surge in sign-ups for health savings
accounts among its client companies - the largest one-year gain
since Fidelity has been offering HSAs.
ABHPs are linked to tax-advantaged HSAs, because
contributions can be used to accumulate funds to help pay costs
not covered by the high-deductible plans.
Savings on premium costs are the key driver.
Employers expect their healthcare costs to jump 5.9 percent
this year, according to the Towers/NBGH survey. Total annual
premiums paid by employers and workers for high-deductible plans
in 2011 were 10 percent to 19 percent lower than for managed
care or traditional point-of-service plans, according to a
Kaiser Family Foundation study.
For example, Kaiser found that the average annual cost for
individual coverage through a high-deductible plan last year was
$4,793 - 15 percent lower than for a PPO managed care option.
"Everyone saves some money, and that really matters in tough
economic times," says Helen Darling, president and CEO of NBGH.
Another motivator for employers is to avoid the excise tax
on high-value "Cadillac" health plans under the ACA healthcare
reform legislation. Starting in 2018, plans with total value
over $10,200 for individual coverage and $27,500 for families
will be subject to a 40 percent tax on the amount exceeding
those thresholds. High-deductible plans offer employers a way to
avoid triggering the tax.
The growing use of ABHPs also is linked to employer
strategies for retiree health coverage. These benefits are being
reduced or eliminated in many cases - or replaced by a defined
contribution. The Towers/NBGH survey found that many employers
see ABHPs as a way to help workers accumulate funds that can be
used in retirement, since HSA contributions roll over from year
to year and the accounts can be invested in mutual funds or
other investment vehicles.
That does not appear to be happening yet. Fidelity reports
that the average balance in those health accounts last year was
just $2,700. One reason: a large portion of the accounts were
newly opened last year. IRS rules limiting contributions are
another factor. For 2012, the limit on total contributions to an
HSA is $3,100 for individuals and $6,250 for families.
HSAs do come with significant tax advantages for workers.
The money contributed is tax-deductible; federal taxes are not
owed on investment gains; and withdrawals are tax free so long
as the funds are used for qualified medical expenses. Most
employers also make an annual contribution to HSA accounts.
Another health account option is known as a Health
Reimbursement Arrangement. These accounts often are offered in
conjunction with high-deductible insurance plans, and employees
use them to pay out-of-pocket costs until deductibles are met.
They resemble HSAs in that pre-tax dollars are contributed - in
this case by employers - and the funds are tax-free to employees
so long as the funds are used for qualified medical purposes.
Like HSAs, unused funds can be rolled over from year to
year. But HRAs lack the investment feature available in HSAs.
High-deductible accounts shift significant risk to the
employee. Out-of-pocket expense can be painfully high in the
event of illness. But by law, there is a maximum annual
out-of-pocket liability of no more than $5,950 for single
coverage and $11,900 for family coverage in 2011, although the
Kaiser survey reports that the average maximum out-of-pocket
cost in plans for single coverage was $3,304.
Backers of ABHPs argue that greater out-of-pocket
responsibility will lead to smarter, more careful consumers of
health care - which in turn will slow the rapid growth of
health care spending.
There is no conclusive evidence that's happening yet. But
it's clear that employers and employees do like the ability to
carve out savings on their own premiums at a time when health
care costs continue to rise.