BHCG Monitor: Focus on Health Care Benefits

August 2016

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BHCG Monitor: What We Know About High Deductible Health Plans

What We Know About High Deductible Health Plans

Increasing plan deductibles has emerged as one of the most popular potential solutions to rising health care costs and as a strategy to avoid the looming Affordable Care Act’s (ACA) excise tax for high-cost plans. The adoption of high deductible health plans (HDHP) – also known as consumer directed health plans (CDHP) – when paired with a health savings account (HSA) has seen strong double-digit growth in the past five years.

Almost one in two employers now offer at least one HDHP and one in five Americans are enrolled in one. But what do we really know so far about how well HDHPs reduce health care costs? And do they affect health care access in a way that could negatively affect health?

There are two primary factors that affect health care costs – how much is being used (utilization) and the price for services and drugs. A new study from the PricewaterhouseCoopers (PwC) Health Research Institute indicates price isn’t what is primarily adding to the rising cost trend (projected to be a 6.5 percent increase in 2017). Rather, more people are consuming more care.

The PwC study found increased access through retail clinics and urgent care walk-in clinics at low unit costs has led to greater use by patients and more spending. Insurers and self-insured employers have focused on high performing provider networks so that members are getting more for their money when it comes to health care services.

How do HDHPs save money?

While costs are expected to go up 6.5 percent next year, employers anticipate they will only experience an approximate four percent cost gain through a continued emphasis on high performing providers, adopting narrower drug options and higher copays – and by shifting plans to higher deductibles.

Premium costs for HDHPs are, on average, lower than traditional HMO and PPO plans. In the past, it’s been thought lower premium costs were a big factor in flattening health care cost trend, and certainly they have a direct impact on overall costs for everyone.

But what about HDHPs’ influence on health care utilization – the other side of the health care cost coin? It’s assumed that employees who enroll in HDHPs will become more savvy consumers, changing their health consumption behavior since they are paying “first-dollar” for care.

Going as far back as 1982, the RAND Health Insurance Experiment concluded that higher deductibles did reduce use of care – to the tune of about 30 percent. Subsequent studies have continued to confirm this theory. Higher deductibles will result in less care use, lowering costs.

Initial savings – but do they last?

A 2015 study by the National Bureau of Economic Research (NBER) followed a large employer (150,000 lives) that replaced its traditional PPO with an HDHP. The study found costs substantially decreased across a number of categories – preventive, emergency and outpatient care, as well as pharmaceutical spending.

The research showed age- and inflation-adjusted medical spending dropped by 19 percent when employees switched to HDHP coverage. Overall spending decreased between 10 and 15 percent for the two years after the change in plans.

Also in 2015, researchers led by Amelia Haviland, professor of statistics and public policy at Carnegie Mellon University, found that total annual health spending fell by 6.6, 4.3, and 3.4 percent in the three years after the employers studied began offering HDHPs. The group’s research is the first of its kind to look at multi-year savings for a large sample size of data (13 million people at 54 large U.S. employers).

Says, Haviland, “Prior research shows that CDHPs reduce spending in the first year. However, there is little research on the impact of CDHPs over the longer term. Three years out, there consistently seems to be a reduction in total health care spending.”

What is the health impact?

As seen through numerous studies, increasing consumers’ share of costs reduces their health care use. But what is the impact of this reduction on consumers’ health? Some of the research suggests that additional out of pocket expenses reduce the use of necessary as well as unnecessary care.

The aforementioned RAND study found HDHPs reduced the use of both effective and less effective care – but there was no measurable impact on the health status of most patients. The NBER research found consumers appeared to reduce health care consumption across a range of medical services, from high to low cost. Utilization reductions led to a 22 percent decrease in spending on imaging services. However, consumers also reduced preventive health services utilization.

Chronic conditions like diabetes and hypertension that require medications and regular interventions to be successfully managed have increased in the U.S. High cost sharing is a concern for people with chronic conditions, mental health disorders and other conditions that require expensive prescriptions or long-term health care services.

The NBER study found that, among families whose members had chronic conditions, care is more likely to be delayed for both children and adults in an HDHP. It also showed the sickest enrollees decreased their medical spending by more than the average, between 18 and 22 percent in the first year – even though these enrollees had relatively high incomes and received an employer-funded HSA contribution.

A 2013 analysis also found decreased medication adherence for chronic condition patients in HDHPs. Better adherence to taking medications for chronic conditions does result in less health care use. Decreased utilization – when it involves consumers with chronic conditions – may not save money in the long run.

Additionally, the NBER research revealed consumers did not price-shop for high value providers after the switch to an HDHP. All the spending reductions came in the form of utilization reductions across the board. Of the top 30 medical procedures, consumers reduced utilization for 23 of them.

Education & communication needed

Most HDHP members surveyed in the NBER study had no idea preventive screening, office visits and other vital care were covered with little or no out of pocket expense. One in five members said they avoided preventive care because of the cost.

The NBER research also suggests consumers misperceive their own health risks, how much medical care costs and don’t understand how the HDHP insurance contract actually works, making the case for stronger educational and communication components to avoid necessary care avoidance.

The current emphasis on education through consumer tools and cost and quality transparency on the part of insurers and employers should help educate people about avoiding needless procedures, seeking necessary preventive care and shopping for high value providers. The challenge will be to reach a critical level of participation and usage of tools that will contribute to a consumer-driven culture where health care is concerned.

There is also a need for employers to emphasize the benefits of HSA participation and provide education on how to use the account to meet personal needs. A Benefitfocus report revealed that younger employees are typically not contributing even 25 percent of the maximum HSA funding limit. Consequently, many new HDHP members run the risk of having moderate to major medical events they cannot fund.

In conclusion

CDHPs do result in reduced health care costs for many employers as shown in numerous studies and research – even beyond year one. However, current evidence suggests that consumers don’t seem to be responding to the increased cost sharing of an HDHP with increased consumer expertise. Instead, they seem to be reducing their consumption of medical services across a wide range – some of which are likely to be wasteful, while others may prove to be valuable or critical.

If people choose to forego preventive services and medications and end up needing expensive hospital care, everybody is worse off. All of this suggests that while increased consumer cost sharing can be effective in reducing costs, in order for HDHPs to be ultimately successful, consumers need to understand the costs and benefits of a variety of health care services. In recognizing the potential challenge of HDHPs to control costs without affecting outcomes and health, a concurrent, continued strategy to appropriately incentivize providers to deliver high-value, low cost care is also necessary.

Works Cited

Fowler, Shandon. "What's Keeping Health Care Costs Under Control?" BenefitFocus Blog. February 2016.

Hancock, Jay. "High-Deductible Plans Bring Lower Costs Now, But Will They Bring Pricey Problems?" Kaiser Health News. March 2015.

Handel, Ben. "Health Care Cost-Sharing Prompts Consumers to Make Big Cuts in Medical Spending." The Conversation. June 2015.

Lorenzetti, Laura. "Here's Why You'll Likely Pay More For Your Employer-Sponsored Health Insurance." Fortune. June 2016. NBER.

"'Consumer-Directed' Health Plans Appear to Lower Spending." The National Bureau of Economic Research. July 2016.

Robert Wood Johnson Foundation. "Health Policy Brief - High Deductible Health Plans." Health Affairs. 2016.

Stephen Miller, CEBS. "CDHP Cost-Savings Maintained over Time, Researchers Find." Society for Human Resource Management. March 2015.



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