HDHPs Are Not the Answer for Every Employee

For the 2017 plan year, 56% of large employers on the Benefitfocus Platform offered a high-deductible health plan (HDHP) in addition to “traditional” copay-based plans—up from 52% a year ago.

However, employee selection behavior analyzed by Benefitfocus indicates HDHPs are not right for every employee. For example, Benefitfocus says, an employee in an HDHP who should really be in a preferred provider organization (PPO) can do much more harm than good to a company’s bottom line in the long run. If unable to afford paying out-of-pocket cost, the employee may go into debt or forgo necessary care, which could mean greater costs down the road. 

Employers should focus on guiding employees to enrollment decisions that make the most sense for their physical and financial health, Benefitfocus says.

When given the choice, 36% of employees enrolling through the Benefitfocus Platform selected an HDHP over a traditional plan for 2017—down five percentage points from 2016. PPOs held steady as the most popular option (43%), while other copay-based plans gained some popularity. Based on two years of enrollment data, two variables appear to heavily influence plan selection, Benefitfocus found. Specifically with respect to the question of PPO versus HDHP, an employee’s age group and salary may play a vital role in the decision on which of the two plans to choose.

HDHP participation was again higher than average for Millennials, especially those younger than 26, whose election rate for HDHPs rose to approximately 45% for 2017. Meanwhile, older members of the workforce continue to show a preference for traditional plans—primarily PPOs, in which participation rates have grown for every age group outside of Millennials.

However, the 2016 data revealed a significant difference between the average annual salaries of employees who selected HDHPs and those who selected PPOs when given the choice. The typical HDHP subscriber made approximately $5,000 more than the typical PPO subscriber. This suggests that lower-wage workers are less willing to take on the high out-of-pocket risk of HDHPs than their higher-wage peers, who presumably have more room in their budget for unexpected medical costs.

Knowing that Millennials typically make less money and participate in HDHPs at a higher rate than other age groups suggests they may need additional help understanding how to evaluate their health care options based on their financial situation. Employers should make it a point to communicate with their youngest workers through the channels and styles that will resonate and drive meaningful engagement, Benefitfocus says.

It’s not just HDHPs requiring employees to pick up more of the tab for their health care. Practically everyone has seen their costs go up from a year ago. For the 2017 plan year, HDHP deductibles and out-of-pocket maximums on the Benefitfocus Platform rose moderately (less than 5%), but employees are paying significantly higher monthly premiums for these plans.

Average HDHP employee premiums increased by more than 12% for family coverage—more than seven times the annual rate of inflation. In addition, employers are effectively paying less for these plans than last year, having transferred approximately 1.5% of the premium share of HDHPs to employees.

Meanwhile, PPO subscribers experienced negligible premium increases (roughly 1%), with employers assuming about a 4% greater share of the total premium for 2017. But, this is somewhat counteracted by substantial hikes in deductibles and out-of-pocket maximums.

The average deductible for a 2017 PPO plan selected on the Benefitfocus Platform is more than 8% higher for individual coverage and 9% higher for family coverage than it was in 2016—putting PPOs only a couple hundred dollars below the Internal Revenue Service (IRS) deductible thresholds for a plan to be considered an HDHP. The increases in out-of-pocket maximums are even more dramatic, with subscribers responsible for more than 10% more than they were in 2016.

To help employees manage their growing financial responsibilities, many employers offer health savings accounts (HSAs) and flexible spending accounts (FSAs) that workers can pair with their health plan. For the 2017 plan year, eligible employees contributed more on average to their HSAs, with increases of approximately 5% for individual coverage and 2% for family coverage. Despite employer contributions dipping more than 3%, the gap between what’s actually going into HSAs and what the IRS allows to go in them—while still significant—has narrowed.

The average FSA contribution amount for participating employees increased by roughly 6%. Similar to HSA contributions, FSA contributions experienced their greatest surge among younger generations. Participating Millennials younger than 26 contributed approximately 11% more to family coverage accounts in 2017 than they did in 2016, and Millennials older than 26 contributed 7% more. The amounts are still relatively low, but it appears that young employees are becoming more savings-minded.

Employers can help employees solve the health benefits puzzle. With easily digestible information on how these accounts work and the value they provide, as well as straightforward tools to evaluate their personal need for these accounts, employees are in a position to make contribution decisions that best align with their health plan coverage and financial situation, Benefitfocus concludes.

Benefitfocus' The State of Employee Benefits 2017 report may be downloaded from here. A free registration is required.