The high-deductible health plan gamble
Workers are betting that savings accounts will help curb the cost of care

by Marjolijn Bijlefeld
for Virginia Business
September 2006

At Dominion Resources, 1,348 employees are willing to bet on their good health. That’s the number of people — 12 percent of the eligible nonunion employees at the Richmond-based energy company — who opted this year for a high-deductible health plan (HDHP) with a health savings account.

It’s easy to see why: For a relatively healthy person, the plan offers an $8 a month premium for a single employee, as well as a $25 monthly contribution by Dominion to the health savings account, or HSA. The tradeoff is that if an employee gets sick, he or she faces a $1,250 deductible. For an employee and family, the premium cost is $53 per month with a $2,500 deductible.
The deductibles are far higher than those charged by a traditional PPO (preferred provider organization). But that’s part of the gamble offered by HDHPs — if employees play and win, they’ll pay smaller premiums and keep more money in their pockets. “Once you pay a premium, it’s gone. You don’t get it back,” says Anne Grier, Dominion’s senior vice president of human resources.

Getting employees to pay more attention to the money they spend on health care — and thus save employers money as well — is the goal of high-deductible plans with HSAs. Patients who are charged only a $10 co-pay for a prescription drug, for example, may never know the true cost of medicine. By contrast, someone who pays out of pocket — or uses the pre-tax money set aside in an HSA — will be more likely to ask whether there’s a cheaper generic substitute.

The theory makes sense, but does the approach work in practice? The jury is still out. Grier says it’s difficult to gauge the effect of the HDHP and HSAs because in the past few years the company has tweaked its self-insured health plans. “But all in all, the changes we made are beginning to show some improvements in the trend line, moving from double-digit increases to single-digit increases” in health-care costs, she says.

Since a 2004 federal law created these portable accounts, about 3 million people have elected to be covered under an HDHP with an HSA option. In Virginia, Anthem Blue Cross and Blue Shield covers more than 25,000 members under one of these plans — a small fraction of its 2.9 million customer base.

In July, Virginia state employees were introduced to the concept through a program administered by Anthem. In the first month, 230 people signed up. “We expect to see that number increase dramatically next year and beyond,” says Anthem spokesman Scott Golden. The company’s HSA plan premiums can run less than $300 a month, while a PPO family premium may be as much as $700.

HDHPs are designed to provide protection against catastrophic medical bills, not run-of-the-mill doctor visits. By law, HSAs must be combined with HDHPs, offering a minimum deductible of $1,050 for an individual or $2,100 for a family. The policies also must cap total annual out-of-pocket expenses at no more than $5,250 for an individual or $10,500 for a family. Employees, or employers on their behalf, can contribute up to 100 percent of the policy deductible — or, in 2006, up to $2,700 for an individual or $5,450 for a family, whichever is lower — to an HSA. The contributions are tax-deductible and can then be used to pay medical expenses without incurring any taxes or penalties. One big advantage: An HSA account belongs to the individual and is portable. Unlike some other spending accounts, the HSA also has no use-it-or-lose-it stipulation, so the money carries over from year to year. Plus, after age 65 money can be withdrawn for any reason without paying a 10 percent penalty.

Terri Flagg, Anthem’s vice president of marketing, says the new HSA plans should be more popular than earlier medical savings accounts (MSAs), which never quite gained traction. “MSAs were limited to small employers, and either the employee or the employer, but not both, could make contributions,” she says.

Early enrollees in HDHP plans tend to be healthier people. “They’re buying a lower-cost product and putting some money away in a tax-advantaged account,” says Flagg. Wealthier individuals, such as physicians and attorneys in small independent practices, also are potential enrollees. Small businesses — eager to find the lowest price for health-care plans — seem to like HSAs, too. Of Anthem’s 25,000 enrollees, nearly half work in a small business of fewer than 15 employees. “In the first year of enrollment with any new product, we typically see 10 to 15 percent choose that product. Then over a two- to three-year period, we’ll start to see a broader mix of enrollees,” says Flagg.

There is some evidence that consumer-driven health plans encourage people to be more involved in the financial side of their care. Yet, because of the relative novelty of such plans, study populations are small. A July study by UnitedHealth Group, touted as the largest of its kind, covers a three-year period and 50,000 individuals. It found that members with these accounts sought preventive care more than PPO enrollees, had 22 percent fewer hospital admissions and 14 percent fewer emergency room visits. Their costs decreased 3 percent to 5 percent, while the PPO group’s costs rose between 8 percent and 10 percent.

One of the main tenets behind every consumer-driven health plan is that consumers will demand to know more about the costs of their care. And, once they know more, they’ll try to spend less. But getting the dollars-and-cents data is not always easy. Flagg says Anthem is working to make costs of drugs better known to primary-care providers. Physicians then will be able to inform patients about the price difference between brand-name and generic drugs. If patients don’t find out about generic drugs until they reach the pharmacy, it is often too late because they don’t have prescriptions to allow the substitute.

Similarly, patients should be able to ask at the doctor’s office about the cost of medical tests. Victoria Craig Bunce, director of research and policy at the Alexandria-based Council for Affordable Health Insurance, prepared a paper on HSAs and the chronically ill. In one example, she cited a diabetic patient who, rather than submit to a $15 blood glucose screening, began carrying her own glucose meter and test strips to her doctor’s visits. The cost of her self-administered test: about 50 cents for the price of a test strip.
Right now, such proactive behavior is unusual, but it may become less so, with major retailers such as Wal-Mart and Target offering walk-in clinics for routine medical care. Minneapolis-based MinuteClinic offers its menu of services and charges on its Web site. In July, CVS Corp. announced an agreement to acquire MinuteClinic’s 83 locations, 66 of which are in CVS stores. The clinics operate in Maryland but have yet to enter Virginia.

A recent study shows a mixed bag for consumers using HSAs. The Commonwealth Fund — a private foundation that studies health care — released a study in July titled “How Much More Cost Sharing Will Health Savings Accounts Bring?” It suggests people who spend the least or the most on health care would see savings by using a HSA, while those in the mid-range would see their share of costs go up. The study is generally favorable toward HSAs because of the effect of tax subsidies. But its authors, Dahlia K. Remler, a professor at Baruch College’s School of Public Affairs, and Sherry A. Glied, chair of the department of health policy and management at Columbia University, warn that those who spend the most on health care are going to need more financial cost-sharing assistance. “Raising incentives for cost-consciousness necessarily increases financial risk,” they write, “and it might undermine the access to care that we wish to preserve.”

Clearly there’s much to learn about whether high-deductible plans can truly cut health-care costs. One of the curiosities of this relatively new approach is the “consumer-driven” label proponents have given them. Maybe consumers are driving the decisions, but only because they’re forced to. If they were truly in control, they’d be paying less for health care and getting more. It’s hard to believe, as proponents argue, that consumers can really sway the costs of health care by griping about how much it costs to see a doctor. After all, they’ve been doing that for years.