Employers’ health benefit cost growth had the smallest increase in 15 years—only 4.1 percent in 2012 compared to 6.1 percent in 2011—according to Mercer’s National Survey of Employer-Sponsored Health Plans.
The lower-than-usual increase in costs is attributed, in part, to increased usage of consumer-directed health plans (CDHP).
Despite this, many provisions in Obamacare threaten the viability of CDHPs, which have great cost-saving potential and have been growing in popularity.
One such regulation is the medical-loss ratio (MLR) requirement, which requires insurance companies to spend 80 percent of premium revenue on medical claims or other health care quality improvements. The remaining 20 percent is for fixed costs such as administrative and other non-medical expenses. If the minimum of 80 percent is not met, the insurer must issue a rebate to the consumer.
It will be difficult for CDHPs to meet the MLR requirement, because they have lower premiums, which reduces their total revenue. This means that their fixed expenses take up a larger percentage of their total premium revenue, making it hard to keep its non-claim expenses below the MLR’s 20 percent threshold. The American Bankers Association’s HSA Council gave this example: “$400 of fixed expenses represents 40 percent of a $1,000 premium, but only 20 percent of a $2,000 premium and just 8 percent of a $5,000 premium.”
CDHPs are typically combined with health savings accounts (HSAs), which are used to cover costs before a plan’s deductible is reached. However, their very structure makes them incompatible with the new MLR rules, because the formula does not count HSA contributions toward premiums or benefits in the MLR calculation.
Without including HSA contributions, CDHPs will again be at a disadvantage for complying with Obamcare’s rule. A study by Milliman, Inc., concludes, “For high-deductible and HSA plans to be viable, both from a consumer and carrier perspective under [Obamacare], an adjustment to the MLR formula for the impact of HSAs may be necessary.”
Another issue with high-deductible plans is that they may require larger annual rate increases. If the deductible isn’t tied to medical inflation, premium increases will have to make up the difference, causing potentially higher increases than low-deductible plans would have. The larger rate increase may disqualify CDHPs if the increase is deemed an Obamacare “unreasonable rate increase,” which is subject to the discretion of the Secretary of Health and Human Services.
Obamacare’s hindrance of these plans comes in the face of their growing popularity and cost containment. The amount of employers offering CDHPs grew in 2012 from 17 percent of all employers to 22 percent, and enrollment increased to 13.5 million Americans. Mercer’s survey found: “Moving even a small number of employees out of a more expensive plan into a CDHP can result in significant savings for an employer. The cost of coverage in a CDHP with a health savings account is about 20% lower, on average, than the cost of PPO coverage.”
Further, research published by Health Affairs earlier this year concluded that if consumer-directed health plans increased as a share of employer-sponsored plans to 50 percent, it could save $57.1 billion annually in national health expenditures. The research states, “Savings of this magnitude would account for 7 percent of all health care spending for the population with employer-sponsored insurance and 4 percent for the nonelderly population as a whole.”
Although consumer-directed health plans show continued success, Obamacare undermines such success by limiting choice, competition, and innovation.