The debate about whether health savings accounts and high-deductible health plans are good for employers as well as employees has heated up, and the Business Journal last week asked a proponent and opponent for their views. Chris Ohman is chief executive of the California Association of Health Plans, a state trade group of health insurers. Ohman favors health care savings accounts and other consumer-driven plans. Jerry Flanagan is health care policy director for the Santa Monica-based Foundation of Taxpayer and Consumer Rights, and is a critic of the plans, which he sees as an attempt by companies to withdraw from offering employer-sponsored health coverage.
Question: Traditional employee-sponsored health coverage has been a cornerstone of employee benefits packages. What does a drive toward high-deductible plans mean?
Ohman:
Employers have for the past five years, by and large, absorbed increases in the cost of health care that are three or four times the increase in the general inflation rate. What that says is that employers have worked very hard to maintain this benefit as best they can. Health care is very, very expensive and the employers at this point, in order to sustain their competitiveness in a global market, are searching for ways to maintain coverage but also maintain their competitiveness. We still have an employer-based system for providing the bulk of coverage. Employers are looking for ways to sustain that and this one of the ways to do that.
Flanagan:
General Motors Chief Executive Richard Wagner says that when we pay $1,500 on one of his cars for health care (of GM workers) and only $200 for cars made by a global competitor that’s a competitiveness problem. He talks about leveraging the power of the U.S. government, the largest purchaser of health care under Medicare. We’re in a position in America where corporations are desperate for affordable health care. So it’s a cost shift. Far-reaching and visionary corporate leaders are suggesting that simply pushing costs off to employees doesn’t solve the problem and we need wide-ranging reform that gets rid of expensive, inefficient health care providers. That can’t be done with around-the-edge, band-aid reforms like these high-deductible plans.
Q: Under which circumstances might a high-deductible health plan, coupled with a health savings account, make sense for an employer to offer?
Ohman:
There probably are two or three situations. First, the employer has made the decision to more fully engage their employees in managing the company’s rising cost of health care. Second, an employer wants their employees to be able to access the tax advantages of HSAs. Third would be a case in which the employer is struggling with the cost of richer health benefit packages, and a high-deductible plan coupled with a health savings account can be one of the best options they have if they’re financially not able to offer richer benefit plans.
Flanagan:
These plans are attempting to shift the costs of health care from the corporation or employer onto the individual. Unfortunately at the end of the day they don’t achieve the cost savings or increased productivity because workers aren’t going to be able to afford the premiums and deductibles, will put off care, miss work or work sick because of inadequate health care benefits. These plans pass more costs on to the end users, instead of dealing with high costs and inefficient care tied to HMO overhead and drug profits,
Q: What are the circumstances under which high-deductible health plans and health savings accounts might make sense for an employee?
Ohman:
In some ways it’s the mirror image of the first question. One is that the employee wants to take greater charge and be more fully engaged in making decisions about the cost and quality of their care. Second is that they want to take advantage of the tax advantages of the HSA account, which are substantial. And third is that the HSA is a more flexible health savings tool than the flexible spending account, because it can roll over to the next year; it’s portable to a new job. That can be pretty compelling when you compare it to the use-it-or-lose-it restrictions of a flex account.
Flanagan:
Well, high-income wage earners who can afford to use these not as a health care product but as a tax shelter might consider it. A lot of these people could afford to have a comprehensive plan, even buy it outside the workplace and also buy these high-deductible plans not for the health care but for access to these investment accounts. When banks get in the business of health care you can see that the priority of our health care system has been skewed.
Q: Are there specific employers who should definitely consider the plans?
Ohman:
I don’t think there’s an employer size or industry that particularly jumps out. It comes down to the decisions of the individual employers about how they want to provide health benefits to their employees. Any employer at this point should at least be getting educated about these plans. Often times employers don’t make substantial changes to their plans until after several years of planning and education. Because the high-deductible health insurance portion of the program is less expensive than a full rich-benefit plan, and if that allows them to offer coverage for the first time or maintain it, then that is valuable coverage.
Flanagan:
I don’t think anyone should. Business owners are financially savvy and they need to realize that spending a lot of money on a product that doesn’t give a lot a benefit isn’t a very good investment. They’re paying a little less for a lot less benefit. They need to be part of the solution to create better plan designs and make sure HMOs are more efficient. For an employer who wants to get into the game, start offering coverage for the first time, they’re better off looking at a traditional plan that offers a benefit, rather than something that lower-income families can’t afford to participate in. That’s why I think these products haven’t been very popular in California so far because we’ve had much more experience with managed health care than with thin coverage, junk policies.
Q: How about employers who definitely should not?
Ohman:
They have to know that these plans tend to be more complex for employees to administer and employees are going to have more questions. Does the employer want his employees spending that much time on those kinds of issues? If an employer has the view that benefits should be simple and not complicated then this probably is not the kind of plan they would want to adopt.
Flanagan:
I think all employers should think twice.
Q: But what if this is the only plan being offered. What would you suggest, Jerry, for an employee to do?
Flanagan:
Then employees need to know what they’re getting, know that it’s not an insurance product like they might be familiar with, know how much it expects you to pay out of pocket. For families, that’s often $2,200 before the insurance kicks in. Look at your finances and ask yourself, ‘After I spend $2,200 a year can I also afford to invest more money into a health savings account to get that investment advantage?’ If no, then maybe you’re better off getting an individual plan in the private market outside your employer that provides comprehensive coverage. It would end up probably costing about the same in the end.
Q: Do you agree, Chris, there might be employees for whom these are simply not the right choice?
Ohman:
The employees who are not willing to wade into the detail of managing their health care claims. And there are going to be people who have certain chronic conditions or other issues that can leave them exposed financially in a way that could be inappropriate for them. You have to be very careful to understand how the plan works so that you’re not inappropriately exposed, and if so, then maybe a more traditional comprehensive plan is better for you.
Q: Can’t some of the problems be overcome by coupling a high-deductible plan with a health reimbursement arrangement where an employer agrees to offset part of the deductible? Wouldn’t that alleviate employer concerns about contributions being lost when an employee leaves?
Ohman:
The good thing about these all these plans is that employers have choices in how or whether they want to fund them based on their point of view. Portability is not a new concept for employers: They’ve dealt with the implications of employees leaving and taking the employer match in their 401(k) plan with them. Employer matches and portability are a big reason why 401(k)s are so popular.
Flanagan:
It merely helps the employee pay for health insurance that is still overpriced for what they’re getting. It’s pooling money that could be used to buy better health care in another product. This may be helpful in the short run for employers, but premiums continue to increase and it’s going to happen with these plans and then where are employers and employees going to be? Employers and employees should demand better.
