Containing Health Care Costs with CDHPs
William L. Kite, Jr., Owner
D & S Agency, Inc., a UBA Partner Firm
Consumer-driven health plans (CDHPs) have benefited many employers since they were first introduced in 2002. For nearly 10 years adopting employers have seen significant savings by implementing HRAs, MERPs or HSAs to reduce overall medical benefit costs.
From time to time, industry white papers have suggested that the premium savings were only realized during the first year an employer implemented such plans. We have experienced a much different result that comes from movement to higher deductibles.
During the first year, adopters have enjoyed that initial 28 percent to 32 percent first year rate reduction. Our clients continue these savings through proper plan design, first rate employee education and at least annual communications.
Clients are introduced to carrier deductibles ranging from $2,000 to $5,000. Based on financial ability, some clients self-fund 50 percent to 80 percent of these higher deductibles using MERPs or contribute equivalent amounts to HRAs or HSAs. It is very important that the self-funded portion include an up-front deductible or "hurdle" as we describe them in employee communications. Many of our clients have found that they can easily afford to offer their employees hurdles as low as $500 and then reimburse 80 percent of the remaining deductible. CDHPs without hurdles incur significantly higher payouts! Having employees understand risk and participate in the management of that risk, is something they are willing to do! Giving an employee an upfront CDHP benefit, without a "hurdle," is more costly to the employer and we have found lessens employees and dependents utilizing their wellness benefit. Such plans lose the employee's "skin in the game."
Our results have been very dramatic and predictable regardless of employer size.
- Most of our clients save enough in premiums after four years to pay an annual health premium to their health insurance carrier! This number is derived by comparing the lower rate from the use of a high deductible health plan each year with the current equivalent premium that would have resulted from continuation of the lower deductible plan.
- Since 2004, our clients have only paid out 17 percent of the carrier premiums saved through their secondary reimbursement plan (MERP, HRA or HSA)!
- Our communication efforts impress the importance of having a primary care physician, avoiding the ER altogether and looking for cost effective prescription options even if they have to pay cash.
- We have also noticed a higher participation of our CDHP clients having annual routine physicals! Employees understand they need to take better care of themselves because of their front-end risk, what we call the employee or dependent "hurdle." Our results are based on plans that have up front prescription drug copays (except HSAs). Like every survey you see, as long as a carrier plan has an up-front prescription copay drug plan, only 20 percent of employees or dependents incur $500 in other covered expenses. Pareto's Principle once again!
The most unexpected consequence of our efforts has been the most rewarding. You know that employees get it when they approach you after the meeting and say, "Finally, I understand my health plan. It works like my car insurance. If I wreck I have a $500 deductible, but my family can plan for that!"