Pros and Cons of High Cost Sharing for Employer Health Plans

May 23, 2018 - Employer-sponsored health plans that include high cost sharing expectations can help control spending for plan sponsors, but could create longer-term health risks for employee beneficiaries.  

Striking the right balance between lowering costs and enabling healthy decision-making can be a challenge for employers and payers looking to design cost-effective plans.  

How can plan sponsors leverage the positive features of high deductibles and equitable cost sharing without tempting beneficiaries on a budget to forego recommended care?

Navigating a challenging health plan market

The growing cost of US healthcare continues to pose problems for employers sponsoring health insurance.

Most of an employer’s healthcare spending can be attributed to rising costs, not more volume, says the Health Care Cost Institute (HCCI), leaving employers and payers footing a more expensive bill for the same amount of care.

READ MORE: How Payer Philanthropy Can Address Social Determinants of Health

This has prompted plan sponsors to share the load by offering more high deductible health plans (HDHPs) and asking beneficiaries to shoulder more of the financial burdens of their care.

Employers are now approaching a 50-50 split with their employees, according to the 2018 Milliman Medical Index.

Employers pay roughly 56 percent of an individual’s total medical costs. With the average PPO employee spending $28,166 a year on healthcare services, employers are responsible for close to $16,000 per individual on an annual basis.  

Overall, employer subsidies increased by 3.5 percent from 2017 to 2018 while employee contributions grew by 5.4 percent from 2017 to 2018.

High cost sharing, benefit design can control healthcare spending growth

The Milliman analysts suggest that more employee cost sharing and the greater availability of high deductible health plans have helped to reduce the rate of spending growth.

READ MORE: How Payers Identify, Succeed in Health Plan Market Opportunities

“Changes insurers and employers are making to health plan designs may help steer customers to appropriate care in cost-effective settings— out of the emergency room to in-network providers, retail clinics, and standalone centers of service, such as labs and radiology services,” the report said.

Many employees find HDHPs useful for reducing their monthly costs and find the low premiums attractive.  

HDHP enrollment grew to 21 million total enrollees in 2017, says AHIP, which shows that beneficiaries are willing to engage with these plan designs.  

High cost sharing may create financial challenges for employees

About 71 percent employees are satisfied with the general benefits of employer-sponsored health plans, but many expressed concerns with increases in cost sharing, according to a recent AHIP survey.  

Seventy-nine percent of participants said they are anticipating higher costs within the next two years - more than 80 percent said they feel that they are getting less value for the dollar as costs increase.

READ MORE: Assessing Providers for Participation in Value-Based Care Contracts

As employees become more responsible for spending, they may avoid going to the doctor if they do not have the funds available when they are needed.

Research from Indianapolis University and the Center for Health Reform in Dallas found that HDHP enrollees deferred needed healthcare in order to save money. Enrollees even avoided necessary hospitalizations to lower their personal healthcare spending.

“Current evidence on high-deductible health plans suggests that they are associated with lower healthcare costs resulting from a reduction in enrollees’ use of health services,” the study authors said.

“This includes appropriate care, such as recommended preventive services and medication adherence.”

Employers may end up spending more on acute or emergency care if beneficiaries do not address lower-level concerns before they escalate.

A University of Michigan study from 2017 also found that a majority of HDHP enrollees did not have the financial skills to use HDHPs in a cost-effective manner.

The researchers found that 42 percent of HDHP beneficiaries had a chronic condition, but only 40 percent of beneficiaries engaged in behaviors to control costs and seek out low-cost preventive care.

How employers benefit from the best of both worlds

The key for employers to effectively manage employee healthcare spending is to provide additional, cost-effective benefits to health plans and assist employees when they make healthcare decisions.

Employers can ensure members are using healthcare services in a cost-effective manner by providing them with financial incentives when they choose affordable providers and services.

HealthTrust of New Hampshire, a payer organization that provides health benefits to government employees, was able to save $3.2 million on care costs by offering financial incentives when members used lower-cost care providers.

Employers can also add wellness benefits such as gym and fitness memberships, free preventive care services, and on-site clinics to keep members healthy and reduce healthcare utilization. These benefits are usually a low-cost way for employees to add value to health plan options.

Employers also need to establish effective health plan engagement channels so members can access educational resources about health plan benefits and their financial responsibilities.

A communications strategy for financial literacy purposes should be designed to define complex financial characteristics and benefits of HDHPs.

Jeff Oldham, Senior Vice President of Global and Institutional Markets at Benefitfocus, suggests that employers need to carefully explain the financial benefits of plans like HDHPs.

“An employer can't assume that someone is going to work through a 30-minute open enrollment online application and then, suddenly, know what an HSA is or how to use it,” Oldham said. “Benefits education requires perpetual ongoing communication and different methodologies of communicating.”

Health plans should leverage beneficiary characteristics and use data-driven consumer targeting to determine the best engagement channels for benefits education. Using data to identify engagement strategies can help determine if traditional or digital communications are the best way to provide employees with educational resources.

Employers sponsoring health plan options for their employees don’t have to control costs by simply shifting expenses to beneficiaries. Instead, employers should help employees become informed decision-makers and collaborate with beneficiaries to manage healthcare costs.