As advisors know, over the last several years, the trend in employment-based retirement plans has been to put in place structures to make more decisions for workers through the expansion of automatic enrollment plan designs.[1. See “The Impact of PPA on Retirement Savings for 401(k) Participants.”] What you may not know is that at the same time, the trend in employment-based health plans has been to look for ways to give workers more choice, and flexibility in those choices, by looking to so-called consumer-driven health plans, or CDHPs[2. CDHPs combine high deductibles with tax-preferred savings or spending accounts that workers and their families can use to pay their out-of-pocket health care expenses. These accounts allow people to accumulate funds on a tax-preferred basis — the funds may include contributions from the employer, the employee, or both, depending on the plan’s structure. Employees can choose between using the funds for their health care cost sharing or saving the money for the future. Employers began offering CDHPs in 2001, when a handful started offering health reimbursement arrangements (HRAs). They then started offering health savings account (HSA)-eligible plans after the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 included a provision to allow individuals with certain high-deductible health plans to contribute to an HSA. See also “What Do We Really Know About Consumer-Driven Health Plans?” and “Characteristics of the CDHP Population, 2005–2010.”]
In the case of the former, the shift has been to help workers make better decisions, to boost savings by not only increasing plan participation, but to direct contributions to more diversified investment options than many seem to choose on their own accord. In the case of health care plan designs, the expansion of choice is similarly rooted in a desire to help workers make “better” decisions, albeit with a slightly different emphasis.
While many retirement plan advisors don’t (yet) work with these health care plan designs, they are of growing concern to an increasing number of plan sponsors, and may well already be having an impact on your plan sponsor clients. In fact, the addition of CDHP designs (and in many cases it is an addition, rather than a replacement for, traditional health plan designs) has arguably been motivated in no small part by a desire constrain the costs of employment-based health care programs by giving workers some “skin in the game” beyond whatever premiums may be associated with the benefit. By 2012, 31% of employers offered some version of a CDHP (either a health reimbursement arrangement or health savings account-eligible plan), with about 25 million people (about 14.6% of the privately insured market) covered by these type plans.
The concept is relatively straightforward — CDHPs combine high deductibles with tax-preferred savings or spending accounts (that can be funded by employer and/or employee contributions, or both) that workers and their families can use to pay their out-of-pocket health care expenses. The theory is that individuals may spend money from their own account(s) more judiciously. However, there have been concerns that individuals may prove to be too frugal, choosing to defer needed and perhaps even necessary health care just to avoid spending money.
Additionally, while the theory that consumerism would lead to less (and perhaps better) spending appeared sound, and while prior research in this area has generally found low-to-moderate reductions in measures such as services use, conclusions have also been limited by the potential for selection bias, in that workers were often given a choice between CDHPs and more traditional options — and it was possible that individuals of a particular profile might be more inclined to opt for the CDHP.
A recent EBRI study published in the June issue of Health Affairs was able to examine health care services utilization trends by using data from two large employers — one that adopted a CDHP in 2007 and another with no CDHP.[3. See “Consumer-Directed Health Plans Reduce The Long-Term Use Of Outpatient Physician Visits And Prescription Drugs.”] That research found that after four years under an HSA plan, there were 0.26 fewer physician office visits per enrollee per year and 0.85 fewer prescriptions filled, although there were 0.018 more emergency department visits, and the likelihood of receiving recommended cancer screenings was lower under the HSA plan after one year and, even after recovering somewhat in later years, still lower than the baseline at the study’s conclusion.
Ultimately, the longer-term impact of CDHPs on health status, outcomes and spending remains to be established. On the other hand — and as the research paper notes — if CDHPs succeed in getting workers to make decisions that are more cost-sensitive, employers may well want to ensure not only that the plan designs work to incentivize the right choices, but that their workforce is educated on the expanded choices that lie ahead. And that is a focus that retirement plan advisors can surely appreciate.
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