It never ceases to amaze me how little people know about their health insurance. Companies today are reducing health insurance benefits every year and people are either not noticing or are numb to the events occurring around them. We have become the frogs in a pot of water set to gradually increase in temperature. The frogs (employees) do not notice how hot it is getting until they boil to death! Your employer is in full control of your health benefit reductions (the heat) and is employing methods that benefit his bottom line at the expense of your pocketbook.
The annual process of reducing employee health benefits has become the norm among companies and takes a form that most employees have accepted as the inevitable. Employees are accepting the gradual changes as an inevitable consequence of high health costs. We should be fighting back.
Sure the burden of high employee health insurance costs is putting American businesses at a disadvantage in global marketplaces, but why must the employee (and not the overpriced and inefficient healthcare system) take the financial hit. Without major structural changes to our for-profit healthcare system on the horizon, employers have reacted to the high costs by reducing employee health benefits. The threat of the looming Cadillac tax gives employers an added excuse to accelerate the health benefit reduction process. Since the employers only pay for health insurance premiums, many employers are replacing their low cost-share health plans (like Preferred Provider Organizations (PPOs)) with high cost-share health plans (like High Deductible Health Plans (HDHPs)). These high cost-share health plans transfer more health care costs onto sick employees and reduce the costs to the employer. This is a similar transfer of financial risk employed when employers switched employees from defined-benefit to defined-contribution pensions over the past thirty years.
One Company’s Approach to Reducing Employee Health Benefits
Let me illustrate with an example. A reader recently sent me the health insurance signup details from her company’s annual open enrollment for the years 2013-2016.This company is self-insured and has over 5000 employees. I am not specifically naming her company at her request. In 2013, the company offered three different plans—2 Preferred Provider Organization (PPO) plans and one High Deductible Health Plan (HDHP). In the table below, I have summarized the employee single/family premium share for the three plans offered by the company.
For the HDHP, the employer kicked in a $500 employer-contribution in 2013 and 2014 and increased it to $1000 in 2015. The employee does not know the total premium prices for every plan shown above since this information was not published by the company for employees to compare, The employee who reported this information to me had elected the HDHP (Plan 3) above for all years in the table above because it was the cheapest plan to buy. She has been healthy and not needed any expensive healthcare to date. From her W2s (line 12, code DD), the reported health insurance coverage cost was $6200 (in 2013) and $6700 (in 2014). These reported values do not include the HSA contributions (employer and employee). The reader said that Plan 1 was discontinued for “lack of interest” in 2015.
Looking over the table above, it is obvious that the company is “encouraging” its employees to switch into the HDHP by:
- Step 1. Introducing the HDHP at a very low employee cost
- Step 2. Providing an HSA with $500 seed money in 2013
- Step 3. Increasing HSA seed money to $1000 (2015) and keep HDHP premiums low so that healthy, younger employees migrate to HDHP, leaving behind a risk pool that has a higher percentage of high spenders of health care
- Step 4. Price the PPO premiums according to subdivided risk pools so that as the PPO loses low spenders (i.e., healthy people) to the HDHP, its premiums will rise precipitously until only high spenders (i.e., people who use more health services) remain. (see the figure below)
- Step 5 (prediction). Discontinuing Plan 1 because of “lack of interest” forcing all employees into HDHP
- Step 6 (prediction). Increasing employee share of premium for the only remaining plan, the HDHP
Of all the steps above, Step 4 gives me pause to reflect the longest. As a self-insured company, all employees are members of one risk pool and subdividing the risk pool to raise the cost of some health insurance plans (the PPOs above) is a standard internal health insurance company practice employed to increase profits. For the self-insured company, the practice reduces the financial risk associated with providing employer-sponsored health insurance by passing it onto sicker employees. Just like the health insurance company, the self-insured employer aligns its interests against the individual American (HICUP interests always win out). As prohibitively costly premiums drive more and more employees from Plan 1 (the last remaining low cost-share plan) to Plan 3, I predict that “lack of participation” will eventually remove Plan 1 as a choice for employees at this company.
This self-insured employer is utilizing the same risk pool pricing practices used by insurance companies but rather than for profit maximization, the self-insured employer does it as a means to reduce health insurance premium costs. Is this self-insured employer practice that manipulates employees illegal? No. As a self-insured company, there is minimal governmental regulation or scrutiny of its practices. The health benefit details and practices are largely hidden from employees. Many of the new Obamacare (PPACA) reforms do not apply to self-insured employer-sponsored health insurance plans. For example, self-insured companies do not have to follow the medical loss ratio requirement under Obamacare (PPACA) that stipulates that 85% of premiums at large companies must be spent on health care claims or plan participants are given rebates. Therefore, self-insured companies are free to manipulate the individual plan premiums while they move more and more employees into high cost-share High Deductible Health Plans (HDHPs).
What is the Employer Really Paying In Health Insurance Premiums?
Let’s do some calculations based on the 2014 W2 (line 12 code DD) provided by the employee and the information provided in the table above. We will look at the total cost of the health insurance (premiums), the employer share, the employee share, and the rate of subsidy (employer share/total cost). The calculations I made are given in the table below along with comparison calculations using two plans from the 2014 FEHB program (non-postal federal employees) and the average employer-sponsored costs for large companies (200+ employees) according to the Kaiser Family Foundation’s annual Employer Health Benefit Survey.
As expected, the rate of subsidy for the employee’s HDHP (Plan 3) is a whopping 97%. Since I only have total cost information for the employee’s HDHP, I cannot determine the rate of subsidy for Plans 1 and 2. Obviously, the self-insured company is not subsidizing the two PPO plans at a 97% rate given the employee shares paid. Let’s assume the company contributes the same dollar amount ($6520) for each PPO plan participant buying single coverage. This would make the total single coverage cost $7820 (83% rate of subsidy) for Plan 1 and $11,020 (59% rate of subsidy) for Plan 2,
A PPO health insurance plan (single coverage) that costs $11,020 annually ($918/month) is unusually high and warrants further scrutiny. If one compares this price with 2014 Platinum (lowest cost-share and highest priced) plans sold on the Health Insurance Marketplace for non-group individuals, one would see that this price is charged for people over the age of 50 (average of prices from 34 states). I would assume that in the final year of offer, Plan 2 probably had a lot of plan members over the age 50 year old. Does this sound like age discrimination being practiced within this self-insured company?
The self-insured company example in this blog post tells us why one plan companies are inevitable. Of the companies who offered health insurance in 2015, 83% offered only one type of plan (for large companies 52% ) per the Kaiser Family Foundation. The Cadillac tax is simply accelerating the process. As more and more employees are being forced to abandon their low cost-share plans for high cost-share plans because of premium cost, they must cross their fingers that they do not get sick and incur high out-of-pocket costs. If I had a crystal ball, I would predict that Plan 2 (PPO) above will soon follow its lower cost-share brother and be terminated because of “lack of interest”
The Bottom Line
Multiple health insurance plan choice in the employer-sponsored health insurance setting is becoming a thing of the past and with it the ability for employees to strategically move between a low cost-share (PPO) and a high cost-share plan (HDHP) as their health dictated. With only one high cost-share HDHP plan on offer, employees are left with no options but to pay the high cost-share when sick.
Employers (especially those who are self-insured) can utilize methods that eliminate long-standing low cost-share plans (like Preferred Provider Organizations (PPOs)) and replace them with high cost-share (High Deductible Health Plans (HDHPs)) without making employees aware that this was an intentional process orchestrated by the employer. If the company employee demographics are favorable (i.e., a sizable over age 50 risk pool), then it is easier for a company to speed up eliminating a low cost-share health benefit using the method outlined above. Does this point to some age discrimination going on? Employers rely on employees being the frogs in the boiling water who quietly accept the inevitable; namely, a larger and larger health cost-share being dumped onto the individual employee and his family.
Start saving in a Health Savings Account (HSA) now if you have the money or, if not, pray that you and your loved ones never become high spenders of health care. Better still, let’s work as a group in BB’s Health Care Brigade to bring down health costs (the root of this problem) and bring Affordable Health Care and Beyond for ALL Americans! Our inaction is taking us to a financially less secure place.