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Half of Employer Health Plans Have No In-Network Deductible
Absence of the right incentives and communications to employees leads to plan selections that are significantly more expensive

By Stephen Miller, CEBS  4/5/2012

While many U.S. employers are looking at full-replacement high-deductible health plans (HDHPs) or attempting to drive greater enrollment in existing HDHPs offered as a plan option, nearly half of 2012 employer-provided plans (49 percent) still have $0 in-network deductibles, according to a 2012 medical plan trends report by HighRoads, an employer health care compliance and benefits management firm, and the Corporate Executive Board's CLC Benefits, a research and advisory services company.

Annual In-Network Deductible for Individual Coverage

Deductible Amount

Percentage of Plans

$0

49%

$100-$350

23%

$400-$1,000

14%

Amounts above $1,000

14%

Source: CLC Benefits-HighRoads 2012 Medical Plan Trends Report.

For 2012, HDHPs with deductibles of at least $1,200 (individual) or $2,400 (family) can be linked to employer- or employee-funded health savings accounts (HSAs), according to the Internal Revenue Service's Revenue Procedure 2011-32. (To learn more, see the SHRM Online article "For 2012, Higher Limits for HSA Contributions, Out-of-Pocket Expenses for High-Deductible Plans.")

“While the prevalence of HDHPs has roughly tripled in the last five years, companies are still offering traditional PPO [preferred provider organization] plans, many of which do not charge for in-network visits,” said Ania Krasniewska, senior director at the Corporate Executive Board.

When HDHPs are offered as an option along with traditional plans, the absence of the right incentives and communications to employees about the benefits of HDHPs, she noted, leads employees to select offerings that end up being significantly more expensive for organizations.

Higher Out-of-Network Co-pays

In another key finding, the study revealed that the difference between in- and out-of-network costs employees face has increased substantially since 2011. Out-of-network primary care physician co-payments in 2012 were 53 percent higher than in-network co-payments, compared to a difference of just 16 percent in 2011.

Insurers generally negotiate lower fees for services provided by in-network physicians, so higher out-of-network co-pays serve as an incentive for employees to use in-network providers. Nevertheless,  if the in-network/out-of-network differential is not comunicated clearly to employees, the effect of that incentive is diminished. (To learn more, see the SHRM Online article "Applying Effective In-Network Incentives at CalPERS.")

“Our finding that out-of-network primary care physician co-pays have risen substantially is a cautionary tale for employees who may need to re-evaluate going out of network for certain services,” said HighRoads CEO Michael Byers.

Additional Findings

In other findings related to plan costs, the analysis revealed:

There is inconsistency in the premium rates charged to employees for different coverage tiers, which can include "employee + 1 or "employee + family." The median premium for "employee + 2" is about 50 percent higher than the median premium for "employee + child(ren)," even though both tiers theoretically could cover the same situation: an employee plus two children. Employers should review the premium tiers available through their health plan providers to avoid unnecessary cost or administrative inefficiencies. (To learn more, see the SHRM Online article "Are Health Premium Tiers a Good Idea?")

Nearly half of all health plans have in-network out-of-pocket-maximums of $2,500 or higher for individual coverage.

Individual In-Network Annual Out-of-Pocket Maximum

Maximum Amount

Percentage of Plans

$2,500 and above

49%

$1,000-$2,499

46%

Less than $1,000

  5%

Source: CLC Benefits-HighRoads 2012 Medical Plan Trends Report.

However, employees’ perceived value for a $2,500 out-of-pocket maximum is half what it is for a $1,000 out-of-pocket maximum. While more than one-quarter of plans have out-of-pocket maximums of $5,000 or more, that level generates essentially no employee perceived value, according to the report.

For 2012, the IRS limits out-of-pocket maximums for HSA-eligible HDHPs to $6,050 (individual) and $12,100 (family).

Need for Greater Communication

The findings on out-of-network co-pays and out-of-pocket maximums underscore the need for up-to-date, accurate employee communications. “Medical plan communications should emphasize strategies and decisions employees can use to manage their health care costs and stress how uncommon it is for the average employee to actually encounter the out-of-pocket maximum,” said Krasniewska. “In the case of out-of-network co-pays, it is vital that benefits managers encourage employees to read their current plan information in order to avoid costly surprises.” (To learn more, see the SHRM Online article "Behavioral Economics Improves Health Decisions.")

The findings in the report are the result of the joint study by the Corporate Executive Board and The Lab, HighRoads’ benchmarking repository of health care benefit plan data covering more than 34 million people and representing more than 12,000 plans. 

The Benefits of High-Deductible Health Plans

"There is nothing more wasteful than first-dollar health insurance coverage," blogged John Goodman, president and CEO of the National Center for Policy Analysis, in an April 2012 post. "Even deductibles as low as $1,000 or $1,500 are incredibly wasteful in many places. By that I mean that if you choose a higher deductible, the premium savings is greater than the additional expense you are exposed to. That means you can put some of the premium savings in the bank to cover the additional risk exposure (dollar-for-dollar) and still come out ahead. …"

Research shows that "patients spend less on health care when they are spending their own money," Goodman noted. "The latest study by the RAND Corp. estimates that families with high deductible plans and health savings accounts spend about 30 percent less than families with conventional insurance. … Further, no patient group was harmed by the switch to high-deductible insurance—not even vulnerable populations. This echoes the earlier findings of the RAND Health insurance experiment …"

(To learn more about this research, see the SHRM Online article "Rand Study: CDHPs Don't Hurt the 'Medically Vulnerable'.")

Stephen Miller, CEBS, is an online editor/manager for SHRM.

Related SHRM Articles:

Provider Networks, Premiums Drive Health Plan Choices, SHRM Online Benefits, July 2012

Health Care Benefits Changes on the Horizon, SHRM Online Benefits Discipline, March 2012

Applying Effective In-Network Incentives at CalPERS, SHRM Online Benefits Discipline, March 2012

Study: CDH Plans Saved $9,700 per Employee over Five Years, SHRM Online Benefits Discipline, February 2012

Are Health Premium Tiers a Good Idea?, SHRM Online Benefits Discipline, January 2012

Behavioral Economics Improves Health Decisions, SHRM Online Benefits Discipline, January 2012

Consumer-Driven Decision: Weighing HSAs vs. HRAs, SHRM Online Benefits Discipline, May 2011

Related External Article: 

Return of the Narrow Network, Managed Healthcare Executive, July 2012

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SHRM Online Health Care Reform Resource Page

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