CDHPs Gain Popularity but Offer Less Savings

Premium costs held mostly steady this year, with regional variations

Stephen Miller, CEBS By Stephen Miller, CEBS October 27, 2016
CDHPs Gain Popularity but Offer Less Savings

When it comes to job-based health coverage, high-deductible consumer-directed health plans (CDHPs) continue to increase in popularity—with more employers offering them and more employees enrolling in them—even as they offer less savings on premiums relative to traditional plans than they did a year ago, new research indicates.

CDHPs combine high-deductible health plans with a savings feature, either a health savings account (HSA) or health reimbursement arrangement (HRA). High-deductible plans typically have lower premiums than traditional offerings such as preferred-provider organization (PPO) plans.

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The 2016 UBA Health Plan Survey report, released in October by United Benefit Advisors, a network of employee benefits brokerage and advisory firms, revealed that:

  • 26.4 percent of all U.S. employees are now enrolled in CDHP plans, up nearly 70 percent from five years ago.

  • 25.7 percent of plans offered by employers are CDHPs, up from 14.2 percent five years ago.

While CDHPs' premiums were still 3.5 percent less costly than the average plan this year, they offered more savings in 2015 when they were 5.6 percent less expensive than the average plan.

2016 vs. 2015 Health Plan Costs: Total Premiums
Plan Type 2016 Total Premiums 2015 Total Premiums
All plans (average)$9,727$9,736

POS—point of service plan; EPO—exclusive provider organization; PPO—preferred-provider organization; CDHP—consumer-directed health plan. HMO—health maintenance organization.

Source: 2016 UBA Health Plan Survey.

Cost Benchmarks

The average annual health plan cost per employee for all plan types this year was $9,727, a very slight decrease from 2015 when the average cost was $9,736. UBA attributes this cost stability to greater enrollments in lower-cost CDHP and HMO plans, along with reduced prescription drug coverage and stepped-up negotiating by plan sponsors.

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Though overall costs are holding nearly steady, employers are shifting more of the expense to employees, lowering the average employer's plan premium payments from $6,403 in 2015 to $6,350 this year. Meanwhile, employees have seen their average costs edge up from $3,333 in 2015 to $3,378 this year.

2016 Health Plan Costs: Employer & Employee Premiums

Plan Type Total Premiums Employee Premiums Employer Premiums
All plans (average)$9,727$3,378$6,350

Source: 2016 UBA Health Plan Survey.

"CDHP interest among employers isn't surprising given these plans' savings over the average plan," said Les McPhearson, CEO of UBA, in a blog post. "Employees typically pick up 32 percent of the cost, slightly below the 35 percent average employee contribution rate among all plans, making them an attractive choice for many employees as well."

For 2016, HSAs were required to be linked to health plans with deductibles of at least $1,300 for individuals and $2,600 for families. But the survey showed that the average CDHP offered by employers had deductibles well above those minimums.

Average CDHP Cost-Sharing Levels in 2016
Plan Feature In-Network Benefits Out-of-Network Benefits
Single deductible$2,600$5,000
Family deductible$5,200$10,000
Single out-of-pocket maximum$5,000$10,000
Family out-of-pocket maximum$10,000$20,000

Source: 2016 UBA Health Plan Survey.

Average cost-sharing levels for PPO plans were a good bit lower, however.

Average PPO Cost-Sharing Levels in 2016
Plan Feature In-Network Benefits Out-of-Network Benefits
Single deductible$1,500$3,000
Family deductible$3,000$6,000
Single out-of-pocket maximum$4,000$8,000
Family out-of-pocket maximum$9,000$18,000

Source: 2016 UBA Health Plan Survey.

The 2016 survey received responses from 11,524 U.S. employers, from large corporations to the small and midsize employers that make up the majority of U.S. businesses.

Regional Differences

Consistent with surveys from past years, big regional differences remain in the U.S. regarding an employer's cost to insure employees, with the highest cost being in the Northeast—making it essential to benchmark both nationally and regionally.

"Plans in the Northeast continue to cost the most since they typically have lower deductibles, contain more state-mandated benefits and feature higher in-network co-insurance, among other factors," according to the survey report.

Compared to last year, regional costs have edged up a modest 1.4 percent to 2.7 percent, with the exception being in the West, which regionally saw a 6.4 percent decrease in costs—primarily due to a shift away from more expensive PPO plans to more cost-effective HMO plans, the report stated.

In 2016, average plan premiums across all plan types, per employee, were:

  • Northeast: $11,230, up from $11,071 in 2015.
  • North Central: $10,537, up from $10,390.
  • West: $9,506, down from $10,152.
  • Southeast: $8,659, up from $8,431.
  • Central: $8,411, up from $8,224.

Source: 2016 UBA Health Plan Survey.

When looking at employee contributions toward these costs, employees nationwide pay on average $3,378 of the total cost. However, in the Northeast, employees pay nearly 16 percent more than average, while employees in the North Central U.S. pay 8 percent less than average.

A Bigger Bite from Paychecks

While annual increases in premiums and deductibles for job-based insurance in the U.S. have slowed, workers' wages are still not keeping pace with rising health care costs. In 2015, average premium contributions and deductibles amounted to 10.1 percent of an average employee's pay, based on median income. In 2006, that bite was only 6.5 percent, according to an October report from the Commonwealth Fund, a nonprofit that promotes access to quality health care.

The report, which used data from the federal government's annual Medical Expenditure Panel Survey, also presents a state-by-state look at health plan costs. It found that workers in Arizona, Florida, Mississippi, Oklahoma and Texas bear the nation's highest health coverage cost burdens.

The Society for Human Resource Management's Health Care Benchmarking Report, released in August, found that the cost of health care benefits in the U.S. now makes up 7.6 percent of an average company's annual operating budget and equates to an average of $8,669 per covered employee in total plan costs (premiums paid by employers and employees combined).

Another View on Plan Design and Costs

New research from other sources also highlights trends in employer-provided group coverage.

Employers predict that in 2017 their total health benefit cost per employee will rise by 4.1 percent on average, according to HR consultancy Mercer. This increase reflects changes they will make to hold down cost, such as switching carriers, adding a CDHP or changing plan design. If they made no changes to their current plans, they estimate that cost would rise by an average of 6.3 percent

Mercer's October report analyzed responses from 2,544 private employers with at least 10 employees and found that the average total health benefit cost per employee rose just 2.4 percent in 2016, one of the lowest increases in decades. Enrollment in account-based high-deductible CDHPs reached 29 percent of all covered employees, up from 25 percent in 2015.

“Last year, preparing for 2016, employers were still doing whatever they had to do to avoid incurring the excise tax” on high-value health plans, which had been slated to take effect in 2018, said Tracy Watts, Mercer’s leader for health care reform. “But with the delay in implementation to 2020, employers have some breathing room to work on strategies that are less about shifting cost and more about improving the system for the long-term."

Benefit Changes

Among the most prevalent benefit design changes cited in the report are the following:

  • Access to less-expensive care is provided by 59 percent of large employers (those with 500 or more employees) now offering telemedicine services, and 82 percent including retail clinics in their plan network.

  • Gender reassignment surgery is covered by 14 percent of large employers, up from 8 percent in 2014. Among the biggest employers (those with 20,000 or more employees), the prevalence of this coverage jumped from 29 percent to 43 percent.

  • Domestic partner coverage fell after the 2015 Supreme Court decision legalizing same-sex marriage in all states: 11 percent of large employers say they no longer make same-sex domestic partners eligible for health benefits. The percentage covering same-sex domestic partners slipped from 62 percent in 2015 to 57 percent in 2016—after it had risen sharply from 2014 to 2015. However, employers are even less likely to cover opposite-sex domestic partners (47 percent).

  • Spousal surcharges and exclusions are on the rise. Just over 1 in 10 large employers exclude spouses with other coverage available (11 percent, up from 8 percent in 2015). The use of spousal surcharges also rose from 12 percent to 14 percent of all large employers. Among the biggest employers, only 8 percent exclude spouses, while 27 percent require a surcharge. The median monthly surcharge is $100.

  • Egg freezing is covered by 5 percent of all large employers, unchanged from last year. Among the biggest employers, 10 percent cover egg freezing. In vitro fertilization is covered by 25 percent; this number has remained essentially the same over the past 15 years. While 25 percent cover in vivo fertilization, only 16 percent cover this service for same-sex couples.

  • Tobacco-use surcharges are also more prevalent—35 percent of large employers (up from 29 percent in 2015) vary the employee contribution amount based on tobacco-use status or provide other incentives to encourage employees not to use tobacco. Among those reducing the premium for non-tobacco use, the median annual reduction is $600.

Related Resources:

Do The Math: HMO/PPO vs. High-Deductible Plan with HSA, The Finance Buff blog, November 2016

Infographic: Price Inflation and Specialty/Biotech Drugs Drive Health Plan Cost Increases, Segal Consulting, November 2016

Related SHRM Articles:

Address HSA Misconceptions During Open Enrollment, SHRM Online Benefits, October 2016

Employers Prepare for 2017 Drug Price Hikes, SHRM Online Benefits, October 2016

As Premium Growth Slows, Health Plan Deductibles Rise, SHRM Online Benefits, September 2016

Health Benefits Take Bigger Bite Out of Paychecks, SHRM Online Benefits, September 2016

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