Rising Deductibles Blur Line Between Traditional and High-Deductible Plans

HSA participation is on the rise, especially among younger workers

By Stephen Miller, CEBS Feb 6, 2017
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The average deductible for a preferred provider organization (PPO) health plan in 2017 increased more than 8 percent for individual coverage and 9 percent for family coverage compared with 2016 plans—putting PPO plans only a couple hundred dollars below the IRS deductible thresholds for a plan to be considered a high-deductible health plan (HDHP).

"Traditional" health coverage through a PPO plan still carries lower deductibles and higher premiums than a typical HDHP. But the distinction is becoming blurrier, according to a new research report, The State of Employee Benefits, from Benefitfocus, a Charleston, S.C.-based provider of cloud-based benefits software. The report draws on benefit election data from more than 500 large U.S. companies that use the firm's benefit-management platform.

In comparing HDHP and PPO plans, the two most popular plan types, the report showed average 2017 deductibles as follows.

For PPO Plans:

  • Individual deductible: $1,088 (up 8.4 percent from 2016).
  • Family deductible: $2,421 (up 9.0 percent)

For HDHPs:

  • Individual deductible: $2,219 (up 1.9 percent)
  • Family deductible: $4,437 (up 0.6 percent)

Average Deductible by Plan Type – Family Coverage

2017-deductibles-b.jpg
2017-deductibles-a.jpg Source: Benefitfocus.

(click on graphic to view in separate window)


PPO deductibles are rising at a faster rate than HDHP deductibles—nearly 10 percent since last year—and are nearing the IRS threshold to be considered HDHPs," said Shandon Fowler, senior director of product strategy at Benefitfocus.

The HDHP minimum deductible levels set by the IRS for 2017 are $1,300 for individuals and $2,600 for family coverage. Plans that satisfy these thresholds may be linked to a tax-advantaged health savings account (HSA).

"It's quickly becoming a world where every plan should have an HSA option," said Fowler.

Still, PPO premiums remain much higher than those of HDHPs, and HDHP out-of-pocket costs remain higher than those of PPO plans, he noted. "But the gaps have narrowed, leaving employees with arguably more financial responsibility than ever. It's up to employers to ensure employees are making the best possible plan selection for their circumstances."

To help employees select the most effective plan fit, "employers should offer personalized choices and voluntary benefits to offset any financial burden from the rising health care costs across the board," he advised. "Above all, employers need tools to educate employees about the impact of their benefits selections on both health and financial wellness."

Employees' Costs Are Up, Regardless of Plan

While deductibles rose faster for PPO plans than for HDHPs this year, the growth of employees' share of plan premiums was up more sharply for HDHPs compared with PPO plans (even though HDHPs have had, overall, lower premium rate increases than PPO plans).

For instance, employee-paid premiums for HDHPs rose by more than 12 percent for family coverage, while the corresponding premiums for PPO plans increased modestly in comparison.

Average 2017 Premium by Plan Type and Coverage Level

Plan TypeCoverage LevelPremiumChange from 2016
Employee-Paid
PPOIndividual$1,466+0.6%
Family$4,304+1.0%
HDHPIndividual$1,040+7.0%
Family$3,156+12.1%
Employer-Paid
PPOIndividual$4,964+2.8%
Family$11,954+4.5%
HDHPIndividual$4,750-2.5%
Family$11,879+3.3%

Source: Benefitfocus.

Employers are effectively paying less for HDHPs than last year, having transferred approximately an additional 1.5 percent share of the premiums to employees.

[SHRM members-only toolkit: Managing Health Care Costs]

Employee Age Influences Plan Choice

When an HDHP was offered as an option along with at least one traditional health plan, Millennials—especially those under age 26—chose to enroll in the HDHP at a higher rate than other workforce generations, the report revealed. As workers aged, and presumably incurred more health care expenses, they became less likely to choose the HDHP option. 

Participation Rates by Workforce Generation: HDHP and PPO Plans
Plan TypePercent Enrolled in Each Plan
Millennials under age 26
PPO28.6%
HDHP44.6%
Millennials age 26 and older
PPO37.6%
HDHP40.3%
Generation Xers
PPO45.6%
HDHP34.1%
Baby Boomers
PPO52.6%
HDHP26.7%
Traditionalists
PPO55.0
HDHP11.7%

Source: Benefitfocus. Millennials (born 1980-98), Generation X (1961-79), Baby Boomers (1949-60) and Traditionalists (1948 and earlier).

HSA Participation Rises with Age

However, among employees who opted for an HDHP, HSA participation rates (with employees making salary-deferred contributions) rose with employees' ages, with the exception of the oldest workers:

Average HSA Participation Rate by Age Group
Age GroupPercent Participating in an HSA When Available
Millennials under age 2637.1%
Millennials age 26 and older40.7%
Generation Xers52.7%
Baby Boomers53.4%
Traditionalists35.7%

Source: Benefitfocus.

While younger Millennials participate less in available HSAs than most of their older colleagues, the under-26 demographic had the largest increase in participation compared with 2016—up 4.6 percent.

HSA Contributions

The report also highlighted HSA contribution levels in 2017.

Average HSA Contribution by Coverage Level
(Change from 2016 in parentheses)

Coverage LevelEmployee ContributionEmployer ContributionTotal as Percent of IRS Annual Limit 
Individual$1,466 (+4.9%)$533 (-3.3%)58.8% (+0.8) 
Family$2,826 (+2.1%)$1,118 (-3.7%)58.4% (+0.4) 

Source: Benefitfocus.

 

Employees' average contributions to an HSA also increased with age—not surprisingly, as older workers typically earn more and have more income to direct toward health and retirement accounts.

For 2017, the average annual contribution level by age group that employees with individual coverage set for themselves, among those on the Benefitfocus platform, are shown below.

Average Employee HSA Contribution Rates for Individual Coverage

Age GroupAverage 2017 Contribution
Millennials under age 26$816
Millennials age 26 and older$1,159
Generation Xers$1,494
Baby Boomers$1,898
Traditionalists$1,961

Source: Benefitfocus.

Four Themes for 2017

Summing up, among the key trends that the report highlighted for the 2017 plan year were:

  • Employees have more choice in health care benefits. HDHPs now appear in 3 out of every 5 large employer benefit offerings, but PPO plans remain the most popular choice for Generation X employees and those from older generations.

  • Health plan participation fluctuates with age and wage. Employees over the age of 36 who select an HDHP have up to 17 percent higher salaries on average compared to those selecting a PPO plan.

  • Employees are paying a larger share of health plan costs. Average out-of-pocket maximums for PPO plans increased by double-digit percentages from 2016 to 2017, while for HDHPs they increased approximately 5 percent.

  • Employees, especially young ones, are saving more. Employee contributions to HSAs and flexible spending accounts are up, with Millennials dramatically increasing their contributions.

High-Deductible Plans and Funded HSAs: Best of Both Words?

Because of high-deductible health plans' lower premiums, some employers who have shifted their employees from traditional plans into HDHPs have reduced their health care spending even after paying for some, or even most, of their employees' deductibles by making contributions to employees' health savings accounts.

"We realized we could save a lot of money if we bought a high-deductible plan and simply paid everyone's deductible," Rodney Alvarez, vice president of talent management with online ad firm Celtra told BenefitsPro.com. "It would still be cheaper, and it allows us to provide the same benefits you would have in a Cadillac plan—but without playing the super-high premiums of those plans."


Related SHRM Online Articles:

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

Employers Project Health Premium Hike of 6% in 2017, SHRM Online Benefits, August 2016


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