Who Switches Health Plans, and Why?

When high-deductible plans are offered, the less healthy stay with traditional plans

By Stephen Miller, CEBS Apr 17, 2017

When workers are offered new, additional high-deductible health plan (HDHP) options, employers should understand which groups of employees are likely to switch out of traditional health plan offerings with lower deductibles but higher monthly premiums. 

Employers should also note whether plan switching could lead to "adverse selection," with healthy workers opting for the HDHP and leaving traditional plans saddled with only higher-cost less-healthy workers. When that happens, insurers are likely to raise premiums for these traditional plans higher still.

Evidence suggests it's mostly younger workers and higher-earning workers without family coverage who switch to high-deductible plans when these are offered, according to a new analysis by the nonprofit Employee Benefit Research Institute (EBRI) in Washington, D.C. The report, "Health Plan Switching: A Case Study," was published in the March 23, 2017, issue of EBRI Issue Brief.

The analysis looked at administrative data tracking the experience of one large employer—its identity was masked in the report—that increased its offering of health plans from four to 10 options in 2015.

To guard against adverse selection in the traditional health plans that would still be available, such as preferred-provider organization (PPO) plans, the employer offered financial incentives to nudge people with various health risks to enroll in the new high-deductible plans, which had lower employee premiums, included employer contributions to health savings accounts and had no cost-sharing for primary care office visits and generic drugs.

But despite the incentives, older workers were less likely than younger workers to switch health plans. Those who chose to remain in the traditional plans also were more likely to make office visits to primary care physicians and specialists and to use emergency services.

"There has been very little empirical research about who switches health plans and whether introducing more choices may contribute to adverse selection," said Paul Fronstin, director of EBRI's health education and research program and co-author of the report. "In this case, the results show that it might."

Among other key findings of the EBRI analysis:

  • Higher-income workers with employee-only coverage were more likely than lower-income workers to switch plans. However, higher-income workers with family coverage were less likely than lower-income workers to switch.

  • The longer an employee was enrolled in his or her health plan, the less likely he or she was to switch plans.

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

Employers Offer More Choices

There has been a strong trend toward private-sector employers offering their workers more choice in health plans since 1996 (when 21.5 percent of U.S. employers offered two or more health plans, rising to 41.4 percent in 2010 and 45.9 percent in 2015), Fronstin noted. This trend has held for all employer groups by size.

HSAs Sweeten the Pot

High-deductible health plans are typically coupled with health savings accounts (HSAs), making them more appealing to workers concerned about the high deductibles, explained William Stuart, director of strategy and compliance at Benefit Strategies LLC, a Boston-based third-party administration firm.

"Education is critical, especially during the first year and the first two open enrollments in particular," Stuart noted, as employees are introduced to the advantages of HSAs and the workings of high-deductible plans.

Send the message that employees can win financially by enrolling in an HSA, he advised. "Account holders can accumulate sizable balances if they use their HSAs strategically—a point that employers and HSA administrators need to make" by emphasizing that an HSA is a lifetime account with an opportunity to build long-term balances. "Tax savings also make an HSA plan more attractive, but those savings are icing on the cake, not the cake itself," he said.

Employees also can take their HSAs with them when they change jobs or retire. But many employees often don't understand that, unlike an flexible spending account or an employer-funded health reimbursement arrangement, "an HSA is a personal asset that's completely portable," Stuart said.

Demonstrating the long-term value of an HSA is much easier when employers contribute to their employees' accounts. In 2017, HSA contribution limits from all sources (employee and/or employer combined) are $3,400 for self-only coverage and $6,750 for family coverage.

"Employers need to pass on [their] premium savings from adopting a high-deductible plan and contribute to employees' HSAs so that employees believe they'll come out ahead if they enroll in the program," Stuart said.

In addition, "providing at least part of the employer's contribution upfront at the start of the year makes HSAs more attractive to employees who worry about incurring high expenses before they're able to fund their accounts adequately," he noted.

Last year United Benefit Advisors, a network of independent employee benefits brokerage and advisory firms, reported that employers contributed on average $491 for an HSA linked to self-only coverage and $882 for an HSA linked to family coverage. Smaller companies, with 10 to 24 employees, were more generous, contributing $541 for self-only coverage and $921 for family coverage.

'Don't Call Your HSA a High-Deductible Health Plan'

Alex Tolbert, founder of Bernard Health, a health benefits consultancy based in Nashville, Tenn., offered the following tips to encourage employee enrollment in HSA-linked plans:

  • Do not call it a high-deductible health plan. Nothing reduces employee buy-in like calling it a "high-deductible" plan. Instead, call it an HSA-eligible health plan, and call the traditional plan the "co-pay" plan. Point out that the HSA-eligible plan has lower premiums than the co-pay plan.

  • Take a supportive role in price shopping. Explain to employees that price shopping will be key to saving money, and provide them with tools to do so.

  • If contributing to employees' HSAs, demonstrate the clear benefit. You may also want to provide employees with resources on maximizing an HSA as a supplemental retirement account, which can be particularly beneficial for employees whose current use of health services is low, as is typical among younger workers.

A December 2016 Fidelity Investments survey of HSA account holders found that:

  • 46 percent of respondents didn't know the accounts could be invested in mutual funds.

  • 43 percent didn't know their HSAs had triple-tax benefits (contributions are not subject to federal payroll and income taxes; investment earnings and interest grow tax-free; withdrawals are not taxed as long as the money is used to pay for qualified medical expenses).

  • 40 percent thought HSAs are "use it or lose it" annual accounts.

The Fidelity survey polled 1,309 U.S. adults currently enrolled in an HSA-eligible health plan through an employer (their own or their spouse's). 

Related SHRM Articles:

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

How to Explain High-Deductible Plans, SHRM Online Benefits, October 2013

Misunderstanding of HSAs Poses Open-Enroll Hurdle, SHRM Online Benefits, August 2013

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