Consumer-driven health care growth data is indeed noteworthy -- the industry group America's Health Insurance Plans reports enrollment in health savings plans, for instance, enjoyed a 31 percent increase in 2008. The explanation for the phenomenon is entirely logical. For one, in tight economic times like these, price is king, and the combination of high-deductible health plans coupled with health savings accounts has yielded an appreciable savings to companies and employees alike. The biggest jump in the AHIP numbers came from small companies having between two and 100 employees. Firms that size are arguably most susceptible to the downturn; they've seen sales shrink and many have had to contemplate cutbacks in everything from headcount to benefits. For managers, the 20 percent to 40 percent premium savings on health benefit costs possible under new programs like these are more than a boost - they are a lifeline that can avert layoffs.
Companies aren't the sole beneficiaries. Under new CDHC programs, employee premiums can drop $500 a year or more. And, if participants invest the difference in payments in an associated health savings account, they reap numerous additional benefits. Their contributions are made in pre-tax dollars and are tax deductible on both federal and many state returns. The money in accounts collects interest tax-free and accrues over time to help pay for future medical expenses. If used for qualified expenses, withdrawals are tax-free as well.
CDHC success goes beyond the bottom line, however. In a survey Guardian performed last year, an overwhelming 85 percent of participants said they wanted more control and more decision-making power over their health care, while 81 percent thought health care costs should be more transparent. High deductible health plans are often called consumer-driven plans because they are structured to give consumers more control, responsibility and rewards for actively managing their health care.
The Learning Curve
There are signs that the market for HDHP plans continues to evolve as consumers, brokers and employers learn more about how these programs work. While the 2008 Guardian survey found that 59 percent of consumers had heard about HSAs, for instance, the majority of employees are still more inclined to sign on to more traditional HMOs or PPOs - about 60 percent of those polled compared to 14 percent for CDHC plans. One reason is that employees were in the dark about many CDHC features. Some 44 percent thought premiums were too expensive; 29 percent thought they'd incur sizeable medical expenses before they could accrue a comparable HSA balance; finally 29 percent were candid enough to say they didn't believe they understood enough about CDHCs.
There are a number of ways to address those issues, largely through educational programs, online literature, face-to-face meetings and employee benefit hotlines. But in addition to the education gap, the fear factor related to the high deductible often creates a hurdle, preventing wider adoption of these plans.
Getting over the hurdle
The primary reason why CDHCs have done so well is their ability to control both employer and employee expenditures. But the consistent criticism of these plans is that the deductible is too large of an obstacle for many employees. For American consumers, $1,500 to $2,000 can be a lot to handle at a time when many are living paycheck to paycheck and grappling with diminished expectations since they've seen their retirement savings plummet and unemployment figures climb much of the year. But there are several ways to close the deductible gap and address the sense of vulnerability that may make families hesitant to enroll in high deductible plans. Two simple ways include:
1. Company Participation in HSAs
Employees who see their management's commitment to a CDHC are more likely to enroll. Employers can use their premium savings to contribute to health savings accounts on behalf of employees, which offers a strong incentive for them to participate - and demonstrates employer concern about employee health care. As a rule of thumb, a contribution of 20 percent to 30 percent of the money a company saves on annual premiums by switching out of a PPO and into a HDHP-HSA sends a clear message of goodwill and can cut perhaps 25 percent to 33 percent of the deductible employees have to shoulder.
Employees should also be encouraged to salt away the money they save on premiums under high deductible plans in their HSAs. There are strong tax incentives that make this a sensible choice. Moreover, because employees understand that money in their health savings accounts is their own money, they often make more considered decisions about their health care spending -- which, in turn meets their goals of responsibility and transparency.
Greater participation in CDHC plans means more long-term health care cost savings for employers and employees alike.
2. Bundling the Plans with Group Critical Illness Coverage
Group critical illness insurance is another valuable way to help bridge the high deductible gap. New group policies make it possible to sign on for coverage at a cost of $200 to $300 a year in some cases. Recipients are eligible for the standard benefits critical illness insurance yields - payouts for the treatment of cancer, heart failure, kidney disease and other serious ailments.
Additionally with new hospital riders offered by some carriers, employees can receive up to $500 a day for extended hospital stays caused by any other sort of illness or accident that isn't covered by their CI policy. The money comes as a lump-sum payout and can be used to cover expenses at the policyholder's discretion - including the high deductible. There are no limits on how proceeds from a critical illness policy can be spent. Critical illness policies designed to complement high deductible health plans are very affordable as well - premium costs typically range between 1.5 percent and 4 percent of the HDHP premium a very small price to pay for peace of mind and the ready cash that can aid people who may not have the disposable income available to pay for emergencies. The cost of the CI policy with the rider combined with the consumer driven health plan will likely cost the employer and employee less money than a comparable PPO plan. That message plays very well not only in today's economy, but also in any economy.
The New Age
Companies of all sizes feel strapped in this rocky economy and will be receptive to information about plans that can help them to net significant savings. Now is the time to put high deductible plans in the spotlight and pairing these cost saving plans with group critical illness insurance can potentially mark the beginning of a new age for consumer driven health.
Tim Bireley is vice president, group medical, The Guardian Life Insurance Co. of America, New York.
Sidebar: Critical events call for critical protection
Americans are living longer and advances in medical technology are curing diseases and conditions that once were considered terminal -- and that's a good thing, isn't it?
Obviously, improved health care is giving us precious extra years to spend with our families and loved ones, but sometimes serious illnesses or life-changing medical events result in loss of income or mountains of debt. It's hard to relax and enjoy life when finances are stretched past the limit.
That's where critical illness insurance comes in: It's a policy that employers can provide to their employees to help with medical expenses. At the same time, employees may find peace of mind in knowing that a critical illness policy is there to help pay bills resulting from a covered health event.
As an insurance professional, you know how important products such as long-term care insurance are to protecting the lifestyles of aging Americans -- as well as the lifestyles of their adult children, who are increasingly squeezed by the cost of caring for their kids and their aging parents, too.
But long-term care insurance can be a difficult sell, primarily because it's a product that comes with built-in denial: No one likes to think they'll become infirm with age, just as no one likes to think their final years will be spent in a nursing home.
But critical illness insurance conjures a different mental image altogether. After all, everybody knows someone who has had a heart attack or been diagnosed with cancer or suffered a stroke. Illnesses are an acknowledged, unavoidable part of life, while aging . . . well, who likes to admit they're getting old?
Critical illness policies help American families cope with the financial aspect of surviving a specified critical illness. And critical illness coverage offers lump-sum benefits that are paid directly to the insured upon diagnosis, unless assigned otherwise.
The benefits can be used in any way the insured sees fit: to help pay the mortgage, the car payment, college expenses for children -- even the utility bills that keep the lights on and the water flowing.
Most often, though, the benefits are used to help pay the medical bills that comprehensive health insurance doesn't cover. For example, a 2009 study by the American Cancer Society and the Kaiser Foundation revealed that 20 percent of people with health insurance still can't afford cancer therapy -- and treatment for blood cancers can cost up to $1 million, more than the limits of many health insurance policies.
The best arguments for the worth of critical illness policies come from people who've filed claims on them: "The cost to apply for a policy for both myself and my husband was affordable for us," one woman wrote. "Soon after, my husband suffered a heart attack requiring open-heart surgery with five bypasses. We carried a major medical plan, but out-of-pocket deductible and co-insurance charges had to be paid. Without the policy, this certainly would have been on my mind as an added stressor."
Doctors and hospitals are helping Americans live longer and win the battle against critical illnesses; critical illness insurance helps them win the financial battles that go hand-in-hand with those health events.
Chip Sorrel is the Senior Vice President of Sales and Marketing at Continental American Insurance Company (CAIC), which attributes its success in the worksite marketing industry to state-of-the-art administrative technology and superior customer service.
