Annual Enrollment - Defective Health Plan Designs May Defeat HSA Enrollment

The number of Health Savings Accounts (HSAs) reached 22 million at the end of 2017.¹

Today, even though HSA-capable health options have, on average, a 22 percent lower cost compared to a traditional PPO, most employers still offer the HSA-capable health option as a choice alongside a traditional PPO or HMO. That practice is slowly changing. While 66 percent of large employers now offer an HSA-capable health plan, the number of plan sponsors choosing “full replacement” (who only offer HSA-capable health options) is increasing – from 9 percent in 2016, to 10 percent in 2017, now to 13 percent in 2018.²

Where HSA-capable health options are offered as a choice, most PPOs or HMOs retain a traditional design with in-network copays, instead of applying a general deductible to all nonpreventative services (the typical HSA-capable design.) So, few are surprised that a recent EBRI study concluded that “HSA-eligible health plans introduce positive risk selection when workers are given a choice of plans. …resulting in disenrollment.”³

Decades of experience with annual enrollment confirms the obvious:

• Healthy employees are sensitive to contribution differences (point-of-enrollment cost sharing,) and
• Employees with health conditions are sensitive to differences in copayments and deductibles (point-of-purchase cost sharing.)

Some select the traditional PPO or HMO even where the HSA-capable health option is dominant (where the HSA-capable health option coupled with employer HSA contributions delivers a better result for everyone regardless of their medical expense.) People choose higher cost health choices for reasons that include:

• Inertia: Many enrollment processes make it easier to stay with the existing plan. 
• Math: It may be too time-consuming and too challenging to calculate a cost comparison.⁴
• No Savings: Some choose the option with the lowest deductible because they have no accumulated savings and are living paycheck to paycheck.⁵
• Deductible Aversion: Many people are deductible-averse, even changing their medical treatment decisions to avoid point-of-purchase cost sharing. 

Misperceptions about comparative value often introduce bias in the annual enrollment process. For example, too many employers still refer to their HSA-capable health options as “high deductible health plans.” Among firms with 10-499 employees, the average deductible for single coverage in 2018 was $2,023; for employers of more than 500, it is $982.⁶ For comparison, the minimum deductible for an HSA-capable health plan was $1,350. “High” isn’t so “high” anymore. Many workers also fail to consider employer contributions to HSAs or differences in out-of-pocket expense maximums in their decision-making.

Certain health plan and cafeteria plan designs may foster enrollment in HSA-capable health options as well as increase enrollment in and contributions to the HSA:

• Defaulting employees who have enrolled for health coverage to the HSA-capable health option; and
• Automatically enrolling employees in the HSA when they enroll in an HSA-capable health option.

Otherwise, one of two design strategies may help you counter the selection bias identified in the EBRI study:

• Move to full replacement with two HSA-capable health options. Instead of comparability, match employee contributions to the HSA. In the year of transition, remember to continue the existing, total amount of employer financial support. Other items to consider include:
  - Using the same out-of-pocket expense maximum for both HSA-capable health options;
  - Making the same employer contribution towards premium cost for both options; and
  - Ensuring that the HSA-capable option with the higher deductible provides for a higher employer matching contribution (higher maximum dollar amount.)
• If you retain a choice design, consider changing the PPO and HMO designs to be consistent with the HSA-capable health option so that employees can clearly compare the point-of-enrollment and point-of-purchase cost sharing:
  - Conduct a “full positive” reenrollment in health coverage at annual enrollment, defaulting workers who are currently enrolled in health coverage to the HSA-capable health option. They can choose to opt out of the HSA-capable option and rejoin the PPO or HMO;
  - Ensure all health options use the same provider network, use a general deductible and use the same out-of-pocket expense maximums;
  - Ensure employer contributions towards premiums are the same for all health options; and
  - Ensure all medical services that are subject to the general deductible in the HSA-capable health option are subject to the general deductible in the PPO or HMO.

Either strategy should reduce selection bias, improve worker decision-making at annual enrollment, foster enrollment in HSA-capable health options and increase contributions to HSAs – leading to increases in accumulated wealth and improvements in worker preparation for retirement.

¹Devinir, 2017 Year-End HSA Market Statistics & Trends Executive Summary, 2/22/18, Accessed 11/26/18 at: http://devenir.com/wp-content/uploads/2017-Year-End-Devenir-HSA-Market-R...
²Mercer, National Survey of Employer-Sponsored Health Plans, 2016 Accessed 11/26/18 at: http://www.mercer.com/newsroom/national-survey-of-employer-sponsored-hea... See also Mercer, National Survey of Employer-Sponsored Health Plans, 2018, Accessed 11/26/18 at: https://www.mercer.us/what-we-do/health-and-benefits/strategy-and-transf...
³P. Fronstin, M. C. Roebuck. “The Impact of Health Status and Use of Health Care Services on Disenrollment From HSA-Eligible Health Plans.” EBRI Issue Brief, no. 465, 11/12/18. The EBRI Issue Brief cites numerous studies of anti-selection by Buchmueller (1998), Bundorf (2012), Buntin, et al. (2011), Fronstin and Roebuck (2013), Fronstin, Sepulveda and Roebuck (2013). Overall, 5 percent of HSA-eligible health plan enrollees in 2013 and 2014 switched to a different type of health plan in 2014 and 2015. There is evidence that individuals who disenrolled from HSA-eligible health plans were more likely to have certain health conditions than those who remained enrolled in the HSA-eligible health plan. Individuals with multiple conditions were even more likely to disenroll. “Those who disenrolled were more likely than those who remained to have common chronic health conditions such as hypertension, dyslipidemia, and diabetes (and to have a claim for childbirth). …There was no difference in the prevalence of asthma/COPD, depression, or schizophrenia/bipolar disorder … rheumatoid arthritis (RA), Crohn's disease, ulcerative colitis, psoriasis, and multiple sclerosis (MS), (or) cancer… (other than childbirth most of differences in enrollment) were generally small…” Accessed 11/26/18 at: https://www.ebri.org/docs/default-source/ebri-issue-brief/ebri_ib_465_di...
⁴Unum, Nearly half of U.S. workers spend 30 minutes or less reviewing benefits before enrollment, 8/13/18, Accessed 11/26/18 at: https://www.unum.com/about/newsroom/2018/august/unum-auto-enroll  
⁵American Payroll Association, Employees in America Living Paycheck to Paycheck Even After Tax Reform, Getting Paid in America, September 2018. More than 70% of workers live paycheck-to-paycheck (they would have some or significant difficulty if a paycheck was delayed one week). However, among those same workers, nearly 90% of those who are eligible for an employer-sponsored savings plan also contribute to retirement savings. Accessed 11/26/18 at: https://www.prnewswire.com/news-releases/employees-in-america-living-pay... See also: Board of Governors, Federal Reserve System, Report on the Economic Well-Being of U.S. Households in 2017, May 2018. 40% of workers do not have $400 saved to meet emergencies. Accessed 11/26/18 at: https://www.federalreserve.gov/publications/files/2017-report-economic-w...
⁶Note 2, supra.