Workscape Institute

The Rise of the Consumer Directed Health Plans

The concept of the consumer directed health plan; lower monthly premiums paired with a high deductible, can seem daunting to those who believe they may actually need to use their insurance. Historically these plans only appealed to those who were in good health (typically younger workers) or who were lured by the significantly lower premium as “emergency insurance.” The changes enacted through reform legislation are poised to dramatically shift that perception.

Follow up:

New Wave of the Previously Uninsured: In 2008, 27 percent of Americans age 18 to 34, and 18 percent of those between ages 35 to 50 were without health insurance, according to the U.S. Census Bureau. Now that reform will require all individuals to carry insurance, a new wave of employees who previously opted out of coverage to save money, or who saw little value in coverage, will be looking for the least expensive option to comply. In many cases that will be a high deductible health plan, whose premiums are typically 20-25% lower than traditional HMO or PPO plans.

Preventive Care Coverage: For those who only expected checkups and routine office visits it didn’t make sense to pay a monthly premium and then pay 100% of their doctor’s visits out of pocket with an HDHP. Why have insurance at all?  Now that Reform requires plans to provide certain preventive covered at 100%, employees may have just the security blanket they need to make the leap to an HDHP.

Excise Tax Complications: Beginning in 2018, an excise tax will apply to health plans that exceed a specified “aggregate value”. Employer contribution to HSAs, HRAs and FSAs will be counted toward the excise tax threshold. There are conflicting interpretations on whether employee contributions to an HSA via payroll deductions on a pre-tax basis will also be counted. Some speculate that even though the money is coming out of the employee’s earnings, because the employee never actually took receipt of the funds, it could be considered an employer contribution.

Limited Purpose FSA – Have Your Cake and Eat it Too!

When you were a kid did your mom make you choose between vanilla or chocolate ice cream? Just pick one, right?  Well thankfully the government is more open-minded. If your employer offers a Flexible Spending Account it will usually make you ineligible for an HSA. But, if your employer offers a Limited Purpose FSA (limited to those expenses not covered by the HSA like dental, vision, and preventive care), you can have your cake and eat it too! With the fall of the FSA, and the rise of the HSA, this might be a powerful option to allow employers to drive enrollment in a CDHP with an HSA and the added benefit of allowing employees to enroll in an FSA. The cherry on top is that the value of the Limited Purpose FSA is not believed to count toward the calculation of the aggregate value of the plan, so it is added benefit without the added excise tax. Eat up!!

Note: Reform includes a grandfathering rule that allows employers to avoid certain benefit requirements as long as the plan was in use when the bill was passed.