High-deductible Plans Gain Favor, but PPOs Still Tops

More employees than ever are opting for high-deductible health plans (HDHPs), but preferred provider organizations (PPOs) are still the most popular among group health plans, a new study has found.

Thirty-four percent of employees selected an HDHP for 2016 when it was offered alongside a traditional health plan, with millennial employees over age 26 the most likely to choose the option at 40%, according to a report by benefits management technology provider Benefitfocus Inc.

The company analyzed enrollment data from 2,400 midsize employers using its technology platform.

The study found that 87% of midsize employers offer traditional plans – health maintenance organizations (HMOs) and PPOs.

Forty-three percent of employees opted to enroll in a PPO plan, and 14% chose an HMO, the study showed.

And while HDHPs are popular since they have low up-front costs in terms of premiums but high out-of-pocket expenses, only 13% of midsize employers offer them.

For employees enrolled in HDHPs, the average deductible for individual coverage was $2,382 last year for individual coverage and $4,889 for family coverage, the study found.

The average deductible in PPOs was $1,415 for individual coverage and $3,403 for family coverage. Interestingly, that qualifies the average PPO as an HDHP since the IRS defines an HDHP as a plan that has a deductible of $1,300 for single coverage and $2,600 for families.

The study also found that health savings accounts (HSAs) and flexible spending accounts (FSAs) are quite underutilized, which means many employees are leaving thousands of tax-free dollars on the table.

With out-of-pocket responsibility so high across all health plans, many employees might not be able to pay for unexpected medical costs. If you are not already doing so, you should consider offering either an HSA or FSA to help your employees set aside pre-tax funds to pay for medical expenses.

When copays and coinsurance are considered, employees are actually paying out much more for their health care. Across HDHPs and PPOs, the average out-of-pocket maximum ranges from 1.8 to 2.7 times its corresponding deductible amount.

 

Cadillac tax surprise

One issue that has received plenty of attention is the concern of many employers that their plans will be subject to the excise tax on health plans known as the “Cadillac” tax.

Although under current regulations the tax will not take effect until 2020, the 40% levy will apply to any portion of a health plan premium that is more than the threshold amount: $10,200 for individual plans and $27,500 for family plans.

That said, most plans are currently well below those thresholds. Average total premiums (the combination of what the employer and employee pay together) across all plans this year was $6,016 for individual plans and $14,885 for family plans.

However, some midsize employers may still be at risk of triggering the tax. Health care costs are projected to increase anywhere from 6% to 8% over the next few years. This would far outpace the rate of inflation, to which the Cadillac tax thresholds will be indexed.

As such, the cost cushion could be much thinner by 2020.

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