Tuesday, April 22, 2014

Wellness Wars and High Deductible Plans--A University Obsession With Substantial Consequences Including for Shared Governance

(Pix (c) Larry Catá Backer 2014)

The Report of the Penn State University Health Care Task Force has been circulated. The HCTF devoted much space, necessarily, to a critical examination of the University’s Wellness Plan roll out last year (e.g., The New Eugenics--The Private Sector, the University, and Corporate Health and Wellness Initiatives; The Wellness Wars Continue--A Task Force is Constituted and the Institutional Role of the Faculty is Reduced in Function).

But the Report also spotlighted an important element of the University’s benefits strategy that escaped much notice–high deductible benefit plans. This post considers some issues that faculty might examine as they turn from the Wellness Plan to this other strategic move on the benefits front that is a common strategy employed by universities as they seek to deal with the issue of benefit plan cost containment.

As many universities continue to buy ideas from their stables of benefits consultants (the rate and use of which and their benefits compared to their costs remaining substantially well hidden from any form of accountability), one idea has begun to resonate well--high deductible benefits plans.  These plans have much that is desirable in benefits plans--they offer the appearance of coverage and deliver less.

So who is best-suited for a high-deductible plan with an HSA?

Generally, it’s individuals or families who do not make frequent doctor visits, have no chronic illnesses and are looking to set aside additional dollars in tax savings. (Rise of high-deductible health plans tied to savings accounts alarms some, Dallas News, Oct. 18. 2013)

And that is the problem--universities mean to offer these plans for just the wrong reason--to save money; without much consideration of the equities and consequences of these plans  to the plan beneficiaries.  If the principal objective of benefit plans is to save money, then it is likely that such plans will increasingly tend to deliver benefits in ways that are rational to cost savings but increasingly irrational to the objectives and needs of the class of beneficiaries covered. Benefit plans are meant to benefit universities first, and employees incidentally (that is as an incident to the principal employer benefits of benefits plan provisions for its own institutional health).  That appears to be the underlying moral lesson of recent coverage of the move toward these form of benefits coverage, a portion of which is set out below.

But what is probably the most reprehensible, especially in universities that purport to believe in shared governance, is the veiling of these choices behind incentive planes.  One ought to be troubled when university administrators make decisions about what may be the "best" plan for its institutional needs, and then create incentive structures to tend to "manage" employees into appropriate choices, without letting the employees know that this is what they have chosen to do.  This has the odor of subterfuge and detaches employees, especially those with shared governance responsibilities,  from engagement in the discussion of the policy choices that might lead to decisions to create these incentive managed structures.

These incentives can range from limiting choice to structuring choice strategically to guide "rational" employees to the appropriate selection.  Strategic choicing can be most easily hidden within fairness enhancing techniques.  Among the most useful in this regard are salary indexing programs.  Salary indexing is usually instituted for the most positive of reasons--to ensure some equity in benefits payments by having higher paid employees agree to subsidize costs for lower waged employees.  Putting aside the issue of employer free-riding, an important one, indexing offers a means through which a university might set pricing in ways that create incentives to move from less desirable to more desirable plans (with desirability measured by benefit to the university rather than to the employee beneficiaries).   But again, these decisions are usually taken without any consultation, or even notice, to employees.  The reason is works, the university might believe, is that if pricing appears to be the consequence of the "invisible hand" of markets, then pricing, and its consequences (steering employee choice) can be made more palatable.  Yet form a moral and fairness perspective this way of thinking might be reprehensible.   It is to be hoped that universities avoid this.  And it is now a duty of the university faculty senate to make sure that these bad habits are neither cultivated, nor if already in existence that they be abandoned in favor of more open textured and inclusive discussion that is fair and honest.

Rise of high-deductible health plans tied to savings accounts alarms some, Dallas News, Oct. 18. 2013

Many workers will encounter a new option when they open their employers' health care packets this month: high-deductible plans linked to health savings accounts that come loaded with tax benefits.

They’re attracting workers who want lower premiums and a tax-free way to save for health expenses and retirement. But they’re not for everyone, which is why some consumer groups are alarmed by their growing presence in the health care market.

In the past six years, the number of workers covered by these high-deductible plans has quadrupled, from 5 percent in 2007 to 20 percent this year, according to a 2013 Kaiser Family Foundation survey.

“More companies are offering them as a choice, and in some cases, they’re the only choice,” said Paul Fronstin, director of health research and education for the Employee Benefit Research Institute in Washington, D.C.

Experts say the reason is simple: Employers are trying to cut expenses after years of rising health care costs that only recently started to ease.

In return for lower premiums, consumers who sign up for these plans pay much more out of their own pockets before their insurance coverage kicks in. In 2014, the minimum deductible for a qualifying high-deductible plan is $1,250 for an individual and $2,500 for a family. Maximum out-of-pocket costs are $6,350 for a single person and $12,700 for a family.

Other than high deductibles, the most notable feature of the plans is health savings accounts, or HSAs, which were authorized by Congress in 2003 as part of a massive Medicare overhaul.

Similar to a 401(k), the HSA is a take-it-with-you, tax-free savings account that’s used to cover your out-of-pocket medical expenses. To make HSAs especially appealing, the plans offer multiple tax advantages for contributions and withdrawals. The money can even be rolled over for retirement.

. . . . .

The growth of high-deductible plans has prompted concern among some consumer advocates who worry that such plans will cause people to forgo needed medical care because they can’t afford the deductibles.

“We’ve actively opposed them and regret they’re in federal law,” said Beth Capell, a lobbyist for Health Access, a consumer advocacy group based in Sacramento, Calif.

Capell and other critics say high-deductible plans are financially risky for low-income consumers and are primarily beneficial for healthy, wealthier people.

. . . . .

In a 2006 study, the Kaiser Family Foundation said that many low-income families would not benefit from HSAs, primarily because they wouldn’t be able to use the tax benefits and couldn’t absorb the out-of-pocket costs of a high-deductible plan.

Earlier this month, a study released in the New England Journal of Medicine found a “startling” lack of research on how high-deductible plans affect health outcomes, such as diabetes control, cancer survival, heart conditions and mortality.

“The shift toward [these plans] increases the urgency of determining the benefits and unintended consequences of high cost sharing,” the authors concluded.

Others say high-deductible health plans, when combined with HSAs, offer a viable way for employers to hold down health care costs by giving consumers an incentive to use health care services judiciously.

Under a high-deductible plan, both employees and employers pay somewhat lower premiums, according to a recent Kaiser Family Foundation study. In 2013, it said, the average annual premium for an individual under a high-deductible plan was $887, compared with $1,081 through an HMO. The company’s share of the premium was $4,419 for the high-deductible plan, compared with $4,948 for the HMO.

Both employee and employer can deposit money into a health savings account, but neither is required to.

Not all workers looking at HSAs are convinced they are worth it.

Claudia Buck,
The Sacramento Bee
High-deductible health plans

How they work: In return for lower premiums, consumers pay much more out of their own pockets before their insurance coverage kicks in. Consumers enrolled in a high-deductible health plan are eligible to open a health savings account.

Annual deductibles: In 2014, the minimum is $1,250 for individuals or $2,500 for families, but deductibles can go up to $10,000 in some cases.

Annual out-of-pocket caps: In 2014, the amount you pay before insurance kicks in may not exceed $6,350 for individuals or $12,700 for a family.

Health savings accounts

What is an HSA? It’s a tax-free health savings account that’s paired with a high-deductible, low-premium health plan. All money fed into an HSA — whether your own contributions or from your employer — can be used to pay for most medical expenses, including doctor visits, prescription drugs and dental and vision care.

How they work: Consumers set up their HSAs at a financial institution, either on their own or through their employer. Funds are withdrawn through an HSA debit card or checks. As part of a company’s health care benefits package, some employers contribute to employee accounts.

Tax benefits: Under IRS rules, HSAs offer triple benefits. Every dollar contributed goes in, grows and is withdrawn tax-free, as long as the money is used for qualified medical expenses.

Advantages: Unlike a flexible spending account, which is a use-it-or-lose-it account, HSA accounts roll over from year to year. HSAs are portable, meaning you can take them with you when you leave a job or retire.

Risks: If funds are withdrawn for non-medical expenses before age 65, there’s a 20 percent tax penalty. After age 65, non-medical withdrawals are treated as regular taxable income.

Annual contributions: In 2014, singles can contribute up to $3,300 tax-free to an HSA; families, up to $6,550. Those over age 55 can make an extra $1,000 catch-up contribution.

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