Second Opinion(s) on Health Cost ‘Coverage’

 

As if retirement savers didn’t have enough to worry about, last week a report reminded us how much money they’re going to need in retirement… just for health care.

In fact, Fidelity Investments’ 20th annual Retiree Health Care Cost Estimate claims that a 65-year-old, opposite-gender couple[i] retiring this year can expect to spend a whopping $300,000 in health care and medical expenses throughout retirement—an 88% increase since 2002. 

This year’s estimate is a new high, and even if it’s up just 1.7% from 2020 ($295,000), it’s 30% higher than 10 years ago when the amount was $230,000.

What Are the Odds?

Now, if you’re finding all that a bit depressing, you might turn instead to the work that the Employee Benefit Research Institute (EBRI) did a year ago, when the group examined those needs. However, they found that the overall projected savings needed to have a 90% chance of having enough money to pay for premiums, Part B deductibles and out-of-pocket drug expenses for retirement at age 65 in 2020 for a couple with drug expenses at the 90th percentile was then estimated at $325,000—that said, it was down from $363,000 in 2019 and $399,000 in 2018.[ii]

Not feeling any better? 

The ‘Spread’

Well, consider that for a typical 65-year-old woman, a Mercer-Vanguard model predicts an annual health care expense of (just) $5,200 in 2018. And then there is that interesting report from 2019 (aptly titled “A New Way to Calculate Retirement Health Care Costs”) by T. Rowe Price’s Sudipto Banerjee who suggested then (and presumably would again today) that it may be more practical to look at health care as an annual expense incurred over the 20-30 years you’ll actually incur those expenses, rather than as a lump sum. 

More recently, Banerjee points out another aspect of these large lump sum totals that is easy to overlook—and that’s the impact of “health care shocks”—those really high health care cost increases (say in excess of $25,000) that many worry about, but that don’t usually affect younger retirees.[iii]

Confused?

Well, even if you aren’t, you can surely understand why your “average” retirement saver might be. Worse, my guess is that the only takeaway most would get from all this is the first headline[iv]—that they’re going to need more for health care expenses in retirement alone than many have accumulated for the totality of their retirement expenses.

Ultimately, these types of projections serve to remind us that health care costs need to be contemplated as a part of retirement expenses—and that, at the extremes, those costs can quickly wipe out funds set aside for living expenses. Little wonder that concerns about the costs of health care in retirement dominate the concerns of those not yet across that threshold. 

But as you’re sharing these headlines with savers—doubtless hoping they’ll take it as a wake-up call, an incentive and an encouragement to plan, and perhaps to save more—we should keep in mind that those attention-grabbing lump sum numbers are, at best, an estimate that attempts to put a framework around a very specific aspect of retirement spending—one that for the vast majority won’t come due all at once, but over decades, one that may well not emerge until much later in retirement, one that may never ever arise in that projected magnitude. 

Bear in mind as well that, however eye-opening or jaw-dropping the headline, presented out of context it might have the opposite effect—discouraging and even disincentivizing the very behaviors we hope to inspire.

- Nevin E. Adams, JD

---

[i] For single retirees, the 2021 estimate is $157,000 for women and $143,000 for men.

[ii] Fidelity’s estimates above assume both members of the couple are enrolled in traditional Medicare (which between Medicare Part A and Part B covers expenses such as hospital stays, doctor visits and services, physical therapy, lab tests and more), and in Medicare Part D, which covers prescription drugs. Neither includes the potential impact of long-term care costs, though EBRI routinely does in it modelling of retirement savings needs.

[iii] Indeed, not only does he write that they are more prevalent among those who reach their 80s and 90s, but that—even then—it’s (only) a very small percentage of people (3.6% of those ages 80-89, and 8.4% for those ages 90-99—however, overall, even for those between ages 90 and 99, less than one-third experienced an increase of more than $2,000, he notes).

[iv] To their credit, having gotten your attention with that headline, the press release accompanying it does offer a perspective on how that financial need could be satisfied taking advantage of a health savings account. Ahh, the magic of compounding!

Picture "WIndow"

As an individual who spends a lot of his time writing (and reading the writing of others), I’ve always had reservations about the notion that “a picture is worth a thousand words,” though I’ll grant you that an image, a well-crafted graph, or even a flow chart can, in certain instances, more quickly and more effectively convey an idea or concept than words alone.

I remember a conversation with a friend of mine a couple of years ago about EBRI’s Lillywhite Award. My friend, who had been something of a mentor to me over the years, was asking me about the award, the selection process, and what type of individual/accomplishments we were seeking to acknowledge. I tried as best I could to go over the history and purpose of the award: that it was established in 1992 to celebrate contributions by persons who have had distinguished careers in the investment management and employee benefits fields and whose outstanding service enhances Americans’ economic security. That it was intended to recognize lifetime or long-term contributions to the fields of pension/retirement administration, investment management, legislation, marketing, research-education, consulting on investments or benefits, or publications/reporting.

And then I mentioned Ray Lillywhite, for whom the award is named, and—in an instant—my friend “got it.”

Ray was a true pioneer in the pension field. For decades he guided state employee pension plans, and helped found numerous professional organizations and educational programs, finally retiring from Alliance Capital at the age of 80 after a 55-year career in the pension and investment field. Throughout his career, Ray exemplified not only excellence, but also innovation in lifelong achievements, teaching, and learning.

While I never had the pleasure of meeting Ray in person, it has been my great fortune to meet and benefit from the work, education and guidance of a number of Lillywhite Award recipients over the course of my career: Principal Financial Group’s CEO Larry Zimpleman, who was last year’s recipient; Stanford University’s Bill Sharpe; Pension & Investments’ Mike Clowes; Russell Investment’s Don Ezra; and, of course, EBRI’s own Dallas Salisbury, to name a few.

These individuals, as well as the rest of the long and distinguished list of EBRI Lillywhite Award recipients[1] do indeed help paint a picture of what the award was designed to acknowledge—individuals who have each, in their own unique way, influenced the direction of employee benefits, and over the course of their careers helped make things better for others, whose “outstanding service enhances Americans’ economic security.”

Indeed, a picture” may, or may not, always be worth a thousand words. But sometimes a “picture” can be worth more than mere words can say.

 Nevin E. Adams, JD

EBRI’s Lillywhite Award acknowledges the best of the best in the investment management and employee benefits fields. I’m betting you know, admire, and would like to acknowledge the contributions they’ve made. If so, I’d encourage you to nominate them for this prestigious award—today, online here.  

More information about the EBRI Lillywhite Award is online here.

[1] The list of previous EBRI Lillywhite Award recipients is online here. 

"Free" Money?

While I appreciate the convenience of gift cards, giving them always feels a bit lazy. As a recipient, however, I very much appreciate the flexibility and the freedom to buy, within the limits of the card, pretty much anything—sometimes things for which I wouldn’t even have thought to ask much less buy for myself. And, arguably, in at least a couple of cases, things I SHOULDN’T have bought, and probably wouldn’t have bought, if it hadn’t felt like “free” money.

That very human inclination to spend our own money more judiciously than what we are given underpins the growing interest in consumer-directed health plans, such as the now decade-old health savings account (HSA), or its slightly older cousin, the health reimbursement arrangement, or HRA[i]. Both are designed to provide workers the ability to pay for health care-related expenses with funds drawn from the account – and yet, EBRI’s 2013 Consumer Engagement in Health Care Survey (CEHCS)[ii] found evidence that adults with an HSA were more likely than those with an HRA to exhibit a number of cost-conscious behaviors related to use of health care services.

Specifically, the analysis found that those with an HSA were more likely than those with an HRA to:

• report that they asked for a generic drug instead of a brand name (52 percent HSA vs. 49 percent HRA);
• check the price of a service before getting care (41 percent HSA vs. 34 percent HRA);
• ask a doctor to recommend less-costly prescriptions (40 percent HSA vs. 38 percent HRA);
• develop a budget to manage health care expenses (32 percent HSA vs. 22 percent HRA); and
• use an online, cost-tracking tool provided by the health plan (27 percent HSA vs. 21 percent HRA).

Moreover, the 2013 CEHCS also found that adults with an HSA were more likely than those with an HRA to be engaged in their choice of health plan, when they had a choice. They were, according to the analysis, more likely to report that they had talked to friends, family, and colleagues about the plans; used other websites to learn about health plan choices; and were more likely to have consulted with both their employer’s HR staff and an insurance broker to understand plan choices, among other things.

HRAs and HSAs are very similar, so why might those differences in behavior occur between those covered by the two plan types? Consider that an HRA is an employer-funded health plan that reimburses employees for qualified medical expenses, in contrast to the HSA, which can have both employer and employee contributions. HRAs are generally “notional” accounts maintained by the employer, and while funds unspent at the end of each year can be carried over for future use, that option is at the employer’s discretion.

On the other hand, and as the EBRI report notes, an HSA is owned by the individual and is completely portable, with no annual “use-it-or-lose-it” rule. Additionally, those who do not use all the money in their HSA during their working years can use it to pay out-of-pocket expenses after they retire.

Said another way, for most people the HSA balance probably feels like it is “their” money[iii], and they spend it accordingly, while their HRA feels more like a gift card with an expiration date. It’s certainly not “free” money, but it may feel that way to them.

• Nevin E. Adams, JD

[i] Overall, 26.1 million individuals with private insurance, representing 15 percent of the market, were either in an HRA or an HSA-eligible plan.  See “Who Has “Consumer-Driven” Health Plans?“

[ii] “Consumer Engagement Among HSA and HRA Enrollees: Findings from the 2013 EBRI/Greenwald & Associates Consumer Engagement in Health Care Survey,” is published in the June EBRI Notes here.

[iii] In many cases it is, of course, literally funded by their contributions.

Pre-Existing Conditions?

Much has been made of the so-called employer mandate of the Affordable Care Act, and its postponements. Of course, as a recent EBRI publication points out, the mandate (currently slated to be enforced effective in 2015) applies only to employers with 50 or more full-time workers – and most of these employers already offer health coverage to their workers. Last year, 91 percent of employers with 50–199 workers offered coverage, as did 99 percent of employers with 200 or more workers, according to the EBRI analysis.

However, the Patient Protection and Affordable Care Act (PPACA) defines a full-time employee as one who works 30 or more hours per week, on average – well below the 40-hour-week threshold typically associated with full-time employment. As a result, there is concern that employers may respond by cutting back on health coverage for part-time workers or by decreasing part-timer hours to keep them below the 30-hour-week threshold.

The EBRI report notes that, overall, there were 20 million workers employed under 30 hours per week and 18.8 million employed 30–39 hours per week in 2012. Among those employed between 30 and 39 hours per week, 6.3 million (33.6 percent) had employment-based coverage from their own job. In contrast, 60.5 percent of workers employed at least 40 hours per week had employment-based coverage from their own job.

Has the PPACA led to a reduction in hours? The EBRI analysis finds that between 2006 and 2010 (the year that PPACA was signed into law), the percentage of workers employed fewer than 30 hours per week increased from 11.9 percent to 14.1 percent, while the percentage of workers employed 30–39 hours per week also increased, from 11.4 percent to 13.2 percent over the period. Since passage of PPACA, there has actually been a slight drop in the use of part-time workers, though this may be attributable to the drop in the unemployment rate.

Indeed, the percentage of workers with coverage through their own job has been trending downward since 2007 regardless of hours worked per week. However, in relative terms, the EBRI report notes that part-time workers have experienced a much larger decline in coverage than full-time workers. Between 2007 and 2012, workers employed 40 or more hours per week experienced a 3 percent reduction in the likelihood of having coverage from their own job, while those employed 30–39 hours per week experienced a 12 percent decline (those employed fewer than 30 hours per week experienced a 20 percent decline).

Among workers employed 30–39 hours per week, both those who worked for a large employer and those who worked for a small employer experienced a 9 percent decline in coverage between 2008 and 2012.

The data confirm that the recent recession resulted in an increased use of part-time workers, but since 2010 the percentage of workers employed less than 40 hours per week has declined slightly. The data also indicate that while both full-time and part-time workers have experienced drops in health coverage, part-time workers have been affected disproportionately.

The question, of course, is whether PPACA’s full-time worker definition will accelerate – or ameliorate – those trends.

• Nevin E. Adams, JD

“Trends in Health Coverage for Part-Time Workers, 1999–2012” is published in the May EBRI Notes at http://www.ebri.org/pdf/notespdf/EBRI_Notes_05_May-14_PrtTime-Rollovers.pdf

"Crisis" Management

“Houston, we have a problem.”

That’s perhaps the most famous quote from one of my favorite movies—the 1995 “Apollo 13,” the story of the ill-fated moon landing mission of the same name. As the third such undertaking, it was a mission that the nation largely ignored—until that mission ran into trouble. Trouble in this case meant having an oxygen tank explode two days into their trip to the moon, which led to a reduction in power, loss of heat in the cabin, a shortage of drinkable water, and ultimately the need to jury-rig the system that removed carbon dioxide from the cabin.

Arguably, Apollo 13 didn’t have a “problem”; they had a crisis, and one that threatened their very lives.

While we’re a few years removed from the financial crisis that led to the so-called Great Recession, “crisis” is a word much bandied about these days. Crisis is, after all, one of those descriptors that cry out for swift and decisive action—and the industry of employee benefits has its fair share. Thus, whether it’s the looming retirement crisis some see (or see for some) on the horizon, the crippling impact of college debt on the finances (and future financial security) of younger Americans, or the health care crisis that the ACA was designed to forestall (or that some say is destined to create), we are all challenged and confronted—by those at nearly every point along the political spectrum—with the urgency of the need to address the “crisis.”

But do these circumstances constitute a “crisis”? A review of the dictionary definition of crisis reveals the following perspectives: “A crucial or decisive point or situation; a turning point”; an “unstable condition, as in political, social, or economic affairs, involving an impending abrupt or decisive change”; a “sudden change in the course of a disease or fever, toward either improvement or deterioration.”

On May 15, the Employee Benefit Research Institute will host its 74th Policy Forum, titled “‘Crisis’ Management: Uncertainty and the Workplace.” We’ll examine the current and projected future state of retirement readiness, employment-based health care, and the role that approaches such as financial wellness can play in alleviating the strains of uncertainty.

It promises to be an interesting and insightful discussion—one that you can expect to learn from and profit by participating, whether you’re looking for ideas to help stave off a systemic crisis, to better understand the current and future environment of employment-based benefits and the policies that could have an influence, or for ways to improve the current system(s).

It may or may not be a crisis—but these are topics whose resolution could well affect all our lives.

Reserve your place today at http://www.ebri.org/register/.

- Nevin E. Adams, JD

[1] Iconic as it might be, the movie’s most famous quote, “Houston, we have a problem”, wasn’t an accurate quote. According to NASA audio files, Astronaut Jack Swigert first said, “OK Houston, we’ve had a problem here.” Mission Control said, “This is Houston. Say again, please.” Then Jim Lovell said, “Ahh, Houston, we’ve had a problem.”

Because “we’ve had” implies the problem has passed, movie director Ron Howard chose to use “we have”.  

Reference 'Points"

We started setting money aside for our children’s college education relatively early, but as they began actually considering their options, it was clear that our savings wouldn’t be enough to cover the expense at some of the schools on their lists. Moreover, while all three wouldn’t all be in college at the same time, there was enough overlap to make it “complicated.”

While we didn’t want to limit our kids’ college choices, we had certain real world constraints—and so we told them how much we could contribute to their college expenses, and that they were free to make up the difference between that figure and the actual expense of the college they chose through their own work, scholarships, and/or debt. As a practical matter, defining our “contribution” may have taken some options off their lists, but, certainly in hindsight, it seemed to give them focus and some real-world context—a reference point—for one of the biggest financial decisions of their lives.     
Employers have been interested in and have tried to implement the “defined contribution” concept for health benefits in a number of different ways. The Revenue Act of 1978 started it with Sec. 125 and flexible spending accounts and “cafeteria plans.” A recent EBRI Issue Brief outlines some of the more recent history, the introduction of health reimbursement arrangements (HRA) in 2001, health savings accounts (HSA) in 2004, and the more recent trend toward private health insurance exchanges, where employers provide a fixed amount of money for workers to use toward the cost of health coverage.

However, the primary focus of the report is another defined contribution approach called reference pricing (RP), under which plan sponsors either pay a fixed amount or limit their contributions toward the cost of a specific health care service. If a plan member chooses a health care provider or service that costs more, he or she must pay the difference in price. Reference pricing is receiving more attention and consideration today because of growing plan sponsor interest in managing health care costs, but the approach is still relatively new; in 2012, 11 percent of employers with 500 or more workers were using some type of RP, and another 16 percent were considering it.

How might such an approach impact cost? EBRI’s analysis indicates that the potential aggregate savings could reach $9.4 billion if all employers adopted reference pricing for the health care services examined in the paper, some 1.6 percent of all spending on health care services among the 156 million people under age 65 with employment-based health benefits in 2010.

As the report notes, savings from reference pricing materializes through the combination of 1) patients choosing providers at the reference price, 2) patients paying the difference between the reference price and the allowed charge through cost sharing, and 3) providers reducing their prices to the reference price. Obviously, any increase in prices among providers below the reference price would reduce the potential for savings.

From an employer perspective, the approach establishes a cost threshold for the service(s) selected, but as the EBRI analysis notes, plan sponsors should obviously consider a number of issues as they weigh adopting reference pricing, including how the reference price is determined and how providers may react. Communication to plan members is also key to effective use of reference pricing.

For plan members, it could represent the potential for expanded choice with some pricing context—but, as with my kids’ college selection process, they’ll likely need more data on prices and quality in order to make truly informed decisions.

Nevin E. Adams, JD

The full report is published in the April EBRI Issue Brief, “Reference Pricing for Health Care Services: A New Twist on the Defined Contribution Concept in Employment-Based Health Benefits” available online here.

Motion "Sensers"

I’m not sure exactly when I was introduced to the concepts behind Sir Isaac Newton’s laws of motion.  While behavioral finance has laid claim to the concept of (and means of combatting) inertia in benefit plan design, Newton’s first law of motion (sometimes called “the law of inertia”)—first published in the late 1600s—reminds us that (in layman’s terms), an object at rest remains at rest; or perhaps more precisely, an object continues to do whatever it happens to be doing unless a force is exerted upon it.

However, the one I remember most from earlier days is the third law of motion—the notion that for every action there is an equal and opposite reaction.  To this day, I have a “Newton’s cradle” at my desk.

While Newton’s laws were intended to explain the motion of objects, they do seem to have application in matters of human interaction as well.  One need only look at the increasingly strident levels of partisanship on Capitol Hill to appreciate the stridency of “equal and opposite” reactions.

A recent EBRI publication[1] noted that recent decisions by some employers to eliminate health benefits for spouses who were eligible for coverage through their own employer could represent a “tipping point” in employment-based health benefits.  While the report noted that in 2012, 7 percent of employers did not cover spouses when other coverage was available to them, it also cautioned that as of late 2012–early 2013, another 8 percent of large employers were reporting that they planned to exclude spouses from coverage when other coverage was available.

These decisions come at a time when employers are wrestling with how to control the rising cost of providing health benefits to workers, in part due to the requirements of the Patient Protection and Affordable Care Act of 2010 (PPACA).[2]  In fact, one large employer that recently made the decision to drop spousal coverage under those circumstances specifically said, “since the Affordable Care Act requires employers to provide affordable coverage, we believe your spouse should be covered by their own employer.”

EBRI’s analysis indicates that the costs of covering spouses may well represent a tempting cost reduction target for some.  The report notes that, in 2011, policyholders spent an average of $5,430 on health care services, compared with $6,609 for spouses, and—even adjusting for factors such as gender, age, and overall health status—found that spouses still have health care costs that are roughly 7 percent higher than policyholders.

The report cautions, however, that while “first-mover” firms may save money in the short run by eliminating working spouses from their plan, those costs could come back to them over time as other employers embrace that approach—basically returning policyholders to their coverage who heretofore were covered as spouses in other programs.

Ultimately, any savings from those moves will depend upon each firm’s composition of couples and their respective employment statuses.  Indeed, given prevailing levels of cost sharing, the report notes that employers might end up worse off under a change in spousal coverage policies, particularly since employers generally subsidize employee-only coverage more than they subsidize family coverage.

As the EBRI report reminds us, decisions about benefit plan design, like so many other decisions, should be made thoughtfully—and with an eye toward the realization that, for every action there can be an equal, opposite, and sometimes greater, reaction.

Nevin E. Adams, JD

---

[1] “The Cost of Spousal Health Coverage” is available online here.

[2] PPACA requires that employers with 50 or more workers provide health coverage to workers and dependent children until they reach age 26. It does not, however, require employers to provide health coverage to spouses, whether or not they are eligible for other health insurance.

Penny Whys?

We tried to introduce our kids to money and financial concepts relatively early. We encouraged them to save some of their monetary gifts, let them put the money in the offering plates at church, and provided them with a modest allowance for chores commensurate with their age and abilities. For all that, they never really seemed to fully appreciate the “value of money” until they started earning a paycheck outside the home (I knew they were “getting” it, when they wanted to know who FICA was!).

Perhaps because of their early education, there weren’t massive behavioral changes. I was pleased to see their spending on gifts for family members rise with their income and, after an initial spending “spurt” (likely attributable to a sense of newfound wealth), they seemed to settle in. But what happened next was that, while they would spend money on others, they tended to hold back. In fact, what seemed to emerge was not so much a pattern of setting money aside, but a reluctance to spend; not so much saving, as hoarding. Indeed, it was interesting to see how they reacted to spending now that it was their own money.

One of the premises underlying the introduction of consumer-driven health plans is that they do a better job of “engaging” the participant/consumer in the cost(s) of their health care decisions, either in providing a finite amount of financial resources from the employer for that purpose, designing the plan so that the worker has a more direct financial involvement in the decision, or both. In fact, the 2013 EBRI/Greenwald & Associates Consumer Engagement in Health Care Survey (CEHCS) found evidence that adults in a consumer-directed health plan (CDHP) and those in a high-deductible health plan (HDHP) were more likely than those in a traditional plan to exhibit a number of cost-conscious behaviors.

However, one of the policy concerns with those designs is that individuals would make medical decisions based on expense, rather than medical necessity. Indeed, recent research by the EBRI Center for Research on Health Benefits Innovation (CRHBI) notes that medication adherence—which has been shown to produce substantial savings as a result of reductions in hospitalizations and emergency room use—is known to be affected by out-of-pocket cost to patients.

That EBRI CRHBI study, published in a recent issue of The American Journal of Managed Care,
examined the impact of adopting a health savings account (HSA) consumer-directed health plan (CDHP) on medication adherence for individuals with five chronic conditions disease. Based on the experience of a large manufacturer that replaced all of its existing health insurance options with a CDHP-HSA, the research found that in the first year under the new plan, the number of prescriptions filled, the proportion of days covered, and the proportion of patients who were adherent declined for all conditions except asthma/COPD. While the effects diminished some in the second year for those with diabetes, the levels persisted among those with hypertension, dyslipidemia, and depression.

These findings have important policy implications, in that—notwithstanding the presence of HSAs and employer contributions—medication utilization and adherence declined when high deductibles were imposed.

As the article explains, if these reduced levels of medication adherence for chronic conditions are sustained, it is likely that they will increase medical costs and adversely impact worker productivity. Certain regulatory changes might permit some mitigation of the impact, by supporting CDHP design changes that would provide first-dollar coverage for chronic disease medications for participants using HRAs. Moreover, it suggests that employers may need to provide education and ongoing support to encourage appropriate use of account funds so that prescription drug use for chronic conditions remains a priority for their workers.

There’s an old saying that cautions against being “penny wise and pound foolish”—the tendency to conserve relatively small amounts, only to be wasteful when it comes to larger expenditures. It is, after all, one thing to set money aside for a rainy day, and another altogether to trigger a rainy day by not spending enough on the right ones.

Nevin E. Adams, JD

[1] “Findings from the 2013 EBRI/Greenwald & Associates Consumer Engagement in Health Care Survey” is available online here.

[2]  “Medication Utilization and Adherence in a Health Savings Account–Eligible Plan” is available online here.

System "Upgrades"

I recently upgraded the operating system on my iPhone. Not that that would normally be a big deal—I generally try to keep such things current, despite the occasional “bumps” that inevitably come with software upgrades. But this time the upgrade wasn’t just about improving performance and fixing issues that had been identified since the last update.  No, this one not only LOOKED different, some core functions were said to work differently—and “different” in this case appeared to be a problem for a number of users.

So, before I took the “plunge,” I spent some time trying to do some research—trying to find out what kinds of improvements I could anticipate, and to better understand the complaints associated with an upgrade from which there was, apparently, no “return.” The upgrades were readily quantified (on the vendor’s website most notably), although I think it’s fair to say they had a motivation in promoting the new system. However, most seemed to be relatively unimportant in terms of how I used, or planned to use, my device. As for the problems: Well, they were equally easy to find, but harder to quantify. And, like those product ratings on any website, were from people I did not know and whose judgments I had no particular reason to trust.

Consequently, stuck between conflicting perspectives, and seeing no particular advantage in making a change, I did what most human beings do. Nothing. Until, with my current contract expiring, I realized that the upgrade was likely to be imposed on me at that point, regardless of my preferences.

On October 1, the public marketplaces (formerly known as connectors or exchanges) associated with the implementation of the Patient Protection and Affordable Care Act (PPACA) will begin to come online—in various phases and, from what one can discern from published reports and official updates, in various states of readiness. The advantages have been outlined, as have the potential pitfalls. Doubtless the experiences will be as varied as the experience(s) and expectation(s) of the individuals involved.

However, it’s hardly a new idea. Back in 1980 the conservative Heritage Foundation began advocating that the Federal Employee Health Benefit Program (FEHBP—a marketplace for multiple insurers and scores of plan options) become a model for expansion of health coverage through an individual mandate. Today, simply telling those in Washington, DC, that “the marketplaces are just a version of FEHBP” brings an immediate understanding of the concept.

A year ago, EBRI published an Issue Brief that outlined the issues related to private health insurance exchanges, possible structures of an exchange, funding, as well as the pros, cons, and uncertainties to employers of adopting them. That report contained a summary of recent surveys on employer attitudes, as well as some changes that employers have made to other benefits that might serve as historical precedents for a move to some type of defined contribution health benefits approach. It is a report that provides both current analysis alongside a historical perspective—a resource for those looking to better understand and plan for the potential changes ahead.¹

That said, when Paul Fronstin, EBRI’s director of Health Research and the EBRI Center for Research on Health Benefits Innovation, updates the information in the future, he may well call them marketplaces, unless the name “upgrades” again in the weeks ahead!

Nevin E. Adams, JD

¹ See “Private Health Insurance Exchanges and Defined Contribution Health Plans: Is It Déjà Vu All Over Again?” online here.

You can find a catalogue of recent EBRI research on PPACA and its potential impact on employment-based health benefits online here.

Future Tense?

Americans have long had a beef of sorts with the U.S. health care system.

Asked to rate that system, a majority of workers describe it as poor (21 percent) or fair (34 percent), and while nearly a third consider it good, and less than half that many rate it as very good (12 percent) or excellent (2 percent), according to the 2013 Health and Voluntary Workplace Benefits Survey (WBS). Perhaps more significantly, the percentage of workers rating the health care system as poor doubled between 1998 and 2006, according to the 1998–2012 Health Confidence Survey (HCS).

On the other hand, workers’ ratings of their own health plans continue to be generally favorable. In fact, one-half (51 percent) of those with health insurance coverage are not just content with the coverage they have, they are extremely or very satisfied with it.

Satisfaction with health care quality continues to remain fairly high, with 50 percent of workers saying they are extremely or very satisfied with the quality of the medical care they have received in the past two years.

In fact, dissatisfaction with the health care system appears to be focused primarily on cost: Just 13 percent are extremely or very satisfied with the cost of their health insurance plans, and only 11 percent are satisfied with the costs of health care services not covered by insurance.

And, despite the ongoing (and frequently dramatic) news coverage of changes (current and contemplated) resulting from the Patient Protection and Affordable Care Act (PPACA), workers continue to be generally confident that their employers or unions will continue to offer health insurance. In 2013, 28 percent of workers report that they are extremely confident their employers or unions will continue to offer coverage, 37 percent are very confident, and 28 percent are somewhat confident.

On the other hand, confidence about the health care system decreases as workers look to the future. While 46 percent of workers indicate they are extremely or very confident about their ability to get the treatments they need today, just 28 percent are confident about their ability to get needed treatments during the next 10 years; and while 39 percent are confident they have enough choices about who provides their medical care today, fewer than-  1 in 4 are confident about this aspect of the health care system over the next 10 years.

Finally, 25 percent of workers say they are confident they are able to afford health care without financial hardship today, but this percentage decreases to 18 percent when they look out over the next decade.

Ultimately, the findings of the 2013 Health and Voluntary Workplace Benefits Survey provide not only valuable insights into how Americans view and value their health care now, but also a sense that the current comfort and confidence levels could be relatively short-lived.

- Nevin E. Adams, JD

“The 2013 Health and Voluntary Workplace Benefits Survey: Nearly 90% of Workers Satisfied With Their Own Health Plan, But 55% Give Low Ratings to Health Care System” is available online here.

Cost Conscience

In about a month my eldest will be setting up a new home in a different state. It won’t be her first time living in another state, and it won’t be her first apartment. It will, however, be her first apartment as an entrant into the full-time career workforce, and so the criteria—and budget—are quite different than our past experience(s). And while she’s done a great job of constructing a budget (including savings), I can’t help but notice that she also spends “her” money a little differently than when Dad was footing the bill.

My daughter’s spending inclinations aren’t unusual, of course. As parents we tried to give our kids a sense of the cost of things, certainly as they grew older. There were, however, plenty of times over the years we didn’t share that information, either because it wasn’t important, or, in some cases, because we didn’t want them to make a decision based solely on price.

There’s a similar logic afoot with consumer-driven health plans (CDHPs). Advocates of these programs¹ contend that providing participants with an account and subjecting their health insurance claims to high deductibles will induce enrollees who would likely be spending more of their own money (than might be the case with traditional health coverage) to make more cost- and quality-conscious health care decisions. On the other hand, CDHP skeptics caution that these individuals lack the kind of information they need to make good decisions—and, worse, might make cost-centric choices that aren’t the best health care choice, and might even prove to be less cost-efficient (and even more expensive) over the longer term.

In one of the first studies of its kind, EBRI has analyzed detailed claims data over a five-year period from a large Midwestern employer that adopted a high-deductible health plan with a health savings account (HSA) for all employees in place of its traditional health care offering. The research, published in the July EBRI Issue Brief,² found that in this case, where the HSA plan was the only type of health plan the employer offered, the HSA reduced the plan’s total health care spending by 25 percent in the first year ($527 per person in the aggregate). Moreover, the cost savings continued over the succeeding three years—albeit at a slower pace.

The study also found that each category of health spending experienced statistically significant reductions in the first year of the HSA plan, with the exception of spending on inpatient hospital stays. Spending on laboratory services and prescription drugs had the largest statistically significant declines (36 percent and 32 percent, respectively). Indeed, reductions in pharmacy spending were large and mostly sustained over the four years after the HSA was adopted. In the first year of the HSA, pharmacy-spending reductions were 40–47 percent for individuals in all but the highest quintile of spending.

There are some limitations to what can be inferred from this particular study, which focused on the experience of a single large employer, and participants with continuous coverage throughout the study period, among other things. While it did not allow for distinguishing utilization of discretionary from necessary services, the data suggest that the highest users were least affected and that moderate users were most vulnerable. If the cost savings trends don’t necessarily speak to the quality of those health care decisions, the report clearly adds to the consumer-directed-health-plan literature, and our understanding of how these programs can influence cost and utilization—information that is essential to our understanding of the value of account-based, high-deductible plans.

After all, when you don’t know the cost of something, it’s hard to appreciate the value.

Nevin E. Adams, JD

¹ A recent EBRI report notes that employers have now been using CDHPs for over a decade. In 2012, 22 percent of smaller employers, 36 percent of larger employers, and 59 percent of jumbo employers offered some form of a CDHP, and nearly 1 in 5 workers were enrolled in one.

² “Health Care Spending after Adopting a Full-Replacement, High-Deductible Health Plan With a Health Savings Account: A Five-Year Study” is available online here.

Balancing "Acts"

Last week we looked at how the trends in employment-based retirement plans and employment-based health plans seem to be heading in opposite directions: fewer choices for workers to make in the former, more in the latter (see Consumer “Driven,” online here.  Recent EBRI research suggests a potential divergence in other areas as well.

According to the EBRI/MGA Consumer Engagement in Health Care Survey, 26–40 percent of respondents reported some type of access-to-health-care issue for either themselves or family members last year. “Access” in this case refers not to availability, per se, but is broadly defined as not filling prescriptions due to cost, skipping doses to make medication last longer, or delaying or avoiding getting health care due to cost.

Not surprisingly, access is more of a problem among those with lower incomes, who appear to be forgoing spending on health care. In fact, regardless of health plan type, individuals in households with less than $50,000 in annual income were more likely than those in households with $50,000 or more in annual income to report access issues. In sum, a number of individuals, notably lower-income workers, were restricting their spending on healthcare.¹

Another recent EBRI analysis  found that lower-income workers were withdrawing money from their individual retirement accounts in much greater numbers, earlier, and at much larger percentages, than other workers. In fact, the report noted that nearly half (48 percent) of the bottom-income quartile of those between the ages of 61 and 70 had made such an IRA withdrawal, and that their average annual percentage of account balance withdrawn (17.4 percent) was higher than the rest of the income distribution. In sum, a number of individuals, again, notably lower-income workers, were withdrawing more from their retirement savings accounts than those in higher income groups.

One of the great hopes behind a growing emphasis on consumer-directed health plans is that individuals would make different, perhaps more efficient decisions about their health care. Of course, one of the looming concerns is that individuals would make ill-informed decisions influenced by short-term personal economic (rather than health) factors. Similarly, there have been concerns expressed that, left to their own devices, individuals will withdraw too much money too soon from their retirement accounts—that their decisions too will be motivated by short-term needs, rather than by a full appreciation for the longer-term consequences of those actions.

As previous EBRI research has documented, the availability of health insurance may not only affect retirement decisions, but the costs of health care and long-term care can have a very real impact on retirement income adequacy.² The trends highlighted in the EBRI analyses suggest that some—notably lower-income individuals—could be spending less on healthcare than they might, and perhaps drawing more from their retirement accounts than they should.

What’s not yet clear—and what future research may shed light on—is whether these actions are borne of necessity, are simply random and potentially ill-considered, or are the result of conscious (and perhaps conscientious) choice.

Nevin E. Adams, JD

¹ Some additional evidence of the trend was highlighted by EBRI research recently published in Health Affairs, specifically that consumer-directed health plans (CDHPs) were shown to reduce the long-term use of outpatient physician visits and prescription drugs. Link is online here.

² See Views on Health Coverage and Retirement: Findings from the 2012 Health Confidence Survey, and ‘Savings Needed for Health Expenses for People Eligible for Medicare: Some Rare Good News.” 
See also “Lessons From the Evolution of 401(k) Retirement Plans for Increased Consumerism in Health Care: An Application of Behavioral Research,” online here.

"Charge" Accounts

I was a late convert to the convenience of NetFlix, and while I appreciated the convenience of delivery, when they expanded the offering to include online movie viewing “at no additional charge,” I didn’t really “get” it. Aside from the fact that, at that time, my DVD player wasn’t wireless compatible, the selection (certainly in those early days) was unremarkable at best. In fact, I remember telling a friend once that the online movies were free, and worth every penny.

The quality and breadth of selection improved over time, until of course, there came that fateful decision to charge a fee for that online movie access separate and apart from the home DVD delivery. All of a sudden, a service that had been a nice-to-have “at no additional charge” had to be viewed through a whole new prism―it was now a benefit with a cost.

Under the Patient Protection and Affordable Care Act (PPACA), group health plans that offer dependent coverage are required to extend coverage to workers’ children until they reach age 26, regardless of student status, marital status or financial support by the employees. It has been estimated that 3.1 million young adults have acquired health coverage as a result of the adult-dependent mandate (ADM) provision, and overall, 31 percent of employers enrolled adult-dependent children as a result of the mandate, according to a recent EBRI report (online here).

However, under PPACA, employers are not allowed to directly charge higher premiums for the cost of this “adult-dependent” coverage. An EBRI analysis of the experience of a single large employer during the period Jan. 1, 2010, through Dec. 31, 2011, found that nearly 700 adult children enrolled in the employer plan in 2011 as a result of the adult dependent mandate―and this group used about $2 million in health care services in 2011 (about 0.2 percent of the over $1 billion in total spending on health care services by that employer that year).

The EBRI report also looked at the claims behaviors of the ADM group compared with a group of dependent children ages 19–25 that were covered prior to Jan. 1, 2011, some 13,000 young adults. Both groups had health coverage for the entire 2011 calendar year through the employer examined in this study. Average spending in the ADM cohort was higher: 15 percent higher than the comparison group, in fact. While the period of review was short, and the experiences associated with that of a single large employer, the ADM group used more inpatient services than the comparison group, and, in what is perhaps the most interesting finding of the analysis, were more likely to incur claims related to mental health, substance abuse, and pregnancy.

So, while this adult-dependent coverage is currently offered “at no additional charge” (certainly for those already carrying family coverage), there are almost certainly additional costs―costs that employers and workers will (and indeed already have begun) to share through claims payments, cost sharing, and worker premiums.

Of course, as a result of this expanded coverage, there also are individuals who might otherwise not have the benefit of the coverage, either because they wouldn’t have access, or would find it to be prohibitively expensive―and this coverage might well be less expensive than the alternative consequences. Little wonder that the debate continues as to whether the provisions of PPACA will serve to increase or decrease long-term health care spending trends.

It will be interesting to see how the health care spending trends of this younger demographic change over time, and how employers respond. It also underlines the importance of ongoing research on these spending and usage patterns as implementation of the PPACA proceeds, even as it serves to remind us that there can be a difference between no additional charge, and no additional cost.

Nevin E. Adams, JD

2012: Research Year in Review

As we close out 2012, and embark upon a new set of challenges in 2013, this week’s EBRIef offers a roundup of our 2012 research. Best wishes for a Happy and Prosperous New Year!

---

Share EBRIef with your friends and colleagues – and let them know they can sign up for their own copy HERE

What’s New(s) – Health & Workforce

“Findings from the 2012 EBRI/MGA Consumer Engagement in Health Care Survey” MORE.

"Views on Employment-Based Health Benefits: Findings from the 2012 Health Confidence Survey" MORE.

“Self-Insured Health Plans: State Variation and Recent Trends by Firm Size” MORE.

'Savings Needed for Health Expenses for People Eligible for Medicare: Some Rare Good News,' and 'IRA Asset Allocation, 2010' MORE.

Employment-Based Retiree Health Benefits: Trends in Access and Coverage, 1997-2010” MORE.

“Sources of Health Insurance and Characteristics of the Uninsured: Analysis of the March 2012 Current Population Survey” MORE.

"2012 Health Confidence Survey: Americans Remain Confident About Health Care, Concerned About Costs, Following Supreme Court Decision" MORE.

"Satisfaction With Health Coverage and Care: Findings from the 2011 EBRI/MGA Consumer Engagement in Health Care Survey" MORE.

“Private Health Insurance Exchanges and Defined Contribution Health Plans: Is It Déjà Vu All Over Again?” MORE.

'Health Plan Choice: Findings from the 2011 EBRI/MGA Consumer Engagement in Health Care Survey' MORE.

'Use of Health Care Services and Access Issues by Type of Health Plan: Findings from the EBRI/MGA Consumer Engagement in Health Care Survey' MORE.

"Trends in Employment-Based Coverage Among Workers, and Access to Coverage Among Uninsured Workers, 1995-2011" MORE.

'Characteristics of the Population With Consumer-Driven and High-Deductible Health Plans, 2005–2011' MORE.

“Employment-Based Health Benefits: Trends in Access and Coverage, 1997-2010” MORE.

‘Trends in Health Coverage for Part-Time Workers’ MORE.

'Employer and Worker Contributions to Health Savings Accounts and Health Reimbursement Arrangements, 2006–2011' MORE.

“Health Savings Accounts and Health Reimbursement Arrangements: Assets, Account Balances, and Rollovers, 2006–2011” MORE.

'The Impact of PPACA on Employment-Based Health Coverage of Adult Children to Age 26' MORE.

---

What’s New(s) – Retirement

“401(k) Plan Asset Allocation, Account Balances, and Loan Activity in 2011” MORE.

"Employee Tenure Trends, 1983–2012" MORE.

“All or Nothing? An Expanded Perspective on Retirement Readiness” MORE.

“Employment-Based Retirement Plan Participation: Geographic Differences and Trends, 2011” MORE.

'IRA Asset Allocation, 2010' MORE.

“Individual Account Retirement Plans: An Analysis of the 2010 Survey of Consumer Finances” MORE.

"Increasing Default Deferral Rates in Automatic Enrollment 401(k) Plans: The Impact on Retirement Savings Success in Plans With Automatic Escalation" MORE.

"Is Working to Age 70 Really the Answer for Retirement Income Adequacy?" MORE.

““After” Math: The Impact and Influence of Incentives on Benefit Policy” MORE.

'Own-to-Rent Transitions and Changes in Housing Equity for Older Americans' MORE.

'Retirement Readiness Ratings and Retirement Savings Shortfalls for Gen Xers: The Impact of Eligibility for Participation in a 401(k) Plan' MORE.

“Effects of Nursing Home Stays on Household Portfolios” MORE.

“Individual Retirement Account Balances, Contributions, and Rollovers, 2010: The EBRI IRA Database^TM” MORE.

"Retirement Income Adequacy for Boomers and Gen Xers: Evidence from the 2012 EBRI Retirement Security Projection Model®" MORE.

'Time Trends in Poverty for Older Americans Between 2001–2009' MORE.

‘Modifying the Federal Tax Treatment of 401(k) Plan Contributions: Projected Impact on Participant Account Balances’ MORE.

“The 2012 Retirement Confidence Survey: Job Insecurity, Debt Weigh on Retirement Confidence, Savings” MORE.

'Labor-force Participation Rates of the Population Age 55 and Older, 2011: After the Economic Downturn' MORE.

“Expenditure Patterns of Older Americans, 2001-2009” MORE.

'Spending Adjustments Made By Older Americans to Save Money' MORE.

“Next” Step

On December 13, EBRI will hold its 71st biannual policy forum, “’Post’ Script: What’s Next for Employment-Based Health Benefits?” It is a question that has been on the mind of employers, lawmakers and policymakers alike for some time now. It predates the time that the structure for the Patient Protection and Affordable Care Act (PPACA) was put in place, has evolved, but not been resolved, as regulations were, and continue to be issued subsequent to its passage. It has remained on the minds of employers, providers, and policymakers following the various courts’ assessment of the various challenges to the constitutionality of the law, and even as the nation went to the polls last month.

Today we know more than we once did about certain aspects of the law, its provisions and applications.¹And yet there is much yet to know about its broader implementation: How the insurance exchanges might work,² for example, or how their presence might affect or influence cost, access, or employer plan designs. Will employers step away from their traditional role in providing these benefits, or will these changes lead to an environment in which employers find them to be of even greater value to their retention programs and strategies? In addition, an overarching concern at present—not just for health benefits, but workplace benefits overall—is the potential impact that changes in tax policy³ could have on these programs, both direct and indirect.

Our next policy forum will bring together a wide range of national experts on U.S. healthcare policy to share a post-election perspective on fiscal impacts from the federal budget, findings from the EBRI Center for Research on Health Benefits Innovation, and a sense of how employment-based health benefits might evolve as a result of the changes set to come.

In a field as complex and sensitive as healthcare policy, we may not always know “what’s next”—but it’s our hope that the information, and interaction, at the EBRI policy forum will provide insights and clarity that can help.

EBRI’s 71st biannual Policy Forum will be held on Thursday, Dec. 13, from 9:00 a.m.–12:30 p.m. at the Henry J. Kaiser Family Foundation, 1330 G Street NW, Washington, DC 20005. The agenda and registration information are available online here. For those not able to attend in person, a free live webcast of the policy forum will be provided by the International Foundation of Employee Benefit Plans, online here.

Nevin E. Adams, JD

¹ A summary of EBRI Research on PPACA and its Potential Impact on Private-Sector Health Benefits is available online here. Of specific topical interest are:

• “Employment-Based Health Benefits: Trends in Access and Coverage, 1997–2010.”
• “Sources of Health Insurance and Characteristics of the Uninsured: Analysis of the March 2012 Current Population Survey.”
• “Employment-Based Retiree Health Benefits: Trends in Access and Coverage, 1997-2010.”
• “Health Savings Accounts and Health Reimbursement Arrangements: Assets, Account Balances, and Rollovers, 2006–2011.”

² For insights on the topic of health insurance exchanges, see “Private Health Insurance Exchanges and Defined Contribution Health Plans: Is It Déjà Vu All Over Again?” online here.

³ See “Employment-Based Health Benefits and Taxation: Implications of Efforts to Reduce the Deficit and National Debt,” online here.

Everybody Into the Pool?

As a teenager, I remember the occasional visits to the local swimming pool. I also remember that about once an hour, the lifeguards on duty would periodically clear the pool, ostensibly to clean out debris, to enforce a certain rest break on the swimmers (and doubtless for the lifeguards), and perhaps to assure that all the swimmers were still able to get out of the pool. Then, after what seemed to my teenage senses like an eternity, the lifeguards would blow a whistle—the “all-clear” signal for everyone to jump back in the pool. They were very strict about this—and kids were routinely banned for an hour, or even the rest of the day for jumping in “early.” As a result, even after the whistle, most of us would hesitate and look around to make sure that we weren’t the only ones going in.

With the Supreme Court’s recent decision on the constitutionality of the Patient Protection and Affordable Care Act (PPACA) behind us, industry surveys suggest that employers are turning to the issue of the next phase of implementation. Moreover, the combination of insurance market reforms and the embodiment of the exchange structure in the PPACA have brought a renewed focus on limiting employer’s health care cost exposure, much as changes in funding requirements and accounting treatment led many to reconsider their approach to retirement benefits.

A recent EBRI Issue Brief¹ notes that it was only about a decade ago that defined contribution (DC) health plans, arrangements that shift choice of health insurance from employers to employees, were the focus of much attention. As far back as the late 1990s, more than 62 percent of health care leaders predicted that employers would move to DC health plans by 2010.

That trend never fully emerged, of course—employers were hesitant to drop group coverage in favor of offering individual policies, some were likely concerned that many employees would not be able to secure coverage in the individual market, some others drawn to the tax advantages. Many viewed the benefit as an important tool in attracting and retaining a strong work force, and surveys, including EBRI’s Health Confidence Survey (HCS), suggest that workers do, in fact, appreciate the offerings.

EBRI’s Paul Fronstin notes that the combination of insurance market reforms and the embodiment of the exchange structure² in PPACA have brought a renewed focus on limiting the employer’s health care cost exposure by providing a fixed-dollar contribution that workers could use to purchase individual policies. He notes that the vehicle that some are interested in using for providing coverage is a private health insurance exchange, through which employers might be better able to accelerate the drive toward a more mass consumer-driven insurance market—and in the process gain more control over their health care contribution costs, while shifting to employees the authority to control the terms (and to some extent, the costs) of their own health insurance.

This should sound familiar to those who have watched similar motivations lead to the shift in retirement plan emphasis from pension plans to defined contribution/401(k) retirement benefits. The question is, will the combination of factors provide employers with the “all clear” sign to undertake changes they have, thus far, been hesitant to take?

And if that all clear sign is given, will employers all jump in at once?

- Nevin E. Adams, JD

¹ In addition to a historical perspective, the July 2012 Issue Brief examines the issues related to private health insurance exchanges, the possible structure of an exchange and how it can be funded, as well as the pros, cons, and uncertainties to employers of adopting a private exchange. MORE.

² Fronstin notes that private exchanges are already in development partly because of the uncertainty related to the status of state-based exchanges. Development of several of these were postponed, pending resolution of the PPACA’s constitutional challenge. Several Republican governors have said they will refuse to establish state-based exchanges, leaving them to the federal government to run. As recently as March 2012, the majority of states had still not taken the necessary steps to establish an exchange.