A Tax On Your Users - Raising the Deductible on Your Medical Plans....

By now you're more than familiar with the cost arc of providing Medical Insurance to your employees - it's doubled in the last decade, and while the annualized trend is down (6% projected for 2009, down from the glory days of 14% in the early 2000s), costs are still going up, not down.

Here's a comment that's been oft repeated in your local benefits group - "if I could just charge the people  who use the plan more, my costs would be more in line."  It's a tough spot, because the other option - increasing employee contributions that are deducted directly from the paycheck - isn't a great option from an employee relations standpoint.

As it turns out, companies are charging the heavy usage employees/families more, but not by identifying the unhealthy - which has legal and privacy ramifications - but instead by jacking up the deductible level.

The median deductible for a garden-variety PPO is now over $1,000 according to Mercer: 

"The median deductible required by employers for individual coverage in PPO health plans jumped to $1,000 in 2008, up from $500 last year, according to the National Survey of Employer-Sponsored Health Plans , conducted annually by Mercer and released today. In 2000, only about half of employers imposed a deductible for PPO coverage (compared to about four-fifths today), and when they did the median amount was just $250. PPOs are the most popular type of health plan, enrolling 69 percent of all covered employees."

A couple of important notes.  First, the Mercer numbers represent normal traditional PPOs – not the high-deductible health plans where a deductible of at least $1,100 is required in order to deposit tax-free money in a Health Savings Account, or HSA.  So, it's the normal type of PPO, not a consumer-driven model, that we're talking about here.

The Mercer numbers show that raising the deductible is really the option of choice, if you are seeking to tax the heaviest users for usage of the medical plan.  But, like raising employee contributions that are deducted from the paycheck, there's an employee relations cost spread across all employees (heavy users and low users) that goes along with either option related to the perception of diminished value of your medical plan.

Final note - in 2000, about half of employers required no deductible for PPO coverage.  Doesn't that seem like decades ago?

Comments

[Meg Bear]

Thanks for giving me an opportunity to get educated because deductibles in healthcare confuse the heck out of me. Wouldn't raising the deductible be completely regressive for those who use very little healthcare? So those who only go to (example) an annual exam in a year are 100% inside the deductible and those who get several procedures done get the benefit of healthcare? Wouldn't you need some kind of sliding scale to turn that around?

[KD]

Meg -

Good question - a lot of deductibles in traditional PPO's would apply to inpatient and outpatient services only, with the most common services still being $25 for a doctor's visit and your three-tiered RX plan delivering RX to you for $10/30/45 depending on the tier. In this way the masses still get common access, but the deductible kicks in with something major hit.

In that way, you're taxing your heaviest users. another way way to go to really tax the heaviest user are to create large co-pays for inpatient and outpaient proceedures that hit on each procedure, rather than towards one co-pay.

Make sense? Tell me if you want a rundown of another scenerio...

Thanks - KD

[BadgerWI]

The expression penny wise and pound foolish comes to mind when viewing some health care plan designs.

Many more well thought out plans include 100% coverage of preventative care, such as the annual physical, colonoscopy, mammograms, etc.

It's prudent to encourage people to get regular checkups.

Raising the deductible, in and of itself, will act as a deterrent to regular care for some individuals.;