Employers provide health insurance coverage for over half of Americans, and the cost of health care continues to rise at a much faster rate than inflation or gross domestic product. This is despite the effects of the pandemic, which temporarily lowered health care costs for 2020. The need for change is clear, and CFOs seek innovative solutions in health insurance that protect employees and their families while controlling employer costs.
Traditional and emerging health insurance vendors promote new plan designs to address the related problems of high cost and nonoptimal utilization. Employers who are aware of emerging plan designs’ advantages and challenges will be best positioned to meet company and employee needs. Innovative employer-sponsored health plans that provide high-quality and affordable options will be essential as our economy moves to post-pandemic.
Personalized Health Plans
Some new health plan designs promise to allow employees to choose insurance plans better tailored to their individual needs, which may deliver lower cost-sharing and premium savings.
For instance, one new health plan design offers copayments instead of deductible and coinsurance and requires a buy up for certain elective surgeries, which can be paid over several months. Generally, these plans are likely to be less expensive than conventional health plans and will attract younger and healthier employees. Employers must understand and communicate tax implications of any buy-up done outside of the open enrollment period.
Employers should look at the entire population’s cost to determine if there are cost savings, as members with more expensive needs are likely to remain in a traditional plan when multiple plans are offered. Elements including lower out-of-pocket costs for primary care and technology tools for finding high-quality care can be popular with employees and improve the quality of care.
Reference-based Pricing Plans
“Reference-based pricing” plans often tout lower premiums and elimination of network restrictions. While these approaches in the past were focused on commodity-type services such as prescription drugs and diagnostic imaging, recent products will pay a reference price to providers and facilities.
Many such plans have no contracted network but expect that providers will accept their payment (which is generally 125%-150% of Medicare payment). However, health systems receive an average of 247% of Medicare for inpatient and outpatient services nationally, so many health systems will pursue members for the difference between their charges and the reference-based allowed price.
These reference-based price plans cannot protect the member from balance billing unless they have a contract with the provider. Some plans offer legal assistance for members facing such bills, but few employers want to see their employees facing court action for unexpected bills. Federal legislation banning surprise bills will provide some protection for non-elective care, but this does not go into effect until 2022. Some reference-based plans do not perform care management or coordination, impairing their ability to improve the quality of care for members with the most serious illness.
Individual Coverage Health Reimbursement Arrangements (ICHRAs)
Individual Coverage Health Reimbursement Arrangements ICHRAs allow employers to provide tax-advantaged funds to all or to specific groups of employees while discontinuing employer-sponsored group health insurance. Employees can use ICHRA funds to reimburse or reduce coverage costs for policies purchased in the individual market (including through state exchanges). This allows greater choice for employees and reduces the cost volatility for employers.
However, the value of these plans differs from market to market. Employers considering ICHRAs should study the rules carefully. Currently, ICHRAs do not support salary banding for employees and age banding for dependents. Also, employees with ICHRAs are not eligible for federal exchange subsidies. Plans purchased with ICHRAs are compliant with the Affordable Care Act (ACA) and cover all essential benefits.
When looking at new health plan design models, employers should:
- Critically evaluate cost-savings projections. New plan designs can reduce costs only if they lower either unit cost or utilization of services. Consider how design elements of the new plan will impact cost and utilization of services before accepting potential savings claims. Be sure to consider whether some elements of plan design could lead to cost increases.
- Evaluate cost savings over the entire population. If employees are offered multiple plan options, healthier people might gravitate to new plans, while those with serious illnesses will remain with existing plans. An employer could spend more subsidizing healthy employees in the new plan and have unchanged costs in the existing plan, leading to higher overall costs.
- Consider projected out-of-pocket costs when assessing the value of a health plan. Health plans can protect members from balance billing only if they have an adequate contracted network in place. Contracted networks mean that members know they are covered if they follow plan rules, and providers are contractually responsible for quality and member satisfaction. Employers should not expect providers to forgive the difference between their charges and the plan’s payment.
- Determine health plan suitability for employee demographics. Employees understand and navigate the medical system differently. Employers should evaluate the affordability of both premiums and potential out-of-pocket costs of proposed plans as well as the navigation resources available like care coordination and care management services. These services can be valuable to employees with serious illness or those with lower educational levels and ultimately impact productivity.
- Consider administrative costs. Programs that include member reimbursement often come with steep administration fees. Consider internal costs, too. A change in insurance plans requires changes to human resource systems and comprehensive member communication.
- Monitor legislative and regulatory action. The impact of the 2020 U.S. elections will lead to new legislation and regulatory review. Employers need to continue to monitor the legislative and regulatory landscape to be sure their plan designs will meet their employee and business needs now and in the coming years.
Spousal Incentive Health Reimbursement Arrangements (SIHRAs)
Spousal Incentive Health Reimbursement Arrangements (SIHRA) encourage spouses to seek coverage from their own employers, as opposed to being on the employee’s coverage through a family plan. SIHRAs allow spouses to submit for HRA reimbursement claims that their employer plan did not cover for reimbursement. Employers offering SIHRAs must offer such accounts to all spouses, including those who would have waived coverage, limiting the potential for employer savings. Also, a spouse with a spousal incentive HRA would be disqualified from having a tax-advantaged Health Savings Account if enrolled in a high-deductible health plan. The administrative costs of these HRAs can be significant relative to the proposed savings they provide. Many employers have put in place a spousal surcharge to encourage working spouses to participate in their own employer’s insurance plan.
Health Care Sharing Plans
Some employers have also explored plans like health care sharing ministries, which pool funds from many individuals and use these to pay claims. Employers can enable these plans through payroll deductions. Since this is not insurance, a shortfall in the sharing accounts could lead to reimbursement of a smaller portion of claims or even provide no payment at all. These plans are not required to conform to ACA requirements in terms of essential benefits or preventive care. They do not qualify as minimum essential coverage subject to the ACA’s employer mandate. There have been reports of fraud by some providers of these programs in the past.
Short-term and Association Health Plans
Short-term or association health plans tend to be less expensive because they offer a more restricted set of services, sometimes excluding mental health or prescriptions. They can refuse to insure those with pre-existing illnesses because they are exempt from the regulations and patient protections of the ACA. Access to these plans was increased through executive orders and regulatory rulemaking under the Trump Administration. President Biden has issued an executive order rescinding former President Trump’s executive orders that allowed expanded access to short-term and association health plans. These plans are likely to be subject to regulatory restrictions over the coming months.
Traditional Employer-sponsored Health Plans
Employers evaluating new plan designs should also consider strategies to increase the affordability of more traditional health plan designs. Contribution strategies and dependent audits can decrease the number of beneficiaries on plans. High-performance networks lessen choice and can decrease the total cost of care. Value-based insurance design varies cost-sharing based on the service’s clinical value and can reduce utilization of low-value services. Employers with a large concentration of employees in a single geography can also investigate direct contracting.
As the number of those vaccinated increases and we move past the worst of the COVID-19 pandemic, employers will face an economy marked by new ways of working and will develop new talent strategies. Emerging health plan designs can help employers offer new choices and provide more value to their employees but require careful evaluation.
The basic tenet of employer-sponsored health care benefits remains as clear and essential as ever: provide high-quality, affordable options to keep employees and their families healthy and productive.
Jeff Levin-Scherz, MD, MBA, is a population health leader, Alan Silver ASA, MAAA, FCA is a senior director, and Sheila Nordquist is a senior director at the North American health and benefits practice at Willis Towers Watson.