Why Employers Should Embrace a Requirement to Offer the HDHP/HSA Choice

Get around business people and mention requirements coming from government and chances are good that there will be a usually correct knee-jerk reaction against almost anything being proposed.  I’ve run into this with a suggestion to require every employer, public and private, who offers health insurance as a benefit, to include the choice of high deductible plans with health savings accounts.  Far too many employees still do not have this choice available to them even as evidence exists that such an approach is clearly win-win for the employer and their employees.  Most of this can be attributed to resistance caused by misunderstanding that has become very entrenched over time.  In this regard, even though employers are free to offer high deductible plans without any government requirement to do so, the requirement itself can be a benefit to many in providing cover for them in the face of employee, or especially union, resistance.

The proposal to require all employers to offer high deductible health insurance has the solid backing of a 30000+ person case study in the state of Indiana.  Starting in 2005, by way of the leadership of Governor Mitch Daniels, Indiana offered all its state employees the high deductible choice with health savings accounts, while maintaining the currently offered PPO plans.  Bucking initial resistance, the state human resources department backed the new choices with education.  From only 4% participation in the first year, by 2010 over 70% had moved to the high deductible choice, and today it is over 90%.  At the 70% level, when Gov Daniels wrote his March 1, 2010 op-ed in the Wall Street Journal he estimated that taxpayers in Indiana would save at least $20 million because of their high enrollment in high deductible plans.  Importantly this is after  the state shares the savings by partially funding health savings accounts, in the case of family plans, $2750 annually.  These savings are primarily due to employees spending their own money ahead of that of others, slashing overuse, unwise use, and incentivizing finding the most value.  Governor Daniels never doubted the free market or the critical importance of direct payment in the restoration of necessary market forces that have been disrupted by unnecessary third-party payment, and the overwhelming results should have precipitated a flood of followers both in the public and private sectors.  As noted in the op-ed though, “Due to the rejection of these plans by government unions, the average use of HSAs in the public sector across the country is just 2%.”  Adoption has been slow although has been accelerating in recent years.  Still after 9 years of eligibility HDHP with HSA represent only about 10% of the total health insurance market.  Total consumer driven plans, which include HRA accounts are close to 20%, but only HSAs represent the property of the employee, an important consideration in partially solving the portability problem.  Again, a requirement to offer HDHP as a choice provides cover against initial misunderstanding of how or why high deductible is most often in the best interest of both employer and employee.  All existing plan choices can remain, additionally easing concerns of those who may have doubts or face unusual circumstances.

What will motivate the business community to back any requirement to do anything is substantial evidence that the regulation or requirement is indeed in their interest.  A quick back of the envelope calculation, making very realistic assumptions is rather eye-opening.  Let’s start with the realized savings on 30000 state employees in Indiana, make the assumption that similar savings would occur elsewhere, then extrapolate to a larger private sector population.  My state, Pennsylvania, has about 5 million private sector employees.  Since the regulation would only apply to employers who already choose to offer health insurance, this number needs to be reduced by that amount.  Latest figures show health insurance is offered by 61% of employers.  Since this is not employees and to err on the side of caution, I’ll use 50% as the factor not offered health insurance and reduce the potential pool by half to 2.5 million.  This then needs to be further reduced for the approximate 10% of the population who already have HDHP and HSAs, reducing the pool further to 2.25 million.  Since we are looking for similar savings at the 70% level as reported by Indiana with 30000 employees, dividing 2.25 million by 30000 gives us a projection factor of 75, which when multiplied by the assumed savings of $20m yields an expected annual injection into the private sector economy of $1.5 billion for Pennsylvania after attaining the 70% participation level, achieved by Indiana in five years.  Now, does that make a regulation sound better?  Keep in mind also conservative assumptions present the chance that even greater results can be produced.  This is one government requirement that business should request rather than resist.

While it is easy to claim that savings could be even higher without Indiana’s pre-funding of Health Savings Accounts, this sharing of savings directly to a HSA rather than, or in addition to, including in wages is important in two regards.  First, the incentive to take the high deductible choice is strengthened.  Second, studies have shown poor HSA funding habits by a significant percent of employees when left on their own.  Matching arrangements like those with a 401k could represent an additional way to incentivize employees to do what is right for their future and the future of market driven cost controled healthcare reform in general.