States Moving Toward HDHPs

More than 20 states offer employees high-deductible healthcare plans that are linked to health-savings accounts. And in 2010, more than 70 percent of Indiana's 30,000 state workers chose such a plan. Wisconsin is the latest state to move in that direction.

Friday, July 29, 2011
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Wisconsin regulators are considering whether to offer its state employees the option of choosing a high-deductible health-insurance plan linked to health-savings accounts, possibly joining more than two dozen other states that have opted for such plans in an effort to lower skyrocketing healthcare costs amid budget shortfalls.

Last month, Wisconsin Gov. Scott Walker signed into law A.B. 40, which directs the secretary of employee trust funds and the director of state employment relations to study the feasibility of offering consumer-directed health insurance options to its public employees. The two regulators are to make their recommendations to the governor and state lawmakers by Oct. 31.

J.D. Piro, national practice leader for Aon Hewitt's legal consultant practice in Norwalk, Conn., says Wisconsin's regulators not only need to review how such plans would improve access to health insurance, lower government expenses and improve the health of their employees, but also how offering the plans would comply with the new federal healthcare law.

In particular, regulators need to determine whether offering such plans would meet minimal essential health benefits in order to satisfy the new law's requirements, and whether any new policies would mesh with the individual-mandate requirement of the new law, Piro says.

"They also need to decide whether offering these plans would give the state opportunities to build on whatever else they have in place -- it certainly could be proposed as an option," he says.

According to the National Conference of State Legislatures, more than 20 states offer high-deductible plans linked with health-savings accounts or health-reimbursement arrangements as part of a menu of healthcare-plan choices.

Indiana Gov. Mitch Daniels touted the success of his state's consumer-directed plans in a March, 2010 Wall Street Journal article. In Indiana's plan, the state deposits $2,750 per year into an HSA controlled by the employee, and the state covers the premium.

At the time of the article, there were about $30 million in unused funds in employees' accounts -- about $2,000 per employee. For those 6 percent who had used their entire account balance to pay for treatment, the state shared out-of-pocket expenses that exceeded $8,000.

In 2010, over 70 percent of Indiana's 30,000 state workers chose high-deductible plans linked to HSAs, which Daniels claimed was the highest usage rate in "public-sector America."

Working with New-York based Mercer Consulting, Indiana was expected to save at least $20 million in 2010 because of its high HSA enrollment, Daniels wrote. Mercer calculated the state's total costs were reduced by 11 percent solely due to the HSA option.

Mercer spokeswoman Stacy Bronstein confirmed the firm's calculations for the state of Indiana's program in an email earlier this month.

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Jay Savan, a St. Louis-based Towers Watson senior consultant, says he works with two public-employee groups whose members are opting for consumer-directed plans.

"It has reduced the healthcare costs of the sponsoring organization or employer, but what's more important is that people can be more responsible," Savan says. "These programs change the dynamics -- their ability to accumulate equity in these accounts over a period of years creates more incentive to invest in their health, to protect that equity."

He says the cost reductions come from behavioral change and not care avoidance, as well as from employees taking greater advantage of preventative care.

The trend of more states offering such plans has created some additional consulting activity for Towers Watson, though the bulk of such activity still comes from consulting private-sector companies, Savan says.

Helen Darling, president and chief executive officer of the National Business Group on Health, a Washington-based nonprofit organization working on healthcare issues and health policies for large employers, says states could increase the usage of consumer-directed plans if they clearly communicate the long-term benefits of such plans: more control over spending, improved health and accumulation of wealth in the accounts.

"Most public employees have the richest benefits of anybody, so states have got to communicate the benefits of choosing HSAs to get employees to go from a zero deductible to a $1,200 deductible," Darling says. "The results will be governed by how serious the benefit managers are about making it succeed -- communicating the details really matters."

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