High-Deductible Health Plans Can Ruin Finances

The 30,000-plus people who work for Carolinas HealthCare System will have only one option for insurance next year, and it requires them to pay up to $5,600 a year out of pocket. For family coverage that risk rises to $11,200.

The move by the Charlotte area’s largest employer spotlights a trend that’s sweeping the country: As more people get health insurance, more people with insurance face potentially devastating medical bills.

The cost-sharing shift has been building for years. Now it’s snowballing to include some of the region’s biggest employers, from hospitals to banks to public schools.

Proponents say greater cost-sharing promotes healthy behavior and drives down medical spending. Some employers contribute to savings accounts for medical expenses and pay workers for such actions as avoiding tobacco and getting health screenings.

“I think these high-deductible plans are going to become more the norm. They do reward folks who take good care of themselves,” said Joseph Piemont, chief operating officer for Carolinas HealthCare.

In a typical year, many employees can save money on the new arrangements, which have lower monthly premiums than traditional plans. But medical crises can’t always be avoided or budgeted.

David Frick of Waxhaw, a 50-year-old case worker for a company that manages worker’s compensation benefits, was healthy and financially stable until Dec. 1, when a trip to the emergency room with abdominal cramps ended with a diagnosis of pancreatic cancer (see accompanying story). He maxed out the $11,000 in out-of-pocket costs on his workplace policy for 2014, and quickly started piling up more bills in 2015.

Even after tapping retirement savings and getting help from family, friends and their church, he and his wife, P.J., still owe more than $10,000.

“We work professional jobs. We’re educated. We did everything right,” Frick said. “We have no control over it.”

Less than half of all households above the poverty level have enough assets to cover an out-of-pocket maximum of $3,000 to $6,000, considered a moderate level, according to a March analysis by the Kaiser Family Foundation.

The federal Consumer Financial Protection Bureau recently reported that medical debt is the biggest factor in negative credit reports – and about half of the people turned over to collectors for medical bills have otherwise clean records.

Costs creep up

This all took root over the past decade. Medical costs and insurance premiums kept growing while the economy crumbled. Employers shifted costs to employees, even as wages stagnated.

One option was to bump up deductibles – the amount a customer must pay before insurance kicks in. Beyond that, the consumer may pay a per-visit fee and/or a percentage of the bill. The total exposure can add up to thousands, especially for family coverage.

“I thought these (high-deductible plans) would never fly because of the employee resistance,” said Cathy Graham, benefit services director for The Employers Association, a Charlotte-based human resources firm. “I’m still a skeptic. It penalizes those who don’t have the money to go to the doctor or get that prescription filled.”

Ideally, having “skin in the game” pushes patients to make smarter choices, such as having elective procedures done in a doctor’s office instead of a hospital or going to an urgent care center instead of an emergency room for minor ailments.

Experts say cost-sharing reins in spending, but patients are as likely to skip valuable treatment, such as drugs and doctor visits for chronic conditions, as they are to pass up unnecessary or overpriced care.

Stacie Dusetzina, an assistant professor in UNC-Chapel Hill’s schools of pharmacy and health policy, did a recent study that found about one in six leukemia patients stopped potentially life-saving medication during the first six months because they couldn’t afford it.

“When they’re initially getting treatment, (cancer patients) can easily rack up $10,000 in a very short amount of time,” she said. And for leukemia patients taking high-priced specialty drugs, those costs continue for years.

ACA shapes change

The Affordable Care Act, approved in 2010, changed the landscape. It mandates that preventive services such as checkups, cancer screenings and immunizations be fully covered regardless of deductibles. Since subsidized policies kicked in last year, more than 16 million uninsured Americans got coverage – some of them getting aid with out-of-pocket costs as well as premiums.

Other aspects of the act helped drive up insurance costs. Insurance companies can no longer deny coverage or boost rates for people with costly conditions, and all policies have to meet federal standards for coverage. Employers must keep adult children on parents’ policies longer. And a “Cadillac tax” that takes effect on high-cost plans in 2018 prompted many companies to trim spending in advance.

Even on traditional plans, out-of-pocket costs have been creeping up. Most employers in the Charlotte region now offer high-deductible plans alongside other options, said Graham of The Employers Association.

Often they’re coupled with accounts that let employees save for out-of-pocket costs. Some companies contribute, either as straight payments or as a reward for participating in activities designed to improve their health.

The popularity of these plans varies. At Duke Energy, which has been promoting high-deductible plans with savings accounts and incentives for five years, 64 percent go that route, said spokesman David Scanzoni. That’s partly because the difference in premiums is significant – up to $6,500 a year for a family plan.

But when the State Health Plan, which covers almost 577,000 teachers and other government employees, rolled out a high-deductible option this year, only about 3 percent signed up. In Charlotte-Mecklenburg Schools, with more than 15,000 employees covered by the state plan, fewer than 700 took the new option, or just under 4.5 percent, says Vincent Smith, an executive director in the district’s human resources department.

The traditional plan covers 70 percent of expenses and carries a high out-of-pocket risk. Almost half of all state employees instead opt to pay higher premiums for an alternative that pays 80 percent and sets a lower cap on out-of-pocket spending.

CHS takes plunge

When Carolinas HealthCare introduced its high-deductible plan in 2013, only about 5 percent took it. This year it’s up to 25 percent, with the rest choosing a traditional plan with higher premiums and lower out-of-pocket costs, said human resources Vice President Mick Fisher.

During open enrollment for 2015, the company informed its employees they’d no longer have that choice starting in 2016. Nationally, 30 percent of employers said a high-deductible plan would be the only option offered to their staff in 2015, double the rate in 2014, according to a Towers Watson/National Business Group on Health employer health care survey.

“There’s a clear trend of that happening in all industries,” Fisher said. “We feel it’s a better option. It puts more skin in the game for them to make good decisions.”

Compared with CHS’ traditional plan, premiums are $1,054 a year lower for individuals and $1,542 lower for family coverage. The system encourages employees to put that money into a health savings account. CHS also contributes at least $350 per employee or $1,100 per family to that account, with the chance to earn another $1,000 for wellness activities.

For workers who earn less than $30,000 a year, CHS pays a bigger share of premiums and adds $100 to the savings account.

The financial impact on CHS remains to be seen. Because the system is self-insured, the drop in premiums will reduce income. But if employees are motivated to save money by using care wisely and staying healthier, the move could eventually help control costs, said spokesman Kevin McCarthy.

What’s the future?

Experts agree: The days when a good job meant never having to worry about medical bills are gone.

As the cost-shifting trend continues, the question becomes what to do about people who don’t get the care they need because they can’t afford a few hundred – or thousand – dollars in medical bills.

CHS is not just an employer trying to cut costs. It’s also a health-care provider that absorbed $2.3 billion in unpaid bills and charity care last year. Officials say some of that comes from people who have insurance but can’t pay their share.

Novant Health, the Charlotte area’s other big health-care system, has used what it calls a hybrid plan for the last five years: A high-deductible medical plan paired with traditional co-pay coverage for medications. Benefits director Shannon Nevergall said the company realized that making employees pay large amounts for drugs made it less likely they’d fill prescriptions, which can worsen their health.

Some experts hope to see insurance companies and/or the government refine the approach to out-of-pocket spending. For instance, treatment for asthma, diabetes and other chronic conditions might be exempted from deductibles in the belief that it will save money in the long run. But employee costs for medical care with less obvious value might continue to rise.

Dusetzina, the UNC cancer researcher, says she considers the approach promising. But when it comes to something such as cancer treatment, she adds, there’s always going to be tension over what it costs, how much good it does and who should pay.

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