Opportunity Knocks For Advisors In Midsize Employer Market

Few midsize employers offer high-deductible health plans (HDHPs) although employees indicate a robust interest in such plans, a new survey has found. This disconnect provides an opportunity for insurance and benefits advisors.

Only 13 percent of midsize employers offer at least one HDHP. However, when given a choice between a traditional health plan and an HDHP, 34 percent of employees elected an HDHP. Millennials are the age group most likely to opt for high-deductible coverage, the survey found.

Survey results were published earlier this month in the inaugural State of Employee Benefits — Midsize Employer Edition 2016, by Benefitfocus, a benefits management company. The midsize market consists of companies employing between 100 and 999 workers.

Nearly 90 percent of midsize employers offer only traditional health plans, with an average of 3.7 plan options per employee, the survey also found.

“As advisors aim to design plans that are the best fit for their clients, it’s becoming increasingly important for them to offer more choice to help mitigate over- or underinsurance of employees,” said Jeff Oldham, vice president of consumer strategy at Benefitfocus.

When given proper tools and data to understand their medical claims to predict future needs, many employees conclude they can take on the higher risk that HDHPs entail in the form of higher out-of-pocket expenses, Oldham added.

Coupled with health savings accounts (HSAs) and flexible spending accounts (FSAs) high-deductible plans offer a nimble and lower-cost alternative to the traditional PPO and HMO plans that dominate the benefits mix in the midsize benefit plan market.

Employers and advisors who can bring HSAs and FSAs to the benefits discussion will help employees taking on greater financial risk.

HDHPs have their critics as well. Detractors say HDHPs are no substitute for comprehensive coverage found in traditional plans as HDHPs tend to attract younger, healthier buyers. Shopping for the best health care prices is often impossible since doctors and hospitals don’t readily disclose prices.

Despite the drawbacks, HDHPs have made inroads.

Health benefit costs per employee were expected to rise by 4.2 percent on average in 2016, according to a survey by Mercer published in September. A separate survey by the National Business Group on Health estimated 2016 health care benefit costs increases of about 6 percent.

Rapid Growth for HDHPs

Even if penetration among midsize companies remains shallow, HDHPs, also called consumer-directed health plans (CDHPs), have been growing at a robust clip as people choose to pay for health services using tax advantages offered by HSAs.

At the end of last year, the number of HSA accounts rose to 16.7 million, an increase of 22 percent over the end of 2014, according to Devenir Research.

Those 16.7 million accounts held almost $30.2 billion in assets, a 25 percent jump compared to the end of 2014, Devenir Research reported.

Devenir projects that by the end of 2018, the HSA market will exceed $50 billion in HSA assets in almost 30 million accounts as employers and insurance companies shift the cost of health and benefits onto the employee.

A big attraction to HDHPs is that monthly premiums are cheaper in an era when deductibles across all plans are rising.

In exchange for lower premiums, the employee accepts a higher deductible which must be met before insurance coverage kicks in. HDHPs tend to be a better fit for younger employees who are typically healthier, often have no dependents and earn less.

Some health care finance analysts say HSA-funded HDHPs are to employer-sponsored health care benefits what 401(k)s are to retirement investing.

A “Cadillac” tax imposed by the Affordable Care Act to discourage high cost plans is also set to take effect in 2020.

The tax could dampen usage among traditional PPO, HMO and POS plan models, but among midsize companies at least, it appears the tax will have little effect since premiums in the midsize market are well under the tax threshold, the survey also found.

Benefit Advisors, Act Now

Benefit brokers and employers should not wait until open enrollment, usually in the fall, to talk to their employees about benefits, Oldham also said.

With employees and employers taking on a greater medical benefit cost burdens every year through higher deductibles, insurance benefits purchasing discussions should take place year-round, Oldham said.

“No single benefits strategy can work for all employers/employees, so education around the differences in plans is essential,” he said.

With the U.S. unemployment rate at 5 percent, or nearly full employment, competition for qualified talent is stiffer than it was five or six years ago. Benefits are seen as an important to retain workers and attract new ones.

For many employees, health insurance is a “complicated and emotional topic, and health care decisions are unlike any other decision,” Oldham said. “They can be deeply personal and carry the potential for long-term financial and health implications.”

“As this shift toward consumer-driven health plans continues, in what’s been a relatively unchanged process for decades, employers must make decision support, education and financial wellness a top priority to help in the transition,” Shawn Jenkins, CEO of Benefitfocus, said in a statement.

That’s where advisors step in. They play a key role in reducing confusion and anxiety around the health care buying decisions by explaining the benefits and limitations of different plans, and how costs affect household budgets.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

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Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].