PPO Plans Looking More Like High-Deductible Plans

As insurers continue to shift the costs of health care onto employees, PPO plans and other traditional employer-sponsored primary medical coverage plans seem to be taking on attributes of high-deductible plans.

Employee-paid premiums for traditional plans have budged little over the past year as employers have absorbed the cost increases.

But it’s the exposures through higher deductibles and out-of-pocket maximums foisted onto traditional plans that have made these plans look more like high-deductible health plans (HDHP), according to the latest data.

The trend represents one of the most significant issues – if not the most significant issue – facing health benefits administrators, said Shandon Fowler, senior director of product strategy at Benefitfocus, a cloud-based benefits management platform.

Hiking risk exposures for traditional plans to make them look more like their HDHP cousins raises an important question.

Will traditional plans and HDHPs, once separate and distinct, morph into plans indistinguishable from each other, especially if employees can pay for traditional plan expenses out of a tax-advantaged health savings account (HSA)? Perhaps.

“If we can move to a case where everybody has an HSA, the concept of the PPO and the HDHP blurs,” said John Wilson, director of enterprise portfolio management at Benefitfocus.

In the past, PPOs and traditional plans have typically been selected by older, higher-salaried employees with families. HDHPs appealed to younger, lower-paid employees just out of college without the burden of protecting other lives.

PPO Deductibles, Maximums Soar

In the large-group market, steady PPO premiums have come at the cost of higher deductibles.

The average 2017 PPO individual deductible rose 8 percent to $1,088 compared with 2016, the Benefitfocus State of Employee Benefits 2017 report found.

The average family deductible rose 9 percent to $2,421 over the period, the report found.

PPO deductibles are now only a few hundred dollars shy of the IRS deducible threshold of $2,600 for a plan to be considered an HDHP and out-of-pocket maximums for PPOs are almost on a par with HDHPs.

Average out-of-pocket family coverage maximums for PPOs rose 10 percent to $7,986 in 2017, while out-of-pocket family maximums for HDHPs rose 5 percent to $8,666, Benefitfocus found.

Rising plan deductibles and foisting more risk onto employees is due mostly to two factors, says Carol Taylor, director of compliance and health plan collaborative with D&S Agency, a benefits advisor in Roanoke, Va.

The first is driven by the desire to moderate premium increases, Taylor wrote in an August 2016 blog post. Every $500 rise in the deductible avoids a premium increase of between 3 and 6 percent, she added.

The second factor has to do with the Affordable Care Act forcing insurance carriers to comply with the ‘metal’ levels (platinum, gold, silver, bronze).

So long as insurers are required to meet the ACA metal levels, “we can expect to see plan changes in this same direction,” she wrote.

Changing Models Nothing New

Changing business models are nothing new in the health insurance marketplace. PPOs and HDHPs are likely to undergo more changes as the Trump administration and Congress prepare to amend the ACA.

Health Maintenance Organizations (HMO), for example, which rose to prominence more than 20 years ago with aggressive cost control before PPOs supplanted them, resurfaced as “narrow network HMOs,” Wilson said.

Narrow networks severely limited the groups of doctors and hospitals HMOs worked with in exchange for deep discounts.

But so long as employees stuck to the services delivered by in-network providers, the HMOs delivered good service and premiums and deductibles were reasonable.

Before the ACA was phased in beginning in 2014, one popular topic of conversation was the “defined contribution” that employers would make on behalf of employees to help pay for coverage, and how much of the contribution would end up in the HSA, Wilson said.

Some industry analysts envisioned employers getting out of the health benefits business altogether as employees bought coverage through the state and federal exchanges.

That hasn’t come to pass as employers continue to offer benefits as a retention tool and the employer-based health benefits system seems destined to survive – for now.

Whatever direction PPOs, traditional medical plans and HDHPs follow next, and even if PPOs and HDHPs merge into one, the purchasing responsibility of the employees will keep rising as workers shoulder more of the exposure and more of the expense.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at cyril.tuohy@innfeedback.com.

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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 cyril.tuohy@innfeedback.com.