Premium cuts stifled on HSA-linked plans

Aug 14, 2006 @ 12:01 am

By Gary S. Mogel

NEW YORK - Even with a high deductible, insurance plans sold in conjunction with health savings accounts often are too costly, industry observers say, as hoped-for premium cuts of 50% or more have failed to materialize.

Premium cuts from switching from a low-deductible or no-deductible plan to the $1,000 to $2,000 deductibles mandated for HSAs are lowering premiums by about 10%, according to a survey by the Employers Association and Alliance for Health, a trade group for employers in Grand Rapids, Mich.

"We've been seeing a net savings of about 12%," said Pat Travis, Chicago-based senior manager with Deloitte Consulting LLP of New York. The firm's Chicago office has hundreds of clients.

"When we did our census earlier this year comparing best-selling products, premiums looked like they were about one-third less," said Larry Akey, a spokesman for America's Health Insurance Plans, in Washington. The census was of the group's 1,300 members.

Many early HSA adopters were hoping for cuts of 50% or more, according to observers, based on the fact that when there is a $1,000 to $2,000-plus deductible in insurance, the premium often is at least halved.

"If consumers expected immediate large drops in cost, those were unrealistic expectations," Mr. Akey said. "But we haven't heard substantial complaints about premiums."

No windfalls

So policyholders who envisioned using large premium reductions to fatten their HSA balances often are disappointed. And employers that wanted to divert premium savings to HSAs as an incentive for employees to join the plans have less to contribute.

"Because insurers have only one mature year of claims experience with high-deductible plans, they're using actuaries' best guesses," said Amy Chambers, senior legal counsel for Priority Health Managed Benefits Inc., a health insurance plan in Grand Rapids.

Insurers are tentative about pricing the policies, because they are uncertain about how the higher deductibles will affect policyholders' involvement in health-care decisions and how they access benefits, she said. After insurers develop additional years of claims data, pricing should become less conservative, Ms. Chambers added.

"It's fear of the unknown," Mr. Travis said. "These policies are still very new."

Some observers think that few people would use the premium reductions to bolster their HSAs.

"While a lower premium might create more available money, the difference isn't being automatically deposited into their HSAs," said Lynette DeWitt, associate director of retail-investment markets for Financial Research Corp. in Boston.

"People spend the money they have available in whatever manner is usual for them," she said. They are as likely to spend the money on clothes or other essentials or luxuries as they are to invest it in their HSAs, she noted.

That is particularly upsetting to the insurers who started banks hoping that any premium reductions would be funneled into their bank-administered HSAs, Ms. DeWitt said.

Premium reductions aren't the only reason for buying into these plans, HSA advocates say. Tax-deferred savings and greater control over medical costs and health care are among the other reasons.

The plans allow people to make better health decisions by using their own money for first-dollar coverage, said Eric Remjeske, partner and co-founder of Minneapolis-based broker-dealer Devenir LLC. And saving 10% is better than a 15% increase, he added.

"High-deductible plans and HSAs are not an end-all fix to health care, but they are a way to stop the double-digit renewal bleeding," Mr. Remjeske said.

HSA advocates are less than thrilled to hear that the high-deductible plans aren't delivering big premium reductions, according to Tony Novak, principal of Freedom Benefits Association in Narberth, Pa. The firm is a fee-only financial adviser for small-business owners.

"I was pulled from the list of advisers testifying at a congressional hearing on this matter," Mr. Novak said. He blamed "Republicans who did not wish to hear such strong criticism in the infancy of the HSA program."

There is evidence that high-deductible health plan premiums are coming down, Ms. DeWitt said.

Premiums have decreased as much as 40% after a switch from a health maintenance organization or preferred provider organization with first-dollar coverage and low co-payments, Ms. Chambers said.

"This is a young market, and early rollout of a product in any field has pricing adjustments to go through. In the individual and employer markets, the perceived high level of pricing is offset by its value as an affordable health plan," Ms. DeWitt said.

"So the pricing discussion is relevant, but it's not a barrier to adoption."

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