While Obamacare Premiums Rise, Employer-Based Health Plans Shift to Higher Deductibles

Double-digit premium hikes are jolting millions of Americans who get their coverage through the Affordable Care Act, but just the opposite is happening to Ryan Lemburg.

Like most Americans who get their health insurance through their employers, the Tracy school teacher has seen his annual premiums creep up at a historically low pace since the country’s controversial health care law, Obamacare, was passed six years ago.

Good news, right? So why doesn’t it feel that way?
Behind that stability in premiums for many of the country’s 150 million workers is a trade-off: they’re being shifted to high-deductible health plans, which companies are increasingly championing as a way to hold down their own health care costs. While employees may see less coming out of their paychecks, they’re on the hook for more out-of-pocket costs before their insurance coverage kicks in.

“It’s the biggest change in health care in America that we are not really debating,’’ said Drew Altman, president and CEO of the Menlo Park-based Kaiser Family Foundation, during a recent briefing on the foundation’s annual survey of employer health benefits. “It may even be more important than the ACA (Affordable Care Act) in terms of the number of people affected.’’

Indeed, while the rising cost of health care made its way into all three presidential debates, there wasn’t a word about the dramatic shift to high-deductible plans. But employees across the Bay Area are getting a vital lesson about the trend this month with open-enrollment season in full swing for 2017 health coverage.

A survey published in September by the Kaiser family foundation and another non-profit revealed 29 percent of all workers were enrolled in such high-deductible health plans in 2016, up from 20 percent in 2014. Over the same time, the portion of employees enrolled in PPOs — preferred provider organization plans, which have higher-than-average premiums but lower deductibles — shrunk from 58 percent in 2014 to 48 percent.

Lemburg, for one, isn’t complaining. The 32-year-old San Jose resident is young and healthy, so the Blue Shield high-deductible plan that costs him $80 in monthly premiums through his teacher’s union is a no-brainer.

His premium is hardly changing in 2017 for his plan, which is often referred to as the Bronze plan because it offers the lowest monthly premiums but the highest cost out of pocket for care.

“I don’t have any prescription drug coverage and I don’t go to the doctor very often,’’ said Lemburg, who teaches English and history at an alternative high school in Tracy.

Need for frequent medical care, however, is precisely the reason Tessa Mandy, a software sales representative in San Jose, said she is not enrolling in such a plan, despite her company’s effort to steer employees in that direction.

Her 12-year-old son Jack has Type 1 diabetes, an autoimmune disease that prevents his body from producing insulin. As a result, he requires more visits to the doctor, not to mention his insulin pump, blood-test strips, back-up syringes and other related supplies. A high-deductible plan that she said caters to her son’s out-of-network specialists “would be a huge amount of money out of pocket,’’ said Mandy, 47, who estimates it would cost her $10,000 to meet the annual deductible instead of the $1,500 she pays now for her lower-deductible, higher-premium plan.

Still, the Kaiser survey of 1,900 U.S. employers, found the shift to high-deductible plans is helping hold down the average increase this year in premium costs for all families covered by employer plans to 3 percent. Workers in 2016 contributed an average of $5,277 toward their family’s annual premium costs.

The survey called that “a modest increase’’ at a time when worker’s wages and inflation also grew modestly, by 2.5 percent and 1.1 percent respectively.

To help bear the burden of higher out-of-pocket medical costs, high-deductible plans can be combined with Health Savings Accounts — similar to but more beneficial than Flexible Spending Accounts — that allow workers to pay for certain medical expenses with tax-free dollars.

For 2017, the IRS says that an HSA can be used with any plan that carries a deductible of at least $1,300 for an individual or $2,600 for a family. This year, 83 percent of covered workers are paying more than that for individual coverage, an average of $1,478, the Kaiser survey said.

Chris Nappo’s San Francisco law firm even contributes $2,500 to his health savings account to help him defray his family’s out-of-pocket medical costs. The contribution is a way for companies to help employees without triggering rules that in 2020 will start hitting businesses with a so-called Cadillac Tax if they don’t bring down the costs of their health plans.

For Nappo and his family, it’s made the transition to high-deductible health care easy to stomach.

“I like it because you can see how much you are paying for medical care,” said Nappo, 56, of Berkeley who found himself becoming more cost-conscious about his care. Sometimes he would go to the doctor about minor aches and pains, but afterwards, “I realized maybe I don’t need that.”

That’s one of the big reasons that high-deductible plans are lowering costs across the entire health care system, said Paul Fronstin, an economist at the Employee Benefit Research Institute in Washington, D.C.

“When you go from a plan with a low or no deductible to one with a $3,000 deductible, that may cause you to ask for a generic drug instead of a brand-name drug,’’ said Fronstin.
“Or it may cause you to ask whether a certain procedure or a test is necessary.’’

But at least one report suggests that the plans can have the opposite effect, and may ultimately cost employers more money in the end.

A 2015 study by the National Bureau of Economic Research followed one company that shifted all of its employees to a high-deductible health plan and even contributed to each worker’s health savings account, so they didn’t have to spend any of their own money on medical costs.

Even so, researchers found that to keep their costs down, many employees were skipping important medical appointments completely, from colonoscopies to mammograms, both of which are free preventive care services under Obamacare.

That’s why Sam Smith, past president of the California Association of Healthcare Underwriters, calls high-deductible plans “barriers to care,’’ because the worry over paying real-time medical bills under these plans may lead to delays in important medical care.

That, he said, not only may land employees in emergency rooms with more serious — and expensive — health problems, but will hit the companies hard when their employees are absent from work.

Hayward resident Sean Wanless said he would fall into that category if he selected a high-deductible plan.

The 48-year-old CalTrans worker recently found out his six percent raise is being wiped out by an eight percent premium hike in his employer health plan that covers the single father and his 6-year-old son, Sean Jr., who racked up some serious medical bills when he recently fractured his arm on the school jungle gym.

Wanless said he’ll never skimp on getting his son the best treatment possible. But he can’t say the same for himself.

“To be honest with you,’’ he confided, “I don’t want to go to the doctor. It just costs too much.’’

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