Six Percent Higher Health Care Costs-The Fallacy of a High Deductible


Following is an excerpt from a Watson Wyatt press release.  Of special interest is the growth of Consumer Driven health Plans (CDHP) as reported below.  The main difference between these plans and a traditional plan is the financial responsibility of the individual and the family.  While you see that the rate of increase in these plans appears to be lower than normal health care trend.  These plans require substantial employee cost sharing and large deductible.  This will automatically reduce costs for the employer, but does not explain the lower tend rate. 

The CDHP is coming under scrutiny by Congress mainly because of the tax advantages.  More important however is the question of whether such plans can meet the definition of “affordable” health care.  High-Deductible Health Plan (HDHP) coverage now allows those with self-only coverage a $1,500 minimum deductible and a $2,300 minimum deductible for those with family coverage. Additionally, annual deductibles and other out-of-pockets costs cannot exceed $5,800. Health Savings Account (HSA) which typically accompanies a CDHP, contributions can be made to the maximum amount of the HDHP deductible for $2,999 for self-only coverage and $5,800 for family coverage. 

So, here is the question; is a $2,300 (or more) deductible for a family (plus other out of pocket costs) “affordable” health care?  Do we arrive at the same answer for a family earning $40,000 as we do for a family earning $150,000?

Where the CDHP is an option among other choices favorable selection will contribute toward a lower trend for these plans.  Where the CDHP is a full replacement, lower utilization especially of more routine lower cost services will contribute.  It remains to be seen whether lower utilization is a long term good or bad idea and whether avoiding the office visit leads to higher costs longer term.  Poor employee health habits, questionable use of preventive services and long term health care trends are also important issues and ones that must be addressed in any health care reform at a national level. 


Health Care Inflation
Health Care Inflation


WASHINGTON, D.C., February 19, 2009 — U.S. employers expect health care cost increases to hold steady at 6 percent and more plan to adopt consumer-directed health plans (CDHPs) in 2010 in an effort to control cost increases, according to a forthcoming survey by Watson Wyatt, a leading global consulting firm, and the National Business Group on Health, an association of more than 300 mostly large employers, including 64 of the Fortune 100.

The survey of 489 large U.S. employers found that the median rate of health cost increases is expected to remain at 6 percent in 2009, although this is still nearly twice the rate of inflation. The increase is the same rate that employers experienced in both 2007 and 2008. In 2006, health care costs increased by 8 percent.

Just more than half (51 percent) of companies now offer workers a CDHP, up from 47 percent in 2008. Another 8 percent are expected to adopt a CDHP by 2010. CDHPs are helping employers control costs — companies with at least half of their workers enrolled in a CDHP have a two-year cost trend (4.6 percent) that is 25 percent lower than non-CDHP sponsors (6.1 percent). Still, challenges remain for employers trying to provide more affordable coverage to their workers.

Two-thirds of employers (67 percent) cite the poor health habits of their employees as a considerable challenge to managing their health care costs. Other challenges include underuse of preventive care services (42 percent), the high cost of catastrophic and end-of-life care (36 percent), and poor employee understanding of how to use the plan (30 percent).

While companies will be taking a close look at benefit offerings because of the recession, most do not plan major changes. A large majority of employers do not plan to delay or cancel their planned program offerings (86 percent) or changes to plan design (87 percent).

Other preliminary findings from the report include:

  • Nearly one-third of employers (30 percent) have revamped their health care strategy, with another 30 percent planning to do so in 2009. A smaller number of companies are working on contingency plans for midyear changes to benefit offerings (13 percent).
  • Employers’ confidence in the health benefit system remains high, though market conditions have caused this sentiment to dip. Nearly two-thirds (62 percent) of employers are very confident in their ability to provide health benefits 10 years from now, down from 73 percent a year ago.
  • For employers, the average health care expenditure per employee in 2008 was $7,173 and is expected to increase to nearly $7,400 in 2009. Employees paid an average of 20 percent of their total medical premium costs in 2008, a number that will likely stay the same in 2009.  

Read select findings in Watson Wyatt’s “Effect of the Economic Crisis on Health Care Programs,” available at

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