In our previous post, we explored reasons why employers should start thinking now about the 2018 Cadillac tax on high-cost health plans. As the 40 percent excise tax nears, employers are beginning to consider different ways to offset the tax’s impacts: cutting benefits, reducing overall administrative costs, offering consumer directed health plans (CDHP) and joining private exchanges. This post will examine the benefits of CDHPs and private exchanges, and how they align with the larger industry trend toward e-commerce-directed health insurance.
As the market changes, employer approaches to benefits spending has adapted. A survey from the International Foundation of Employee Benefits found that 53 percent of respondents planned to adopt CDHPs in anticipation of the 2018 Cadillac tax. In parallel, employers are also considering the switch to private exchanges.
By nature, CDHPs make it easier for health care consumers to track how they’re spending health dollars, especially when they have access to a private exchange platform that details contributions, claims history and payments, giving them the ease of intuitive navigation seen in successful e-commerce strategies. For employers, a high deductible health savings account (HSA) plan has a clear, immediate benefit — it establishes well-defined benefits spending and limits costs with greater out-of-pocket employee responsibility. For employees, these plans represent a little more flexibility. The deductible is higher, but a tax-exempt HSA account allows employees to determine their own contributions, and defines their employer’s set contribution.
An e-commerce health insurance marketplace, offered with a private exchange, gives consumers substantial autonomy: they are empowered to select the plans that make sense for their unique situation, and cost is often a huge factor. The act of shopping for and purchasing insurance automatically gives the consumer more awareness of their spending — a plus for employers looking to avoid the Cadillac tax. A key advantage of private exchanges is that they promote cost-consciousness among employees. It’s tough to be objective about your own health, but whether it’s a pre-determined plan or a confusing enrollment scenario, consumers can lose focus on what’s important and not take an active role. An empathetic, e-commerce approach can address this issue. It’s not just about a great experience for employees, it’s going to become more and more important for employers and insurers to be aware of how their members shop. A smart exchange platform will promote smart choices, and ultimately, cut costs.
In the long term, there are exciting developing prospects: with employee engagement and awareness comes a deeper understanding of the entire health insurance and healthcare experience. A person empowered with tools to optimize how they use their insurance might seek preventative care, catching issues early and limiting expenses down the line. This whole person-oriented approach, which is often bolstered by wellness incentives, is emerging as one huge advantage of the private exchange route. A healthy member can often equal lower costs.
What does this all mean? The Cadillac tax presents insurers and employers with high stakes — slash budgets and trim plans or pay a penalty. Many are calling for the tax’s repeal, but these strategies will undoubtedly continue to come into play in our changing market. New approaches — private exchanges, CDHPs and more — will drive the market by saving money for insurers and employers, but will also change the way employees interact with and use their health insurance. Whether or not the Cadillac tax is repealed, there are measures that will retain their relevancy as the industry moves forward.
To learn more about this topic, read our article Taxing “luxury:” Preparing for the Cadillac tax with a private exchange at HIT Leaders & News.