Can Employers Help Diabetics Enrolled in HSA-Qualified Plans?
by William G. Stuart | Originally posted on LinkedIn
Employers have options to help employees enrolled in HSA-qualified coverage who need to receive ongoing care to manage diabetes and other chronic conditions.
A recent article about medical coverage and diabetes concluded that high-deductible health plans impose financial barriers to regular monitoring and care to maintain glycemic control. Rather than, say a $25 copay for an endocrinologist visit or $50 copay for insulin on a traditional plan, patients in high-deductible plans may see these services applied to the deductible at the contracted rate. Thus, patients are less likely to adhere strictly to treatment regimens.
This conclusion is consistent with basic and behavioral economics. People always spend their own money (the full negotiated price of the service is subject to the deductible) more prudent than they spend someone else's (what they perceive to be the insurer's money). And if a patient values a service at $100, she will most likely purchase it at a $25 copay but is unlikely to do so when she must pay the full $205 contracted price.
This survey defines a high-deductible health plan as coverage with a self-only deductible of $1,400 or more and family deductible of $3,000 or more (2022 figures). That description captures HSA-qualified plans that allow enrollees who are otherwise eligible to open and fund a Health Savings Account to reimburse their out-of-pocket expenses with pre-tax funds. But it also includes many more plans that leave patients with high exposure, but with designs that don't allow enrollees to fund a Health Savings Account. These non-HSA-qualified plans have much more latitude in how they cover services below the deductible because they're not tied to the tax-code requirements of a plan that is HSA-qualified.
Let's focus our discussion on HSA-qualified plans to see how employers can help their workers with diabetes pay their out-of-pocket responsibility.
Note: This article focuses on diabetes, which affects more than 37 million Americans, compromises both their health and their productivity at work, and costs more than $325 billion annually in direct medical costs and lost productivity. Despite this single-disease focus, the principles below can be applied to other diseases and high employee out-of-pocket medical costs in general.
Benefit Design
Employers should review their HSA-qualified plan to see whether it covers allowable diabetes services below the deductible. Under federal tax law, HSA-qualified plans can cover insulin in full or via copay or coinsurance, rather than requiring the patient to pay the full contracted price until the deductible is satisfied. This design reduces or removes financial barriers that might otherwise compel diabetics to ration their prescriptions (by reducing the frequency of use or the dose per use) to the detriment of their health.
The cost of these benefits to the employer or insurer doesn't change, but it shifts responsibility from employees or dependents who are insulin-dependent to the covered population. In other words, a vial of insulin priced at say, $250, costs the employer (directly if self-insured, indirectly if the plan is insured) $250, whether that price is borne by the patient herself (cost-sharing) or the employer through the insurer. The same holds true for the out-of-pocket cost of any other service. The question is how to strike a balance between individual financial responsibility and socializing the cost of care.
Plan Options
Employers sometimes offer only one medical plan. That decision may be out of necessity - the company can't offer a plan with lower out-of-pocket responsibility (and corresponding higher premiums) without reducing employee cash compensation. The plan with lower out-of-pocket costs may cost the employee more (premiums and out-of-pocket responsibility) at the end of the year, but the certainty of steady payroll deductions for premium and lower financial responsibility when receiving care may be a better budgeting option for lower-earnings workers.
Another plan option is to soften the financial effect of a high deductible on employees by integrating a Post-Deductible Health Reimbursement Arrangement. The Post-Deductible HRA is designed and funded exclusively by the employer. It can reduce employees' out-of-pocket responsibility as the employer assumes the cost of a portion of the deductible and/or coinsurance.
Example: Olson Farms offers an HSA-qualified plan with a $5,000 family deductible and 20% coinsurance up to $10,000 out-of-pocket. Most employees earn less than $42,000 annually. To reduce the financial responsibility for high utilizers, Olson Farms integrates an HRA that pays the balance of the deductible after $3,000 and then 15% of the 20% coinsurance. Thus, an employee who would be responsible for $10,000 of a $30,000 expense ($5,000 deductible, then 20%, or $5,000, of the $25,000 balance) according to the terms of her medical plan. She would see her liability reduced to $4,250 ($3,000 deductible, then 5%, or $1,250, of the $25,000 balance). Olson Farms pays the remaining $5,750 of the $10,000 plan cost-sharing, either to the employee or the provider.
An HRA is attractive to employers because they incur a liability only when an employee or covered dependent incurs an eligible claim (in effect, an IOU, or promise to pay). In contrast, increasing the employer contribution to a Health Savings Account (see below) is always a cash outlay to the company (regardless of employee utilization), vests immediately in the employee's account, and is independent of claims.
Health Savings Account Contributions
Most employers contribute to their HSA-eligible employees' Health Savings Accounts. These deposits are tax-deductible to the employer as a compensation expense and tax-free to the employee. Surveys show that when employers contribute, more employees are engaged as measured by the number who open Health Savings Accounts, the number who contribute through pre-tax payroll deductions, and the dollar amount of those employee contributions.
Employers can't target contributions to reimburse diabetes-related services because a Health Savings Account program isn't an employer reimbursement account, but rather a financial account that the employee owns and manages. Nor can employers adjust contributions to employees based on individual utilization or medical condition. But an employer contribution is a welcome balance-boosting act that helps employees manage their out-of-pocket costs for medical and other qualified items and services.
Loans
Patients who are forced to choose between receiving appropriate care and incurring debt are in an untenable position. We see study after study correlating medical debt and bankruptcy filings. We know that many Americans don't have $1,000 saved for any unexpected expense. And physicians understand that a major cause of patients' not adhering to a treatment regimen is the out-of-pocket cost of prescription drugs or frequent visits (for example, mental health or physical therapy).
Fortunately, nature abhors a vacuum. As patient out-of-pocket responsibility increases over time, entrepreneurs are creating new ways of meeting this financial need. Features of the various products differ:
They may be distributed through brokers, employers, or providers.
They may or may not require a credit check (which will automatically reduce credit scores) and/or record the loan with credit bureaus.
They may or may not charge interest.
Their customer service representatives may review your explanation of benefits and verify that charges are accurate.
They may or may not negotiate lower amounts owed and if so, may share those savings with you.
When these loans are offered through your employer, you typically repay the loan through level payroll deductions. If you have a Health Savings Account, you may be able to repay the loan with pre-tax funds.
Example: Co-workers Aaron and Bonnie both take out $2,400 loans through their company to pay for dental work. They must repay $100 per semi-monthly pay period for a year. Aaron is covered on the company's traditional PPO plan and has his payment deducted after-tax. Bonnie is eligible to fund a Health Savings Account. She makes a $100 pre-tax payroll deposit to her Health Savings Account. The lender then collects the payment directly from that account (with her written permission).