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H E A L T H  T R A C K I N G :
T R E N D S
 
14 September 2005  
  

What High-Deductible Plans Look Like: 
Findings From A National Survey 
Of Employers, 2005

The prevalence of these health plans continues to rise,
with the largest employers leading the way.


by Gary Claxton, Jon Gabel, Isadora Gil, Jeremy Pickreign,
Heidi Whitmore, Benjamin Finder, Shada Rouhani,
Samantha Hawkins, and Diane Rowland


ABSTRACT:

This paper documents the availability, enrollment, premiums, and cost sharing for high-deductible health plans that are offered with a health reimbursement arrangement (HRA) or are health savings account (HSA)–qualified plans. Almost 4 percent of employers that offer health benefits offer one of these arrangements in 2005, covering about 2.4 million workers. Deductibles, as expected, are relatively high, averaging $1,870 for single coverage and $3,686 for family coverage in high-deductible health plans with an HRA and $1,901 for single coverage and $4,070 for family coverage in HSA-qualified high-deductible health plans. One in three employers offering a high-deductible health plan that is HSA-qualified do not contribute to HSAs established by their workers.

In the waning years of the 1990s, health plans retreated from restrictive managed care and tried to reinvent themselves as being more consumer-friendly. Recently, health plans, benefit consultants, and employers have begun exploring designs that combine a health plan and a sizable deductible with an employee-controlled savings account. One type of account, health reimbursement arrangements (HRAs), grew out of federal regulations made by the U.S. Internal Revenue Service in 2002, while a second type of account, health savings accounts (HSAs), were authorized in the Medicare Prescription Drug, Improvement, and Modernization Act (MMA) of 2003.¹

An HRA is a medical care reimbursement plan sponsored by an employer. HRAs are typically offered to employees in conjunction with a health plan with a relatively high deductible (for example, at least $1,000 for single coverage and $2,000 for family coverage) but can also be offered with a more traditional type of plan.² The plan is solely funded by the employer. Employers typically commit to making funds available up to a predetermined amount for medical expenses incurred by the employee and eligible dependents and spouses. HRAs are primarily accounting tools, and employers are not required to expend the funds they make available until expenses are incurred. Employees may use the funds to pay for medical expenses and premiums. When the funds are depleted, the employee must pay for services out of pocket until the health plan deductible is met. Then the plan becomes similar to a traditional health plan. Unspent funds can be carried over to the next year, but employees cannot take them along if they leave their jobs, although employers can make remaining balances available to former employees to pay for health care. HRA funds cannot be used for nonmedical expenses.

An HSA is a savings account created by an individual to pay for health care. To be eligible to create an HSA, a person must be covered by a “qualified health plan,” which is a plan with a high deductible (that is, at least $1,000 for single coverage and $2,000 for family coverage) that also meets other requirements.³ Employers that want to encourage their employees to establish an HSA can do so by offering a qualified health plan. Both employers and employees can contribute to an HSA, up to an annual limit equal to the lesser of the deductible in the HSA-qualified plan or a statutory cap. Employer contributions to the spending account are optional, but if the employer elects to contribute, the contributions are not taxable to the employee. Employees may contribute to the spending account on a pre–income tax basis, and earnings from investments are not taxed. Employees can use funds from the account to buy health care services. Withdrawals from the account to pay for health care are not taxable. Employees can use the spending account for nonmedical expenses, but there is a tax penalty for doing so. The savings account is owned by the employee and is portable should the worker change employers.

Most knowledge of HRAs and HSAs is from the trade and popular press. There is limited research in peer-reviewed journals about basic questions, such as enrollment, the structure of plans, plan satisfaction, cost savings, risk selection, and quality of care. A special edition of the journal Health Services Research provides findings about the experience of early attempts to offer HRAs.⁴ In general, findings follow the circumstances of individual case studies. Some plans show cost savings, and others do not.⁵ Some employers experience substantial risk selection, and others do not.⁶

Inside Consumer-Directed Care, a biweekly newsletter aimed at health plans, estimated that 1.2 million Americans were enrolled in HRAs in January 2004 and that the figure grew to 2.6 million in January 2005. In addition, an estimated 600,000 Americans were enrolled in HSA-qualified plans.⁷ America’s Health Insurance Plans (AHIP), a health industry trade group, estimated HSA enrollment at more than one million in April 2005, with the majority of these people enrolled through the individual insurance market.⁸ AHIP reported that ninety-nine of its member health plans had enrollment in an HSA-qualified plan, three times the number reported in September 2004.

In this paper, based on data from the 2005 survey of employer health benefits by the Henry J. Kaiser Family Foundation and the Health Research and Educational Trust (Kaiser/HRET), we report findings on the prevalence and attributes of high-deductible health plans (HDHPs) that are offered with an HRA or compatible with an HSA. To our knowledge, this is the first random sample of U.S. employers to report on these arrangements, including employers’ and employees’ contributions to premiums, deductible amounts, employers’ contributions to spending accounts, and employee participation rates. We refer to an HDHP offered with an HRA as an “HDHP/ HRA” and to an HDHP that is an HSA-qualified plan as an “HSA-qualified HDHP.”

Study Data And Methods

Data. Study data are primarily from the 2005 Kaiser/HRET survey of employer health benefits. The survey sample is drawn from a listing of U.S. firms compiled by Dun and Bradstreet. Employers range in size from three to hundreds of thousands of workers and include public and private firms. The sample is stratified by size and industry. In 2005 our overall response rate was 48 percent, which includes firms that offer and do not offer health benefits. Among firms that offer health benefits, the response rate was 51 percent. All statistical tests were performed at the .05 significance level. The methods for the core survey are discussed at greater length in the September/October 2005 issue of Health Affairs.⁹

Methods. In each of the past three years, the survey has asked firms that offer health benefits whether or not they offer an HDHP. For 2003 and 2004, we defined an HDHP as a plan that had a deductible of more than $1,000 for single coverage. For 2005, we modified the definition to specify plans that had a deductible of at least $1,000 for single coverage and at least $2,000 for family coverage. Firms that reported offering an HDHP were then asked whether (1) they offered an HDHP/HRA and (2) whether they offered an HSA-qualified HDHP. Of the 2,013 firms that completed the entire survey, 66 reported offering an HDHP/ HRA, and 59 reported offering an HSA-qualified HDHP. These totals include seven firms that reported offering both. Firms that reported offering either or both were asked additional questions. In the main survey we collected information by plan type for only the plan with the highest enrollment, but for these plan sections we collected information regardless of enrollment. We did not collect information on HRAs that are offered along with plans that are not HDHPs. Specific weights were created to analyze HDHP/HRAs and HSA-qualified HDHPs separately. These weights represented the proportion of employees enrolled in both types of HDHPs. The weights were adjusted for nonresponse and were post-stratified to represent all U.S. firms.

When employers offered an HDHP/HRA or an HSA-qualified HDHP, we collected additional information on a number of plan attributes, including the type of health plan offered; the premium, employee contribution, deductible, and out-of-pocket maximum amounts; the percentage of employees participating in the arrangement; and any amounts contributed to the HRA or HSA by the employer. Information on firms’ offerings was weighted at the firm level; information on premiums, contributions, and deductibles was weighted based on enrollment in each type of arrangement. Our estimates of the number of enrollees in HDHP/HRAs and HSA-qualified HDHPs do not include federal workers.

In considering these results, we note that these arrangements are fairly new to the marketplace and that the attributes that we see now may change as the products evolve. These arrangements also are new to the employers answering our survey and are fairly complicated relative to more traditional health plans. The questions we asked about HSA-qualified HDHPs and HDHP/HRAs also were much more precise and detailed than our questions about these plans in prior years. During the process of data collection and analysis, we encountered substantial confusion among employers about the different savings account options that might be available, even though the survey provided detailed definitions of HRAs and HSAs. In particular, some employers who originally reported offering an HRA were found to be offering flexible spending accounts (FSAs) instead. Because of the confusion, we attempted to call back every employer that reported offering either an HDHP/ HRA or an HSA-qualified HDHP to ensure accurate plan data.

Because we survey employers and not employees, we cannot discuss employees’ attitudes about or experiences with these new arrangements. We do not know, for example, whether employees who choose these plans change the way they use health care or whether or not they are satisfied with these arrangements. A survey of employees would be necessary to address these issues.

In this paper we compare premiums and contributions in HDHP/HRAs and the HSA-eligible HDHPs with the average premiums and contributions that we find for the market overall, to provide some context for these new arrangements’ premium and contribution levels. Because of the limited sample size, we could not compare HDHP/HRA and HSA-qualified HDHP features by firm size or other characteristics. Limited sample size also prevented us from comparing the attributes of the HDHP/HRAs or HSA-qualified HDHPs offered by a firm with those of other health plans offered by that same firm (in part because some of the firms offering these arrangements do not offer any other health plans). If the prevalence of these new plan types grows in the future, we plan to make such comparisons in future surveys.

Study Findings

Prevalence of HDHPs. In each of the past three annual surveys, we asked employers that offered health benefits whether or not they offered an HDHP, which we defined in 2005 as a health plan option that has a deductible of at least $1,000 for single coverage and $2,000 for family coverage.¹⁰ One-fifth of employers offering health benefits reported offering an HDHP in 2005. Jumbo firms (5,000 or more workers) were more likely than firms in general to offer an HDHP (Exhibit 1).¹¹ One of every four employees with health insurance through their jobs work for a firm that offers an HDHP to at least some of its employees.

A minority of firms offering an HDHP—about one in five—offer either an HRA contribution in conjunction with the plan (9.5 percent), an HDHP that is HSA-qualified (11.6 percent), or both.¹² Large firms (1,000 or more workers) that offer HDHPs are more likely to offer one of these arrangements than firms in general (9.5 percent compared with 3.9 percent). Among all firms offering health benefits, about 4 percent offer either an HDHP/HRA (1.9 percent), an HSA-qualified HDHP (2.3 percent), or both.

HDHP/HRAs. Offering and enrollment. About 2 percent of all firms offering health benefits report offering an HDHP with an HRA. In firms that offer this type of arrangement, about 25 percent of employees on average participate in the plan. We estimate that 1.6 million employees are enrolled in HDHPs with an HRA in 2005—more than 2 percent of all covered workers.

Premiums and contributions. Annual employee contributions for HDHP/HRAs average $423 for single coverage and $2,654 for family coverage (Exhibit 2). Employers contribute toward these plans by making a contribution toward the health plan premium and another contribution to the HRA.¹³ On average, workers enrolled in an HDHP/HRA receive a combined total annual employer contribution of $3,872 for single coverage and $7,538 for family coverage.

Although the average health plan premiums for single and family coverage in HDHP/HRAs are much lower than average health plan premiums overall, when combined with the amounts contributed by employers to HRAs, there is no statistical difference between the cost of these plans and the total premium for health plans overall for either single ($4,295 versus $4,024) or family ($10,193 versus $10,880) coverage. The differences between employees’ premium contributions for HDHP/ HRAs for single coverage ($423) and for family coverage ($2,654) also are not statistically different from employees’ contributions for health plans overall ($610 and $2,713, respectively).

Spending accounts, deductibles, and out-of-pocket liability. Workers receive an average contribution from their employer to their HRA of $792 for single coverage and $1,556 for family coverage, but they face an average deductible of $1,870 for single coverage and $3,686 for family coverage (Exhibit 3). Three-fifths of workers covered by an HDHP/HRA are in a plan that covers some preventive benefits before the deductible is met, and about one-third are in a plan that provides some coverage for prescription drugs before the deductible is met. The maximum out-of-pocket liability for cost sharing that workers covered by these arrangements face is $2,859 for single coverage and $5,075 for family coverage.

We asked firms not offering an HDHP/ HRA if they planned to do so in the next year. Four percent of firms reported that they were “very likely” to do so, and 22 percent reported that they were “somewhat likely” to do so (Exhibit 4). There were no significant differences between small firms (3–199 workers) and large firms (200 or more workers) on this question.

HSA-qualified HDHPs. About 2 percent of all firms offering health benefits reported offering an HSA-qualified HDHP.¹⁴ In firms that offer these plans, about 15 percent of workers participate, on average, although the participation rate in larger firms (1,000 or more workers) is significantly lower (3 percent, p < .05). About 810,000 workers are covered by an HSA-qualified HDHP offered by their employer—about 1.2 percent of all covered workers.

Premiums and contributions. Employee contributions for HSA-qualified HDHPs average $431 for single coverage and $1,664 for family coverage (Exhibit 2). Workers in these plans receive average contributions (premium and HSA contribution combined) of $2,850 for single coverage and $7,337 for family coverage from their employers (Exhibit 2). This includes 37 percent of covered workers whose employer makes no contribution to an HSA for either single or family coverage.

Comparing HSA-qualified HDHPs with health plans overall, total costs (premiums plus employer contributions to HSAs) for both single and family coverage in HSA-qualified HDHPs ($3,280 and $9,001, respectively) are significantly lower than the total premium for single and family coverage overall ($4,024 and $10,880, respectively, p < .05) (Exhibit 2). The average worker contribution for single coverage in an HSA-qualified HDHP ($431) appears different from the average worker contribution for single coverage in plans overall ($610), but the difference is not statistically significant. However, the difference in the total cost of family coverage between HSA-qualified HDHPs ($9,001) and health plans overall ($10,880) is statistically significant. We do not have information about the extent to which employees establish or contribute to HSAs.

Spending accounts, deductibles, and out-of-pocket liability. Workers in HSA-qualified HDHPs receive an average HSA contribution from their employer of $553 for single coverage and $1,185 for family coverage (Exhibit 3), although 35 percent of firms offering these plans (covering 37 percent of the workers in such plans) make no contribution to their employees’ HSAs.¹⁵ Workers in HSA-qualified HDHPs face an average deductible of $1,901 for single coverage and $4,070 for family coverage, and their maximum out-of-pocket liability for cost sharing is $2,551 for single coverage and $4,661 for family coverage (Exhibit 3). Thirty percent of workers covered by an HSA-qualified HDHP are in a plan that covers some preventive benefits before the deductible is met.

Future growth of HSAs. We asked employers not offering an HSA-qualified HDHP if they planned to do so in the next year. Two percent reported that they were “very likely” to do so, and 25 percent reported that they were “somewhat likely” to (Exhibit 4). Interest is greater among larger firms (200 or more workers), where 7 percent said that they are “very likely” to offer an HSA-qualified HDHP in the next year.

Discussion

Twenty percent of firms offering health benefits offer a high-deductible health plan in 2005. The largest employers have led the way, with the result that one of every four employees today with job-based health insurance works for a firm that offers a high-deductible plan to at least some of its workers.

In the past year, an increasing percentage of these employers have begun offering a savings account option to employees in conjunction with an HDHP. Almost one-fifth of firms offering a high-deductible plan—about 4 percent of all firms that offer health benefits—offer an HDHP/HRA or an HSA-qualified HDHP. Participation rates for these new arrangements (25 percent of eligible workers for HDHP/HRAs and 15 percent of eligible workers for HSA-qualified HDHPs) seem reasonable, given how recently these plans have come onto the market and how complicated they are. Deductibles in these arrangements, as expected, are relatively high for both single and family coverage. Employers’ contributions to the savings account options are, on average, much lower than the deductible amounts, which leaves enrollees with meaningful out-of-pocket risk.

The low prevalence of these new plans in the market (and our limited sample of employers offering them) restricts our ability to analyze them in any depth. We compared the premiums and contributions in these new arrangements with those for health plans overall to provide a context about the relative cost of these new arrangements. Although we saw some apparently large differences in contributions by covered workers and total costs, in many cases these differences were not statistically significant. We will be able to say more about the relative costs of these plans to employees and employers if they become a larger part of the marketplace.

Many observers expect these new arrangements to grow during the next few years, and there is reason to believe that they could be right. One explanation for the relatively low offer rate of HSA-qualified HDHPs is that although they were authorized in 2003, the Treasury Department didn’t issue regulations for the implementation of HSAs until summer 2004. This might have discouraged employers from offering HSA-qualified HDHPs in 2005. In addition, large employers (1,000 or more workers), which employ more than half of U.S. workers with health insurance, have a higher offer rate and report a stronger interest in these new plans than firms overall. These employers could provide a strong base for future enrollment growth.

NOTES

1. See Internal Revenue Service Rev. Ruling 2002-41 regarding HRAs. For a more complete description of these types of health accounts, see IRS, Health Savings Accounts and Other Tax-Favored Health Plans, Pub. no. 969, 2004,
www.irs.gov/publications/p969 (12 August 2005).
2. In the survey, we focused specifically on HRAs that are offered along with a high-deductible health plan (HDHP).
3. IRS, Health Savings Accounts.
4. C. Clancy and A. Gauthier, eds., special issue, “Consumer-Driven Health Care: Beyond Rhetoric with Research and Experience,” Health Services Research 39, no. 4, Part 2 (2004).
5. S.T. Parente, R. Feldman, and J.B. Christianson, “Evaluation of the Effect of a Consumer-Driven Health Plan on Medical Care Expenditures and Utilization,” Health Services Research 39, no. 4, Part 2 (2004): 1189–1210; and A.T. Lo Sasso et al., “Tales from the New Frontier: Pioneers’ Experience with Consumer-Driven Health Care,” Health Services Research 39, no. 4, Part 2 (2004): 1071–1090.
6. S. Parente, R. Feldman, and J. Christianson, “Employee Choice of Consumer-Driven Health Insurance in a Multiplan, Multiproduct Setting,” Health Services Research 39, no. 4, Part 2 (2004): 1091–1112; Lo Sasso et al., “Tales from the New Frontier”; J.B. Fowles et al., “Early Experience with Employee Choice of Consumer-Directed Health Plans and Satisfaction with Enrollment,” Health Services Research 39, no. 4, Part 2 (2004): 1141–1158; and L.A. Tollen, M.N. Ross, and S. Poor, “Risk Segmentation Related to the Offering of a Consumer-Directed Health Plan: A Case Study of Humana Inc.,” Health Services Research 39, no. 4, Part 2 (2004): 1167–1188.
7. Atlantic Information Services, Inside Consumer-Directed Care, 7 January 2005, www.aishealth.com/Products/NewsICD.html (12 August 2005, subscription required).
8. America’s Health Insurance Plans, Center for Policy and Research, “Number of HSA Plans Exceeded One Million in March 2005,” 2005, www.ahipresearch.org/pdfs/HSAExceedMillion050405_full.pdf (12 August 2005).
9. See J. Gabel et al., “Health Benefits in 2005: Premium Increases Slow Down, Coverage Continues to Erode,” Health Affairs 24, no. 5 (2005): 1273–1280.
10. In 2003 and 2004 the survey used a different definition and asked firms if they offered a health plan with a deductible of more than $1,000 for single coverage. The 2003 and 2004 surveys did not specify a minimum deductible for family coverage. Some of the change in the percentage of firms offering an HDHP between 2003 and 2005 may be due to this change in the definition of an HDHP.
11. The increase from 2004 to 2005 and the increase from 2003 to 2005 are statistically significant at the 5 percent level. The increase from 2003 to 2004 is not statistically significant at the 5 percent or 10 percent levels.
12. This includes 1.6 percent of firms offering an HDHP that offer both an HDHP/HRA and an HSA-qualified plan.
13. The survey asks firms, “Up to what dollar amount does your firm promise to contribute each year to an employee’s HRA?” We refer to the amount that employers commit to make available to an HRA as a contribution, for ease of discussion. As discussed above, HRAs are notional accounts, and employers are not required to actually transfer funds until an employee incurs expenses. Employers are likely not to end up spending all of the funds they make available to their employees through an HRA.
14. Among firms offering health benefits, the prevalence of firms offering HSA-qualified plans is a little higher than the prevalence of firms offering an HDHP/HRA combination, but the difference is not statistically significant.
15. The average HSA contributions reported include covered workers in firms that make no contribution.

Gary Claxton (gclaxton{at}kff.org) is a vice president of the Henry J. Kaiser Family Foundation (KFF) in Washington, D.C. Jon Gabel is a vice president of the Center for Studying Health System Change (HSC) in Washington. Isadora Gil is a policy analyst at KFF. Jeremy Pickreign and Heidi Whitmore are researchers at HSC. Benjamin Finder and Shada Rouhani are research assistants at KFF. Samantha Hawkins is research manager at the Health Research and Educational Trust (HRET) in Washington. Diane Rowland is executive vice president of KFF. Gabel, Pickreign, and Whitmore were employees of HRET when this research was conducted.

DOI: 10.1377/hlthaff.w5.434
©2005 Project HOPE–The People-to-People Health Foundation, Inc.