Mercer: CDHP's Save Employers $$$

February 9, 2005 ( - The increasingly popular consumer-directed health plans (CDHPs) are also proving to be great cost-savers for employers, a new study found.

A news release from Mercer Human Resource Consulting said the firm’s analysis of the experience of 88 employers offering CDHPs during 2004 found that employers of all sizes enjoyed a nearly 17% average cost difference compared with PPO coverage ($5,233 versus $6,095).

In its 2004 survey of 3,020 employer health plan sponsors, Mercer found that the larger the employer, the more likely it was to offer a CDHP: 4% of those with at least 500 employees and 12% of those with 20,000 or more did so, compared to just 1% of small employers (10 – 499 employees). Small employers rarely offer more than one medical plan to employees and few employers of any size were willing to offer a CDHP as their only plan, according to Mercer.

Employers were asked how likely they were to offer a CDHP in 2005 or 2006. Among large employers (500+ employees), 14% said they were likely to offer one this year and more than one fourth (26%) said they would likely do so next year.

Mercer said that companies are not just going for CDHPs becuase they can shave dollars off their benefits costs. “If saving money was the only objective, employers could just raise deductibles,” said Ray Herschman, a consultant in Mercer’s Cleveland office, in the news release. “But most CDHP sponsors are committed to the concept of consumerism, which they see as a win-win proposition for employers and employees.”

CDHP’s may be good for employers, but Mercer found that one potential hesitation to join on employees’ part may be based in fact – the amount for which the worker will be responsible before coverage starts. For employee-only coverage, the median deductible was $1,250, while the median employer account contribution was $700. This puts the employee at risk for $550 before the underlying coverage kicks in; by comparison, in a typical PPO plan, the employee is at risk for less than $300. For family coverage, the median deductible was $3,000 and the median employer account contribution was $1,200.

Most of the large CDHP sponsors used Health Reimbursement Accounts (HRAs); the newer Health Savings Account (HSA) was introduced too late in 2003 to have much impact last year, according to Mercer. Most employers said they would continue to offer an HRA in 2005, although 7% said they would convert to an HSA and 28% said they would add an HSA and offer both types of accounts. Among the large employers who provided a choice of plans, on average 16% of eligible employees selected the CDHP.

Employee Contributions

Nearly a third of CDHP sponsors (31%) encouraged enrollment by waiving employee contribution requirements. Among those requiring a payment, the average employee-only contribution was $48 a month, or 21% of the premium. The average contributions for PPO and HMO coverage were, respectively, $72 and $61 per month, or 23% and 22% of premium. Only 12% of PPO sponsors and 13% of HMO sponsors provide free employee-only coverage, Mercer said.

Nearly half of the CDHP sponsors offering HRA-based plans (48%) permit employees to use their account dollars for all qualified medical expenses listed in Section 213 of the Internal Revenue Code. This includes such services and products as therapeutic massage, over-the-counter medications, and contraceptives. Another 12% say most qualified medical expenses are allowed. However, 29% say that the account money may only be used for the expenses eligible under the overlaying insurance coverage. To prevent employees from saving account dollars by skimping on preventive care, 74% of sponsors cover preventive services at 100%, and either define the services covered or set a dollar limit per year.

Finally, prescription drugs are handled like any other expense in 48% of plans, with the employee paying the full or discounted cost of prescriptions using money from the account or out-of-pocket until the deductible is met. One-third of CDHP sponsors have carved out the drug benefit from the CDHP and provided a card plan with copayments and coinsurance (the rest use some other approach).

Mercer’s report on the National Survey of Employer-Sponsored Health Plans 2004 will be available in early March for $500. A separate appendix of survey responses to approximately 100 questions, broken out by employer size, region, and industry, costs an additional $500. To order, contact Tara Lewis at Mercer Human Resource Consulting, 1166 Avenue of the Americas, 29 th Floor, New York, NY 10036, telephone 212 345 2451, or at .