Will the Expansion of Preventative Care in HDHPs Drive Up Costs?
In the United States, 86% of health care costs are spent for people with chronic conditions.
While High Deductible Health Plans (HDHPs) have been a popular plan offering for employers seeking reduced health care costs for employer-sponsored plans, the high up front deductibles were often a deterrent to participation from employees with chronic conditions.
In HDHP's participants can receive copays before paying their full deductible for services classified as "preventative care." But for people with chronic conditions, it was almost guaranteed they would be paying their entire deductible.
However, on July 17, 2019, the IRS released a notice which added a number of chronic conditions whose treatment would fall under that definition of "preventative care."
For people with chronic conditions, such as diabetes, asthma, congestive heart failure, and depression, participants can receive insurance adjustments to claims for those conditions prior to paying their full deductible. Their copays for certain listed services now kick-in immediately.
The IRS recognized that persons with such chronic conditions were avoiding certain disease-management practices, often leading to an exacerbation of their chronic conditions. Some of those exacerbated conditions included amputation, blindness, heart attacks, and strokes that require considerably more medical intervention at significantly higher cost.
What should employers do?
Employers should consult with their brokers to determine how their individual carriers and benefit plans cover preventative care, and how those plans have been impacted by IRS Notice 2019-45.
Does this mean that HDHP costs are going to increase?
Whenever you expand benefits to appeal to a higher-risk population, you increase the risk of high-utilizers entering the pool and driving up future renewals. The more claims in a given plan, especially for expensive chronic conditions, the more insurance companies drive up costs.
It's yet to be seen if this benefit expansion is going to have a positive impact on claim costs. On one hand, you will likely have more preventative care claims. On the other hand, if the preventative care works, you'll have fewer expensive claims from exacerbated or unmanaged chronic conditions.
The IRS has only expanded the preventative care items for chronic conditions to select low-cost drugs and services. The gamble is that these smaller investments in disease management will reduce catastrophic claims due to exacerbation of a chronic condition.
Need a Health Savings Account (HSA) for your benefit plan?
Even if you are not contributing to an employee's HSA, extending the tax-benefited service to your employees is a great way to increase HDHP enrollment, reduce payroll tax, and help make employees' money go further.
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