In its annual survey of the HRA/HSA Market ACS/Mellon reported small but growing enrollment fueled by rising cost of health care coverage.  At the same time, the group had significant information about CDH for employers.

Profile of Survey Respondents

• Early adopters
• Current/future
• Wait and see
• 47% will offer both
• 39% will add HSAs
• 14% will add HRAs
• 20% offer HSAs
• 19% offer HRAs
• 2.9% offer both
• 64% offer neither
  

HSA Experience: ACS/Mellon HSA Solution (100,000 accounts)

• Average account balances
• $681.86 (April 06)
• Savers vs. spenders — average employee contribution is greater than the average withdrawal
• Fees paid by employers — 40%
• Contributions by employers — 20%
• Pre-funding vs. over time vs. payroll
• Investments — 7 mutual funds, low percent of account holders investing
• Use of debit card and checkbook — debit card transactions average over $82 and checks average over $760 (2006 YTD)
• Use of auto claims adjudication — over 1,400 transactions with an average dollar value of nearly $153 have processed YTD
• Use of on-line tools and calculators — more demand for consumer support tools

• 77% of surveyed employers contribute to employee HSAs
• Average pre-funding is $428 single, $836 family
• 73% of employers front-load their contributions
• Coverage of preventive services and medications
• 96% of employers cover preventive services with no deductible
• Only 17% of employers cover preventive medications separately from acute drugs
• Payment of HSA expenses
• 55% of employers are paying the monthly HSA administrative fees
• Conversions from HRA to HSA
• Treatment of FSA

Some Other Conclusions From Survey:

CDHC’s credibility is rising with Employers favoring CDHC less for cost-shifting than for the ability to drive smarter purchasing behaviors and thus improve cost management.

Most respondents endorse CDHC; less than one-fourth remain neutral.

While HRAs have been around longer, employer HSA adoption will rise faster

• By 4:1, employers believe HSAs can better control costs
• By 2:1, employers believe HSAs are more attractive to employees
• Preferred success characteristics for HSAs include claims integration, seeding accounts early in the year, investment fund choices and aggressive education
• Some HSA plan design features are still evolving
• Employers are subsidizing 12-15% less of the cost per employee than traditional medical options
• Employer account seeding is not yet strong
• Few are yet carving out preventive drugs from the deductible

Of Employers already offering HRAs:

• 55% have no plans to replace
• 30% will offer both HRAs and HSAs
• 15% will replace HRAs with HSAs

Yet HSAs are rapidly gaining:

• Of those planning to introduce, HSAs are favored 3:1
• By 4:1, employers believe HSAs can better control costs

Reasons for Offering CDHC in 2007 (HSA or HRA)

• Reduce costs (consumerism)
• Expose employees to true cost of care
• Reduce future trend increase
• Provide savings vehicle
• Offer more choices
• Stay competitive
• Shifting costs to employees
• Senior management demands it
• Define company contribution
• Employees demand it

Consistent with industry data, factors such as age, service, etc. do not predict employee interest and enrollment.  Only average annual salary correlated statistically, with enrollment increasing as salary increased. ACS/Mellon correlated the following factors against employee enrollment in HSAs and HRAs:

• Average age
• Average years of service
• Average annual salary
• Percentage of field employees
• 401(k) participation rate

Among the positive factors suggested to employers considering implementing CDH were:

• Preventive care is not subject to deductible Employee meetings and education
• Offer mutual funds/equity-based investments
• Company contributes to the HSAs
• Modeling tools to project out-of-pocket costs
• CDHC and/or HSA offered to early retirees
• Preventive drugs not subject to deductible
• Will send HSA payroll deductions/company contributions to HSA vendor chosen by employee
• Education and understanding
• Proper pricing vs. other options
• Potential for adverse selection
• Vendor selection (health plan or custodian)
• Other
• Claims integration
• Multiple investment options
• Low administrative fees
• Online financial tools

What Employees Want What Employees Get

• 29% can elect auto-claim integration;
• 71% must submit claims
• 55% of employers pay the monthly HSA administrative fees
• 67% of employers’ HSA custodians are affiliated with medical carrier
• 73% make contributions at beginning of the year vs. 27% are monthly

Developing Trends

• General adoption of HDHPs and HSAs including labor and government
• Adoption of HDHPs and HSAs by those previously uninsured, who are not able to afford premiums for low deductible or HMO plans
• Tax changes and government incentives
• Blurred differences between banks and health insurers
• Increase in M&A activity
• Possible nationalization of certain insurance regulations
• Re-skinned managed-care companies and movement away from HMOs
• Increased financial pressure on providers as A/R rises

Five-Year Prospects

• Strong enrollment growth for HDHPs and HSAs
• New era of cash-paying patients
• Vastly improved patient support, information
• Need for deregulation of providers, insurers
• Tax credits = less reliance on employers
• Continued weakening of retiree health

• 77% of surveyed employers contribute to employee HSAs
• Average pre-funding is $428 single, $836 family
• 73% of employers front-load their contributions
• Coverage of preventive services and medications
• 96% of employers cover preventive services with no deductible
• Only 17% of employers cover preventive medications separately from acute drugs
• Payment of HSA expenses
• 55% of employers are paying the monthly HSA administrative fees
• Conversions from HRA to HSA
• Treatment of FSA