HSAs and Wendy's

Yesterday the Washington Post featured an article examining whether HSAs are working for employers adopting them and employees trying them.  The most interesting tidbit was this:

Last year, Wendy's eliminated its old insurance plan for about 9,000 managers and administrators and offered them only an HSA instead. The company has not offered such a plan to its hamburger cooks and the rest of its front-line crew, most of whom do not work enough hours or are not in the right parts of the country to qualify for health insurance -- and tend not to buy it, even if they qualify.

Jeffrey Cava, Wendy's executive vice president of human resources and administration, said the company now insures about one-third of its U.S. workforce, the same as it did before. And although insurance premiums for its HSAs rose much less than the company's old insurance would have done, Wendy's still spent more money overall on health benefits during its first year with health savings accounts than the year before.

First, Wendy's switch to HSAs obviously isn't insuring more workers.  This is something to keep in mind, because if HSAs aren't going to lead to more people being covered, that should really be the key argument against them.   What good is a revolutionary new type of insurance if it's only covering the same people?

Next, it's quite shocking that Wendy's ended up spending more this year than before.  If premiums are lower and it's insuring the same amount of people, where is that discrepancy from?  It's important to look at these actual cases, rather than the theories of HSAs, to see how they're working.  In Wendy's experience, they most likely had a ton of employees dip into their deductibles, costing the company money beyond the former higher premium.

Comments

[Stephen]

When a company like Wendy's switches over to HSA's, do they also provide the HDHP? Is the employee contribution for these coming from the employees' HSA's? God forbid that the employees are required to buy insurance individually; there is no way that this would then represent a "savings," since individual insurance plans are uniformly high-priced and crappy.

CDHP premium increases: %2.9
Non-CDHP premium increases: near %8.0

There is more to the cost of a health plan than the premiums. And each year, when the premiums go up, there are usually changes to the amount of benefits provided within the plan. It is easy to focus on premiums, but if the deductibles and co-pays go up as well, there can be a huge increase the actual costs of seeking health care under the plan.

Also, Trapier, in terms of Wendy's it is important to note that they stopped providing traditional insurance; all of their covered employees were switched over to HSA's. So the increase in spending is obviously to do only with HSA's, and that is the are in which the answer to the increased cost must be found.

The only way to save money with insurance companies, whether with "traditional" insurance or with HSA/HDHP's, is to bargain in a group. In a situation where all medical costs are increasing, merely having lower premiums is not going to do a thing to lower costs as a whole. All it is going to do is transfer the costs from employers to individuals not only in the form of higher deductibles, but in higher point-of-service costs due to the decrease in bargaining power. I would argue that this has been the point all along.

[spike]

How's this for the money quote from that article: Urged on by business, [b]the banking industry[/b] and conservatives in Congress, the White House is defining HSAs as part of what Bush has called an "ownership society".

The whole thing is a bone for the banking industry and the consulting industry, which is why McKinsey is pushing so hard for them as well.

Stephen, you're mostly right about how to save money, but you're missing two other ways: reduce utilization and push costs onto your employees. Based on the article, it seems that Wendy's has been unable to do either of these things, which is why their overall health spending went up.

Trap, Saying that because it went up 2% instead of the expected 10%, they're saving money is ridiculous. If that's all you're getting from HSAs, then next year the price will be up another 10% and all you're doing by switching to HSAs is delaying the costs by one year. The promise of HSAs was that they were going to dramatically alter the spending curve, and the Wendy's information implies that it simply won't be the case (big surprise).

[Matthew Holt]

Look, the way employers save money by introducign HDHPs is by NOT funding teh associated HSA. This looks like Wendy's was already NOT funding the HRA, and as Ron Grenier fans will know, had introduced HDHPs some time back. So it's costs are relatively static.

Otherwise introducing the HDHP is a one time saving for companies that were ponying up for the full premium.

Meanwhile the WaPo article was written by someone who didnt understand the issue and wasnt clear about what the Wendy's spokesperson was talking about. So for Trap and Kate to spend much time going on about it is worthless.

[SteveE]

The words and concept no one is mentioning here is the missing key to the argument, I think. The missing words are "cost shifting" and the missing concept is that when employers talk about saving money using HDHP/HSA, what they really mean is that, OVER TIME, they will effectively shift future cost increases to the employees. In fact, it is quite likely that companies changing over to CDHP/HSA will have a total health benefits spend equal to or even slightly higher than the prior year -- that's OK in the employer's view, because they've got a plan for the future.

Here's how it works: In year 1 the employer will fund the HSA on the employee's behalf up to or close to the employee's previous out-of-pocket maximum (i.e., deductible + coinsurance). Let's call that amount $1,000. Under the terms of the new high deductible plan the new employee out of pocket max is now $2,000. The empoloyee can use the $1,000 already in the HSA plus ready cash, or the employee is invited to top-off the HSA in order to reach the full amount of their exposure ($2,000).

Meanwhile, back on the employer side, the employer (to simplify) is now paying a drastically lower insurance premium for his high deductible policy -- but remember, he's also paying $1,000 per employee to paritally fund the HSA accounts.

Here's where the strategy starts to kick-in and pay off for the employer. In year 2, the employer says, OK we're in a transition phase. This year I'm only kicking-in $750 per person for the HSA -- but your out of pocket max is still $2,000 -- you employees need to pick up the rest. So his premium payments still go up on his high deductible plan -- a few points maybe -- but his benefits spend is down 25% on the big dollar component. Year 3, same thing, "folks, the company is kicking in $500." And so forth.

Maybe the company contribution stabilizes (maybe not) and maybe the employee out of pocket max starts creeping up. Bottom line though is this: It's cost-SHIFTING, not cost-saving that's important.

[Stephen]

SteveE,

I don't usually do this, but I believe I did say in my previous comment that all the HSA/HDHP phenomenon is going to do is shift costs from employers to employees. However, I do agree with you, most people are trying to debate HSA's on their "merits." All that really matters is how they are going to shift costs to individuals without providing any help for paying for these costs.

The whole point of insurance is to spread risk among a large enough group of people in order to make not only the insurance itself but also the remedies we seek under it to be affordable. We can take away this benefit of large numbers and group risk-sharing and call it "ownership" if we want. But it just isn't worth "owning."