The COVID pandemic wreaked havoc on the American healthcare system and employer health plans in ways not always obvious. For example, a significant percentage of Americans delayed accessing needed healthcare for fear of increasing their exposure to COVID-19. Some skipped routine checkups and screenings altogether. The unfortunate side effects now being seen include:
- Increased utilization as people address pent-up, unmet healthcare needs
- Higher costs for more intensive treatments resulting from delayed healthcare
- Increased severity of health conditions that could have been detected earlier through routine checkups and screening tests
Why COVID Delayed Healthcare
According to the Urban Institute‘s Health Reform Monitoring Survey, as late as in the Spring of 2021 one in 10 adults said they had delayed at least one type of healthcare over the past 30 days. One in four had delayed or skipped care over the past 12 months. Additional findings included:
- Adults with two or more chronic conditions were more than twice as likely to have delayed or skipped healthcare needs.
- 11% of adults had delayed healthcare (or skipped it altogether) in the previous 30 days.
- Care for children was also delayed or skipped; nearly one in 10 parents had done so within the previous 30 days, one in 5 within the past year
COVID vaccinations were not yet widely available when the Urban Institute’s survey was taken. The pandemic’s effects on delaying healthcare needs can be seen clearly. Healthcare delay during the pandemic is a primary driver of increased costs for employers now.
Increasing Costs for Employers
For employers who sponsor group health plans, increased utilization resulting from delayed or skipped healthcare drives up plan costs. Barrons reports that healthcare costs for large employers were flat in 2020 but jumped by 8.2% in 2021.
As people became more comfortable going out again, healthcare utilization largely resumed. But after months of going without diagnoses and treatments, many patients found themselves with conditions that had worsened and required more costly treatment. Per the Business Group on Health, that number represents the most significant increase in 8 years.
The long-term effects of COVID are starting to emerge, but the effects on healthcare may take years to become evident. McKinsey & Company estimates that additional layers of delayed healthcare and other indirect impacts of the pandemic may result in $125-200 billion in incremental annual U.S. health system costs.
Using Benefit Accounts To Address Rising Costs
Increasing healthcare costs increase healthcare premiums for employers that sponsor group health plans. But employers have options they can use to reduce their premium costs.
- Switch to a lower-premium, high-deductible health plan (HDHP). Offer an employer-funded Health Reimbursement Arrangement (HRA) or employer-seeded Health Savings Account (HSA),
- Offer an Individual Coverage Health Reimbursement Arrangement (ICHRA). Through an ICHRA, employers reimburse employees for part or all of their premiums for health insurance coverage acquired via the open market or healthcare exchange.
- For those with 50 or fewer employees, offer a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) which also reimburses employees for part or all of their premiums for health insurance coverage acquired on their own.
HDHPs Paired with an HRA or HSA
For those who want to continue offering a group plan, switching to one with higher deductibles (with or without co-pays and coinsurance) can significantly lower their premium costs. To help employees adjust to the higher deductibles, pair the plan with either an HRA or if the plan qualifies, an HSA.
With an HRA, the employer reimburses employees for some or all of their deductible, copays, and coinsurance as expenses incurred. Since many employees will not max out their deductibles, an HRA coupled with lower plan premiums often costs the employer significantly less than they previously spent for a lower-deductible plan that not everyone needed or used.
Another option is to couple an HSA-qualified health plan with an HSA, with the employer “seeding” the HSA accounts with an employer contribution. Employees are far more likely to adopt an HSA health plan and contribute more of their own money to an HSA when the employer is also contributing.
Even with seeding, the employer often spends less on plan premiums and HSA contributions than they did previously on plan premiums alone. Employees also gain the triple-tax advantage of HSAs and the ability to invest their unused funds for growth toward future expenses and retirement. Learn more about pairing HDHPs with HSAs in this handy infographic.
ICHRAs
For employers priced out of the group market entirely, ICHRAs enable them to direct employees to the individual healthcare market and provide reimbursement for part or all of the employee’s premiums. In addition, they can offer reimbursement for certain qualified medical expenses that employees incur.
The employer defines all of the limits, including how much each employee receives for premium reimbursements and how much (and whether) they can also receive reimbursement for medical expenses. The employer, therefore, controls its maximum financial exposure under the plan.
Employers can sponsor both a group health plan and an ICHRA for different classes of employees but cannot offer both plans to the same employee class. Reimbursements received from ICHRAs are not taxable to the employee.
QSEHRAs
QSEHRAs are similar in concept to ICHRAs but have some very important differences. They include:
- A company must have 50 or fewer employees
- Employers cannot sponsor any group health plan for any employee class.
- Total reimbursement per employee is limited; for 2023, annual limits are $5,850 for self-only coverage and $11,800 for family coverage.
The employer still gets to define how much (and whether) employees can also receive reimbursement for medical expenses. As with ICHRAs, the employee’s reimbursements received from a QSEHRA are not taxable.
For More Information
Contact your broker, TPA, or qualified benefits counsel for more information on how your company can counteract the rising costs of COVID and delayed healthcare through these and other benefit accounts.
DataPath offers CDH account administration solutions to third-party administrators nationwide.