In December 2005, LFI Inc. faced the unpleasant exercise of renewing our health insurance policy. With no significant changes, the new premiums on our existing plan had come in with the typical double-digit increase. At our request, the broker provided alternatives to conventional plans, such as those with higher deductibles or the health reimbursement arrangements or health savings accounts that we had read about.
The appeal of the new options was immediate. We recognized the fact that we could save on premiums and taxes by utilizing such a plan, while giving participants a savings vehicle based on health care consumption. With scant weeks before our renewal, however, there was little interest from our employees in this difficult-to-explain alternative.
Still, I enrolled in the high-deductible health plan. And for 2006, we had three family plan participants on the high-deductible plan and 43 families and individuals on a conventional $300/$600 deductible plan.
As we approached renewal again at the end of last year, we began structuring our 2007 plan in a way that minimized the risk to participants of having to make any single large out-of-pocket payment for their health care. And so we elected to set the deductible at $2,850 for individuals and $5,650 for families, to match the maximum allowable HSA contribution levels this year.
In order to offset this potential liability to participants, we offered the plan with no weekly contribution. Our conventional offering, Plan B, required a $28 weekly premium co-share for individuals and a $65 co-share for families. We made both plans available to all full-time employees. And during the final months of the year, we coordinated three successive informational sessions intended to allay the fears of electing a high-deductible health plan and to communicate the opportunity of participating in an HSA.
The incentive for every one of these plans is clear. Our contract renewal came in with an 8-percent increase, assuming no change to the 2006 structure. This was the first single-digit increase in recent years and was likely the result of having three of the 46 participants enrolled in high-deductible plans during 2006.
Our plan design was such that regardless of actual health care consumption, the annual outlays for a participant would be at least comparable under either plan, with most benefiting under the high-deductible plan. The major difference between the options was the timing of these outlays. For instance, a high-deductible plan participant having an event during January could be faced with a $5,600 bill payable in February. During our informational sessions, we offered several suggestions to address such events, including a supplemental voluntary benefit created to support HDHP participation.
As a result of our two-month effort, we achieved nearly one-third participation in the HDHP, with 15 of the 46 participants choosing the higher deductible. These participants now saved as much as $65 per week – the money they no longer were contributing to their health plan.
With the help of our broker, HSAs were established within a two-week period, and with our first payroll of 2007, the account balances began growing.
The transition of the 12 participants at the end of 2006 enabled LFI to keep our monthly premium constant over the renewal period, with no increase from 2006 to 2007. This was accomplished by retaining only about 14 percent of the HDHP premium savings and passing the rest through to the employees.
Now there are 15 households taking a more active role in their health care consumption. The renewal process itself encouraged nearly all of our employees to review their 2006 health care expenditures, many for the first time in their career. This increased attention will bring a better economic efficiency to our health care spending as a group, and with sufficient participation, should enable the free market to trim the growth of health care costs in the future.
The consumer-driven solution of the HDHP, coupled with an HSA, presents the most feasible market-based solution to rising health care costs.
Roland Benjamin is vice president of LFI Inc., which manufactures stainless steel components for medical devices and is based in Smithfield.