Report: Small employers are “buying down,” offering health plans with higher costs

Small employers increasingly are offering workers health insurance plans that require them to pay more for tests, treatments, and doctor visits. A new analysis by the Division of Health Care Finance and Policy found that 27 percent of people in Massachusetts who got their insurance through the small group market at the end of 2010 were in a plan with a lower “actuarial value,” meaning the deductibles and copayments were the highest among plans on the market. That’s up from just 2 percent in the first quarter of 2008.

Fifty-five percent of people who bought their insurance as individuals at the end of 2010 were in such a plan, up from 48 percent in early 2008.

Advertisement - Continue Reading Below

The report warns small businesses that “buying down,” or shifting more costs to employees in order to save money, “may not be viable for much longer” as a way of countering rising premium costs.

Massachusetts requires health plans to offer a range of benefits with certain caps on costs to enrollees. Individual and small employers could buy down so far that they hit the minimum coverage floor, the report said.

Premium growth slowed between 2008 and 2010, and the analysis indicated that the state was making progress in controlling costs.

“The interventions that the governor has been supporting and directing over the past few years are working to reduce costs for consumers, but we’re worried about some other things that are happening,” Áron Boros, commissioner of the state division.

The trend of moving more enrollees into plans with higher copays and deductibles highlights a need to make sure that future cost containment “is linked to protections around quality and access,” he said.

Bill Vernon, Massachusetts director of the National Federation of Independent Business, echoed that idea.

“Buying down isn’t necessarily a bad thing if consumers—by consumer, I mean employer and employee—are saving money,” Vernon said. But it doesn’t address the bigger issue of increasing health care costs, he said.

It’s not surprising that more employers were buying less generous plans in recent years, said Richard C. Lord, president of Associated Industries of Massachusetts.

“It was a period of dramatically increasing premiums,” he said. “Employers had to do what they had control over, which is adjusting the benefits and putting in higher copays and deductibles.”

Lord and Vernon said the movement toward lower value plans may be moderated some by the growing popularity of limited and tiered network plans, which cost less because they restrict consumers to lower-cost doctors and hospitals or require them to pay more out of pocket when they use providers who charge more.

Those newer plans are not factored into the state report, which includes data from 2008 to 2010. Critics of such plans have said they are confusing to consumers and could exacerbate barriers to care for the poor.

Boros’s division will host a series of hearings on health care cost containment June 4-6.