Whatever Happened to HDHP Full Replacement?
  • Industry Trends & Insights

Whatever Happened to HDHP Full Replacement?

The year was 2014.

Health care costs, though decelerating somewhat from previous years, continued to grow much faster than the consumer price index—leading to frequent use of the terms "out of control" and "unsustainable."

Meanwhile, the ACA's so-called "Cadillac" excise tax on high-cost health plans loomed ahead, scheduled to take effect in 2018. Experts predicted that half of U.S. employers would be affected by the tax if they didn't make changes to their health plans.1

So everyone started talking about what those changes would look like. And the consensus was that employers would lean more heavily on high-deductible health plans (HDHPs). Theoretically, this would help to curb unnecessary care, which often occurred in more traditional health plans, and slow the growth of health care costs.

The savings potential of HDHPs – both in reduction of health care spending and avoidance of the excise tax – was so appealing that many in the industry presumed that most employers would eventually offer HDHPs as the sole health plan option. The concept of "going full replacement" became common when discussing employee benefit strategy, and experts advised employers on how they should go about transitioning to an HDHP-only offering.

In 2014, PricewaterhouseCoopers reported that 44 percent of employers were considering full replacement, and the thought was that this number would only grow over the following few years. 

Fast forward to today, and that's simply not the case.

HDHP full replacement growth is stagnant.

Employers’ enthusiasm for HDHP full replacement appears to have leveled off.

According to Benefitfocus' latest State of Employee Benefits report, only 5 percent of large employers (those with at least 1,000 employees) currently offer HDHPs as the sole health plan option. That rate was roughly the same each of the previous two years, as well.

And now, PricewaterhouseCoopers reports that less than 30 percent of employers are considering full replacement—a significant decline in the interest expressed in 2014.

Meanwhile, HDHPs have still become more common among employers, but only as an option alongside more traditional health plans like PPOs and HMOs. Benefitfocus reports that, since 2016, the share of employers offering a mix of traditional health plans and HDHPs has grown from 52 percent to 65 percent.

It's not at all that employers no longer believe in HDHPs; it's just that they're a lot more hesitant to go "all in" on HDHPs than once predicted. 

So what happened?

HDHPs aren't a silver bullet.

One potential reason for the lack of growth in full-replacement offerings is that HDHPs can have unintended consequences for employers.

While they can cut down on excessive health care spending, HDHPs can also lead to employees forgoing necessary services to avoid the high out-of-pocket costs. This can in turn lead to decreased productivity, increased absenteeism and higher costs to manage worsening conditions in the long run.

Not to mention the additional stress HDHPs can put on employees who can't afford them, affecting both their physical and emotional well-being—and threatening their job satisfaction.

So employers that have held off on full replacement have good reason for doing so. HDHPs may do a good job reducing health care utilization now, but if they come at the expense of sicker, less productive and unhappy employees later, having them as the sole option could compromise employers' cost control and talent management goals.

For now, it looks like choice remains the prevailing policy in employer-sponsored health care. But it might not just have to do with the potential drawbacks of HDHPs.

Download the full 2018 State of Employee Benefits report for more insight into benefit plan design and participation trends.

The Cadillac tax is less of a threat now.

In 2014, the ACA's Cadillac tax was one of the hottest topics in the benefits and health insurance community. It seemed like everywhere you looked there was another article, laden with car puns, telling employers how to avoid getting "run over" by the tax.

Then, in 2015, Congress passed a two-year delay of the Cadillac tax, pushing its effective date from 2018 to 2020. Suddenly, employers had some breathing room with respect to their health plan strategy.

Then came the night of November 8, 2016, when Donald Trump won the presidential election to put the White House back in Republican hands for the first time in eight years. And it became a feasible possibility that the ACA, and with it the Cadillac tax, would be repealed (and/or replaced) in the near future. By this point, the Cadillac tax actually had bipartisan opposition,so now it seemed a near certainty that it would be abolished.

That brings us to today. While Republicans have thus far failed to fully repeal the ACA, dismantling the controversial health care law remains a top priority for the governing party, and it's likely we'll see plenty of potential legislation come up for debate in 2018. Meanwhile, January's short-term spending bill delayed the effective date of the Cadillac tax by another two years to 2022. And it's likely that the delays will keep coming until the tax is officially done away with for good.

In short, the Cadillac tax poses much less of an immediate and serious threat to employers. And since the concept of HDHP full replacement was largely a response to the original threat of the Cadillac tax, it makes sense that employers now feel less compelled to overhaul their health plan strategy than they did four years ago.

Learn more about key trends in employee benefits.

Get your free copy of Benefitfocus' State of Employee Benefits 2018 report, featuring data insights from more than 1.3 million benefit enrollment elections!


1. Towers Watson: 2014 Health Care Changes Ahead Survey Report 

2. PwC: Medical cost trend: Behind the numbers 2018

3. Oxford University Press: Why does the Democratic Party want the Cadillac tax abolished?