For months now, I’ve heard stories about a technique that insurance brokers use to sell health insurance to small businesses, which want the lower premiums that come with a consumer-directed health plan, but are nervous about convincing their employees to face a deductible of at least $2,200 for a family policy.
There’s a story explaining this in the Sacramento Business Journal, by Kathy Robertson on August 22. The feature is for subscribers only, but there is a summary on a free website. The technique is called a “wrap-around”. (I think Ms. Robertson misunderstood it a little, because she identified Health Savings Accounts as the tool to execute the wrap-around, but I don’t think it’s possible to abuse an HSA like this. I think it’s more likely Health Reimbursement Arrangements or Flexible Spending Arrangements.)
The broker sells the small business a high-deductible health plan, with a lower premium, but then “immunizes” the employees from the high deductible by having the employer wrap it so that the employee pays only a fraction of the deductible. As a result, the employee faces the incentives of a traditional policy (e.g. $20 co-pay, $250 deductible) and the incentives for consumer-directed health care collapse.
Note: this is completely different than an employer depositing a few hundred dollars in your HSA every year, to motivate you to switch to a consumer-driven health plan. It that case you control the dollars, and the consumer-driven incentives are not destroyed. With the wrap-around, the employee does not see the dollars, but sends the invoice to his employer, just like any other business expense.
Because the wrap-around destroys the incentives for consumer-driven care, claims experience is much higher than in a real consumer-directed health plan. All that the broker and small employer have really achieved is to fool the carrier into thinking it’s written a consumer-driven policy when it’s really written a traditional policy.
The carriers have wised up and are asking brokers to sign contracts that contain commitments not to wrap-around, or they’ll lose their commissions.
What’s the public policy issue? The state must ensure that such contracts are enforceable. Both the sanctity of contract, and the success of consumer-driven health care, depend upon it.