In the 2010s, consumers have adapted to many fast-changing aspects of life, quickly moving from cell phones to smartphones and from DVRs to binge-watching movies via video streams on tablets. But one aspect of American life that’s changing fast where consumers are still playing catch-up is with new forms of health insurance. Most attention is rightly focused on the new ACA requirements and their implementation – much of which are designed to get people ensured.

But while the ACA is reshaping the healthcare landscape, there are other changes consumers are just starting to adjust to as people with existing insurance through their employers find that their companies are adopting high-deductible insurance coupled with health savings accounts (HSAs). This form of health plan is prevalent among companies that provide health insurance to employees, along with health insurance options available on the new Health Insurance Marketplaces.

This “Consumer-directed” health insurance translates to people playing a greater role in making decisions, both financial and medical, in managing their health plans. And it casts you, the consumer, in a starring role for managing your health care.

The wage-health insurance trade-off

Why is this happening? Simply put, businesses and health plan sponsors can no longer fully absorb the high cost of health care. While the ACA was designed, in part, to get at this problem, the trend toward high deductible plans paired with HSAs has been going on for some time.

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Here is the health economic story behind what workers have faced in the past decade, which is the driving force behind consumer-directed health care. The increase in the cost of health insurance premiums between 2003 and 2013 has been about 140%, with workers’ contributions rising about 134%. At the same time, the increase in workers’ wages has been only about 36% over the decade. Thus, insured people have in reality traded off health insurance benefits for wage increases.

Employers will continue to shift financial risk to workers, based on a survey on employer-sponsored health benefits by Deloitte which found that more work-based health benefit designs will move toward defined contribution, with increased worker cost-sharing, along with concerted efforts to motivate employees’ lifestyle behavior changes to lower health risks via wellness programs and the use of behavioral economic incentives.

In fact, 2014 will be the tipping point year for defined contribution health plans, foresees Peter Orszag, former Director of the White House Office of Management and Budget in 2009-10. Today, 38% of workers across all size firms are now enrolled in HDHPs with deductibles of $1,000 or more, found from the 2013 Employer Health Benefits Survey provided by the Kaiser Family Foundation (KFF) and the Health Research & Educational Trust (HRET).

The Aon Hewitt employer health survey released in October 2013 talked about this trend as “migrating” risks to employees. Here’s a look at strategies and tactics employers use or are considering using to reduce their exposure to rising health costs. Not surprisingly, the most prevalent involves more shared responsibility with the employees being insured.

 A car, a year of college, or health care for a family of four?

If you have $22,030 in your wallet, you can buy:

A Car A Year of College[Savy]3-12 (1)-01-1[1]

The 2013 Milliman Medical Index gauges the annual health care costs for a typical American family at $22,030, up $1,302 from 2012 — a 6.3% increase, nearly 6x the increase of 1.1% for the U.S. Consumer Price Index from April 2012-April 2013. That 1.1% includes the costs of food and energy, along with cars, tobacco, shelter, and other consumer goods.

In 2013, the average family will cover $9,144 of that $22K total, representing over 40% of annual costs. And out-of-pocket health costs (co-pays, coinsurance and other cost-sharing) of $3,600, are roughly equivalent to gas costs for a year.

Milliman estimates that $9,144 is just over the annual cost of groceries for that same family of four. This is split between premium costs of $5,544 and out-of-pocket costs of $3,600, spent across doctors, hospital care, outpatient care, pharmacy, and other services like home health.

Milliman’s bottom line is that, “While both employer and employee costs increased, a larger portion of the shared increase was borne by the employee, primarily through the payroll deduction.”

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Employers’ plans for health benefits in 2014 strongly focus on getting a return-on-investment from health spending in an uncertain climate, according to Deloitte’s 2013 Survey of U.S. Employers, which found that:

  1. Employers will grow their use of workers’ cost-sharing, continuing to shift more financial responsibility onto employees
  2. They will expand other tactics they believe will help address cost increases, such as defined contribution plans and potentially cutting benefits
What this means for you

Consumers must gird themselves for an immediate future where they have greater responsibilities for decision making and financial management when it comes to health care. The new world of high-deductible health plans will require much more education and involvement by consumers to understand (1) the amount of deductible, (2) how to manage that spending up to the out-of-pocket limit, and (3) when to use what services to optimize that spending. This won’t be easy –most U.S. families don’t manage within a family budget, and here we are talking about a health-budget.

This doesn’t mean families can’t handle these responsibilities. In fact, just as in the tax arena, there are plenty of tools the give consumers the power to understand and make the decisions that are right for them. But adjusting to this new reality will take time and learning. It’s all part of a broader trend in which the power and responsibility for their financial lives rests more on individuals.

In future articles, we’ll explore what consumers know or don’t know about health savings accounts and how to use them, what tax and other tools are available to them, and how they can take control of their own financial and healthcare choices in the new “DIY” world.

Jane Sarasohn-Kahn, THINK-Health and Health Populi blog
Member of the Advisory Committee, The American Tax & Financial Center