A recent Wall Street Journal article reported on the precipitous drop in the number of health care services Americans are using of late. They bolstered this argument with second quarter 2010 financials from insurers, lab-testing companies, and hospitals. And as overall health care consumption went down, the number of individuals on consumer-driven health plans went up. Roughly 18 million Americans bought high-deductible plans this year, an increase of 5 million over last year’s numbers.

Eyeball the data above and you’ll see a pattern begin to emerge, as consumers’ cost-sharing burdens go up on healthcare, their consumption takes a nose dive.

So, what does this mean for employers?

Let’s take a look at the implications on both the macro and micro level. What it means for premiums across the board and what it could mean for a single group?

From a big picture standpoint, weak demand for healthcare services may give insurers no choice but to lower premiums (in an effort to stay competitive). Cost of healthcare services in and of themselves may drop as well.

A similar philosophy holds true for a single group. When an employer first makes the move from a legacy plan to one with a $1,000, $1,500 or $2,000 deductible (or makes the move from a deductible plan with an HRA/FSA to an aggressively priced HSA plan) employees will gain unprecedented exposure to out-of-pocket costs.

With this new exposure, cost will make a triumphant entry into the variables employees consider when evaluating healthcare choices. They’ll begin to make more cost-conscious decisions such as going to an urgent care clinic instead of the ER for an earache or seeing a nurse practitioner as their PCP for minor visits like strep throat cultures.

Lower costs for services mean lower overall claims and since 87% of health premium dollars go towards claims, your group’s rates will go down too.

$787 billion stimulus package mandates employer action on COBRA assistance subsidies effective March 1, 2009. President Obama signed the new American Recovery and Reinvestment Act (ARRA) into law on February 17, 2009. ARRA provides a partial subsidy of COBRA and state mini-COBRA premiums to qualifying assistance eligible individuals (AEIs), their spouses and dependents. Premium assistance for these individuals begins on or after February 17, 2009 and lasts through December 31, 2009.

AEIs are qualifying COBRA beneficiaries who:

• Have become eligible for COBRA continuation coverage on or after September 1, 2008 (and before December 31, 2009).
• Qualified for COBRA due to involuntary termination for reasons other than gross misconduct.

COBRA premium assistance is not available to individuals whose adjusted gross incomes exceed $145,000 annually ($290,000 annually for joint-filers). For individuals whose annual adjusted gross incomes fall between $125,000 and $145,000 ($250,000-$290,000 for joint filers), COBRA subsidies are phased out through added taxes. Employees subject to these taxes can permanently waive their rights to a subsidy and pay the full COBRA premiums.

The ARRA applies to medical, dental, vision and employee assistance programs. It does not apply to Medical FSA accounts and we are still awaiting clarification on whether or not it applies to HSAs. As soon as we receive a definitive response on this, we will immediately update you.

How the COBRA subsidy works:

Premium subsidies are available to AEIs for up to nine months of their maximum COBRA coverage period. Subsidy amounts are based on the actual cost of COBRA premiums that the AEIs would otherwise incur.

Assistance eligible individuals first contribute 35 percent of the monthly premium cost. You, the employer, then pay the remaining 65 percent and submit the payment to your insurer directly. The federal government will reimburse you for your contribution amount through a credit or refund of an overpayment of payroll taxes through the 941 Filing. The IRS will release an updated Form 941 that reflects this tax credit soon.

If elected, subsidized COBRA coverage for the AEI starts the first of the month. His or her eligibility for COBRA subsidies will terminate on the earlier of:

• Nine months following their his or her date of COBRA election/re-election.
• An offer of any new employer-sponsored health care coverage.
• Medicare Eligibility

What do employers need to do:

COBRA subsidies will be available starting March 1, 2009 so you, the employer, must take the following actions promptly.

Notices to re-enroll for current COBRA recipients: Qualified beneficiaries who are currently on COBRA must make a new election to establish premium assistance under ARRA. You must send these individuals COBRA re-election notices with the