Time to Reconsider HSAs?

While there has been a lot of talk about federal Health Care Reform and preventive benefits are now covered at no cost to the insured as part of Health Care Reform, many aspects of this legislation are still up in the air; therefore, in terms making decisions regarding your employee medical plan, you can only focus on the next two years. When you renew your employee medical benefits plan, you probably will be faced with another double digit increase, anywhere from the mid-teens to the mid-twenties. What should you do to minimize the impact while still providing your employees with the right insurance protection?

To make the best use of the dollars you spend on medical insurance, your broker should survey your employees to measure their satisfaction, usage of the medical and prescription drug benefits, find out what aspects of the plan are most important and what changes in benefits and/or contributions would be tolerable. How your employees use the plan and how much they use it? What trade-offs would be acceptable to them and how important is it to maintain their physician relationships? Further, it is an opportunity for your broker to inventory employees’ doctors in order to perform network match-ups.

Most businesses offer a menu of plans that will meet the needs of your entire staff with contributions geared to the lowest cost plan and allowing employees to buy up to a more expensive, richer plan. Since preventive benefits are now covered at no cost to the insured as part of Health Care Reform, you may consider a consumer directed health plan (CDHP) as your base (or low option) plan. CDHP’s are high deductible health plans that allow employees to select their own cost effective and appropriate care. The idea is to encourage people to become more accountable, informed and engaged about their health care. There are two types of CDHP: health savings accounts (HSAs) and health reimbursement arrangements (HRAs). Both plans incorporate a high deductible, on average $1,000 to $5,000 for an individual and $2,000 to $10,000 for a family. Shifting health care costs to employees via a high deductible results in premiums that are lower than a more traditional copay plan.

Health Savings Account

High deductible plans that meet the IRS standards for minimum deductible and maximum out of pocket costs are considered to be qualified high deductible plans (QHDP). Coverage under a QHDP allows someone to fund the deductible with pretax dollars through a Health Savings account provided that they do not have other medical coverage too. The IRS standards are reviewed each year and are subject to change. Unlike traditional plans where there is a deductible per person with a family limit, if an employee has family HSA coverage then there is no individual deductible only the family deductible whether only one person has expenses or several do. All expenses count toward the deductible including those for prescription drugs. Once the deductible is met, the plan usually incorporates copays and coinsurance up to an out-of-pocket limit, usually two times the deductible. Employers can fund part of the HSA deductible up to 50 percent provided they do it on a non-discriminatory basis. Employer funding of an HSA deductible means giving the money to the employee outright.

Since employer funding of a portion of the HSA deductible is giving the money to employees outright you may want to consider how it fits in with the rest of your compensation package. Also, you will want to consider how the funding ties into the premium savings that you would get from moving to a high deductible plan. HSAs allow partners and owners to meet the deductible with pre-tax dollars.

Health Reimbursement Arrangements

HRAs reflect a more traditional plan design but with a high deductible. Typically, they involve the employer funding of half of deductible. The employer only pays for employee health care costs when they are actually used by the employee.

Given that employees will have a higher maximum out-of-pocket cost, it is important to utilize all of available options to help them help themselves maximize their coverage. Consider the following tips for making an HRA successful in your company:

• Encourage employees to embrace “wellness” even if you don’t have a formal program. The insurance company websites have a health risk assessment tool that employees can complete. It will give them feedback on their overall health status and give recommendations to improve their health.
• Encourage employees to participate in the insurance company’s disease management programs. There are certain chronic diseases such as diabetes, asthma and coronary artery disease, to name a few, where the insurance company will reach out to the insured via a phone call for some coaching and to assure compliance with medications and doctors’ orders.
• Offer voluntary benefits that employees can pay for via payroll deduction. Benefits such as critical illness, accident and hospital indemnity provide protection against an unforeseen illness or injury. Recent studies by MetLife and Prudential reached a similar conclusion that employees value voluntary benefits much more than employers think that they are an important part of the firm’s benefit offerings.