“Opportunity is missed by most people because it is dressed in overalls and looks like work.” —Thomas Edison
Health insurance renewal meetings. Four words that strike terror into the hearts of CEOs, CFOs, and HR managers alike—and rightfully so, given that increases have outstripped inflation by three times over the past decade. The most recent Kaiser Foundation/HRET study places health insurance renewal increases over the last 10 years at 8.7 percent on average, while inflation during the same time period has been just under three percent.
What is rather remarkable is that most companies are not doing a whole lot about it—short of cost sharing with their employees. Studies show that for the first time last year, the majority of American companies have a minimum deductible greater than $1,000. Employers are asking their employees to pay more, both as a percentage of their premiums and in total dollars, than ever before in history.
High-Deductible Health Plans
It is noteworthy to point out to frustrated employers that for some time now, they have had several funding options designed to control rate increases—and we now have data to support that assertion—that have not yet been embraced. In 2010, just 13 percent of all employer-based insureds were covered under an alternate funding plan such as a Health Savings Account (HSA) or Health Reimbursement Arrangement (HRA).
The theories of why employers have not moved more quickly into these plans are wide and varied. Critics claim that they favor the young and healthy, an argument with some degree of validity. Those with chronic health conditions typically run through any account dollars quickly. Still, only about 17 percent of Americans have claims in excess of $2,000 in any given year, so this group is not near as large as imagined. Moreover, most people in this group are conditioned to budget for extraordinary healthcare expenses each year.
Even more beneficial to the employee is that with healthcare reform under the PPACA, preventive care is expanded and now mandated (on non-grandfathered plans) to be covered at 100 percent, easing a relatively large burden on families. Also, forward-thinking companies (and good brokers) are pointing out that retailers like Walmart and Walgreens are now offering over 100 common prescriptions for just a couple of dollars per script.
The other big argument against these high-deductible health plans (HDHP) is that they are too complex or difficult for employees to grasp. This, too, is partially correct, in that such plans are indeed more intricate than traditional PPO plans. But with a competent broker, a good third-party administrator, and well-written documents and materials, these issues can be avoided. In fact, these types of plans—plans that put purchasing power in the hands of employees and reward them for being judicious buyers of healthcare—can be seen as a complete positive and an increase in the overall employee benefit package.
Three Types of Plans
There are three general types of plans with which employers should concern themselves: Health Savings Accounts (HSA), Health Reimbursement Arrangements (HRA) and Employee Savings Plans (ESP).
HSAs are the most popular type of funding and have gotten the most recognition in the press. Generally, the employer purchases an HDHP from an insurance company and partially funds an account to offset that high deductible if the employee has high medical claims. The employee can put his or her own monies into the account, too. The main advantage of HSAs is that the money going into the account, its subsequent growth and the dispensation of monies for qualified expenses are all tax-free. Once money is placed into the account, it remains forever with the employee—even if he or she leaves the employer. A particularly troublesome disadvantage is that the government highly regulates the provisions and limitations of the HDHP, as well as the account itself.
On the other end of the spectrum is the HRA, which is designed to more positively favor the employer. The employer still buys a high-dollar deductible plan; however, it need not be “qualified” by the government. Most importantly, the employer only needs to fund claims as the employer defines and as they are incurred. Any unused funds may or may not roll over to the following year, but that decision is entirely up to the employer.
The advantages of HRAs are substantial. The employee is receiving tax-free dollars to pay for qualified medical expenses that generally go beyond items not typically covered under a major medical policy—such as dental, orthodontic and vision expenses. The employer may elect to retain any funds should the employee quit his or her position, as well as the knowledge of maximum liability. There are some general fiduciary and compliance responsibilities, but those are easily outsourced. All expenses are fully deductible to the employer.
Finally, ESPs round out the selection of funding options to employers. Insurance companies have given a multitude of names to this style of funding over the years, but generally, the employer defines a low-deductible plan for the benefit of the employee, and purchases a much higher deductible from an insurance company.
The benefit is that the cost savings from purchasing such a plan outweighs the cost they will incur to fund the difference between deductibles. This plan greatly resembles a partially self-funded program, and requires compliance and benefit documents from a competent attorney. While some employers administrate the claims internally, it is much more cost-effective to have a third-party administrator pay and process the claims.
So, yes, understanding and implementing these plans requires a little work, but with a good broker with a penchant for education, a capable third-party administrator with experience and a little roll-up-your-sleeves attitude, companies can generate thousands of dollars in savings—and increase employees’ satisfaction with their employee benefits package. All it takes is a little work. iBi