As the cost of health care continues to
rise, employers are seeking alternatives to providing traditional methods of coverage. One option that is gaining
popularity is consumer-driven health care
plans (CDHP). New rules governing these
plans are making them more attractive to
employees and employers alike.
“Recent studies now estimate that 38 percent of all employers offer some form of
CDHP,” says Stephen J. Peck, president of
Kapnick Insurance Group’s Benefits
Division.
Smart Business spoke with Peck about
consumer-driven health care plans, the
advantages that these accounts provide
and why these types of programs are here
for the long haul.
What is a consumer-driven healthcare plan?
A consumer-driven health care plan is a
high-deductible health plan combined with
a tax-advantaged spending account. There
are two types of spending accounts: health
reimbursement accounts (HRAs) and
health savings accounts (HSAs). HRAs are
owned and funded by the employer and
HSAs are employee-owned and fully
portable.
HSAs are relatively new, having been created in 2003 by the ‘Medicare Prescription
Drug, Improvement and Modernization
Act’ with the intent to help individuals save
for qualified medical and retiree health
expenses on a tax advantaged basis.
How can employees benefit from a health
savings account?
There are several advantages to an
employee. First, contributions can be
made with pre-tax or after-tax dollars. Any
contribution made to the account with
after-tax dollars can be deducted from the
employee’s gross income on his or her federal tax return. Also funds in the account
grow with tax-deferred interest. Most unique to HSAs is the portability aspect.
These accounts are employee-owned and
therefore stay with employees during their
lifetime. Another advantage is that unused
balances roll from year to year, which has
potential to help employees with health
care expenditures into retirement.
Are there any potential pitfalls for employees?
I think the primary pitfall is confusion on
the employees’ part of what a HSA means to
them. A recent Conference Board report
indicates that low selection rates remain a
significant stumbling block among employers. It stands to reason that if employees
don’t understand a fairly new concept such
as a HSA, they are unlikely to switch plans.
What can employers do to avoid employee
confusion?
The basic premise of consumer-driven
health care plans is to make employees
take an active role in the purchasing of
health care services. The theory being that
if employees have a stake in the game, as it
relates to health care, they are more apt to choose the most cost-effective service.
Employers have an obligation to give their
employees the tools to make informed
decisions. This is accomplished by ensuring that a proper amount of time is being
spent educating employees on the impact
of their lifestyle choices. Employers should
consider the establishment of health management programs as a means to support a
healthy lifestyle choice by employees.
More important is implementing a comprehensive employee communication campaign that educates and informs. Lunch-and-learns, staff meetings, spousal meetings after work, posters and payroll
stuffers are effective ways to get the message out. It has been our experience that
any type of communication strategy needs
to be well thought out, implemented over
several months and using different methods of delivery.
Are consumer-driven health care plans,
specifically HSAs, here to stay?
Absolutely. The statistics from the U.S.
Department of Treasury illustrate the dramatic growth in HSAs. In 2004, it was estimated that 438,000 individuals were covered in a HSA-type program. Last year, 3.2
million people were covered and it is estimated that by 2010, 25 million to 30 million
individuals will have a HSA policy.
The regulations continue to be tweaked to
make HSAs more consumer friendly. At the
beginning of 2007, contribution amounts
allowed into HSA accounts were dramatically increased both for individuals and families. Also, if an employee is over 55, they
can make ‘catch up’ contributions.
STEPHEN J. PECK is president of Kapnick Benefit Services.
Reach him at (888) 263-4656 ext. 1147 or [email protected]. Kapnick Insurance Group is a member of Assurex
Global, an international network of insurance and employee benefit brokers.