As the health care industry continues to
evolve, employers face the challenge of
absorbing health insurance increases and the impact they have on the bottom line.
The rise in health care costs continues to be
two to three times the rate of inflation. And,
as employees are gearing up for open enrollment, employers are contemplating their
benefit offerings for the coming year.
“Long-range planning for an employer’s
group health plan used to mean a three- to
five-year business plan that was drawn up
between the company’s decision-makers and
their benefit consultants,” says Chuck
Whitford Jr., CLU, ChFC, a consultant for
JRG Advisors, the management company for
ChamberChoice. “Today, employers do not
have that luxury and must review what they
are doing at least annually.”
Smart Business spoke with Whitford
about new trends in benefits that aim to
lessen the financial burden on employers.
Why are employers reviewing their strategies on an annual basis?
The financial pressure on all employers
increases every year. For example, employers’ contributions for family coverage have
increased, on average, by 119 percent since
1999. Today, the average annual cost for family coverage is $12,680 and employers are
contributing $9,325, on average. Many
employers are paying substantially more and
are reaching the breaking point.
What can an employer do to rein in costs?
The first thing employers need to do is look
at redesigning their plans in a way that
engages their employees. Despite increasing
costs, about half of health programs do not
have a deductible. If you are offering what
amounts to first-dollar coverage, how would
anyone expect an employee to understand
the true costs of healthcare? Employees have
been insulated from these costs since ‘managed care’ was introduced in the 1990s.
How are employers restructuring their health
care plans?
The most common benefit designs today
still include relatively low copayments for preventive services, such as office visits, routine physicals and immunizations. Deductibles are emerging as the norm when it
comes to more costly services, such as diagnostic and outpatient services and inpatient
hospital admissions. The implementation of
a deductible has the immediate impact of
reduced premiums from the insurance company. Oftentimes, the premium savings
enables employers to offset the increased
out-of-pocket costs for employees by helping
them ‘fund’ some portion of the deductible.
Depending on the amount of the upfront
deductible, our discussions turn to health
savings accounts (HSA) and health reimbursement accounts (HRA) and which of
these options, if either, makes sense to
accompany the deductible.
If an employer has a deductible, is it better to
have an HSA or an HRA?
It depends, as both concepts have advantages and disadvantages. Employers can
fund either, but all contributions to an
employee’s HSA vest immediately. Under an
HRA, an employer isn’t funding separate savings accounts but instead is typically only reimbursing a portion of the deductible as
employees and dependents incur expenses.
In addition, most HRAs do not allow this liability to ‘roll over’ from year to year.
Generally, we see deductible reimbursement
equal to approximately 50 percent of the
employer’s total deductible liability. HRAs
have the same regulations that any other self-funded medical reimbursement plan has. To
qualify for an HSA, your plan has to meet
more stringent federal guidelines. For example, there must be a minimum deductible of
$1,150 for single coverage and $2,300 for family coverage (2009 limits). It is important to
keep in mind that the deductible applies to all
nonpreventive services.
How else are employers getting their
employees engaged to control costs?
Employers today are becoming more
aware of the benefits of improving their
employees’ overall health. Many companies
offer financial incentives to employees who
have healthy habits and lifestyles or those
who participate in workplace wellness programs. More than half of firms with less than
200 employees and more than three out of
four of larger firms offer at least one wellness
program. The most important goals of any
wellness initiative are to get employees to
understand their own risk factors (through
completing a health risk assessment questionnaire) and to get them to see a physician.
Are there any other strategies employers
should consider?
In order to reduce these rising health care
costs, some employers have adopted group
health plan provisions restricting coverage of
spouses. Typically referred to as ‘working
spouse provisions,’ this restricts coverage for
employees’ spouses who are eligible for
other coverage, such as through the their
employer. Some employers are charging an
additional premium or contribution referred
to as a ‘spousal surcharge’ where an employee must pay for coverage for their spouse
who has other coverage available and chooses not to enroll in that coverage.
CHUCK WHITFORD JR., CLU, ChFC, is a consultant for JRG Advisors, the management company for ChamberChoice. Reach him at
(412) 456-7257 or [email protected].
