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April 29, 2015 | Leave a Comment
Having been an Employee Benefits Consultant for over 20 years, I can gain much insight into a company’s culture by viewing the benefits offered to employees. When I see a very rich health plan that would tell me the company is very paternalistic or caring toward the employees. The reason is that the risk to the individual employee and her family is low (copays for office visits and drugs, low deductibles and out-of-pocket limits.). The company would pay a higher premium on behalf of the employee for her reduced risk. However with health care costs escalating employers have been forced to increase employee’s out-of-pocket costs (higher copays/deductibles/coinsurance) as well as increase her contributions (cost) toward the health care premiums. This cost shift to employees has led to an increase in Consumer Directed Health Plans (CDHP).
There are two types of CDHP plans. Health Savings Accounts (HSA) and Health Reimbursement Arrangements (HRA). Throwing out technicalities, know this about CDHP plans: They are lower cost plans because they represent less coverage. They have high deductibles and few or no copays before the deductible is met. I will not go into additional detail, but know that an HRA can allow for prescription copays where an HSA will not (aside for some “preventive” drugs). An HSA demands the greatest responsibility from the employee in that, aside from some preventive services, all cost of care goes to satisfy the plan deductible. The minimum deductible for an HSA in 2015 is $1,300 for individual coverage and $2,600 if family coverage.
This cost-shifting to employees in health care is very similar to the shift in retirement savings from defined benefit (Pensions) to defined contribution (401k). Like that change, this trend is not expected to reverse. If anything the trend is expected to accelerate as employers must balance fiscal responsibility with a desire to provide for their employees. Private Exchange models will also accelerate this migration to HSAs. Unfortunately this happening at a time when many employees are already struggling with day-to-day finances.
Enough with the negative talk. This situation presents a great opportunity. The proper strategy in this environment is to proactively accept, embrace and prepare for the inevitable. An employer that takes steps now will allow for a smoother transition and possibly a competitive advantage. With the right Advisor at your side, you can receive a detailed road map to positively move to CDHPs by incorporating employee choice, education, decision support and financial wellness.
Financial Wellness is key. This move to defined contribution medical benefits will cause enrollment in Health Savings Accounts to increase significantly. HSAs blur the line between medical benefits and retirement/401(k) monies. How? An HSA has two distinct and separate provisions. 1) The medical plan (described above – less coverage for the employee). 2) A savings provision that allows for the greatest gift of all for employees… cash. Glorious, problem-solving cash!!! Not the “root-of-all-evil” cash; but rather the good cash. This is medical and/or retirement cash. When used for medical expenses, this cash has triple-taxation benefits whether the money is used for medical expenses today or into retirement. The control is in the employee’s hands. When individuals spend their own money, they usually spend it wisely. When their dollars are at risk, then tend to engage. When customers engage by asking ask questions and gaining information the American marketplace tends to deliver solutions that will allow employees want.
However, be clear…HSAs have been in existence since 2003. Enrollment in these plans is low, but growing fast. It is important to understand the very real challenges in offering these plans are communication and cash flow. Employees are addicted to copays that were brought in from the HMO era. Copays are easy for folks that are paycheck-to-paycheck but they have insulated Americans from knowing what health care and prescriptions really cost. That is okay. We have you covered. With our generation-appropriate communication methods AND our proprietary account that eliminates the cash-flow challenge, Cornerstone Employer Solutions is the right Partner at this right time to navigate your business through.
In summary, be aware of that this shift in responsibility to your employees will not stop in the foreseeable future. This shift will create opportunities for your company to differentiate you as an employer of choice. Stay Paternalistic… Responsibly Paternalistic.
Mark Forhan, Cornerstone Insurance Group, Benefits Consultant
Posted in Benefits