It’s a never-ending battle.  Healthcare costs continue to rise.  As an employer, how do you cope?  If healthcare costs are rising, that means employee health benefit costs are rising.  You want to provide a valuable benefit for your employees, to retain and attract good talent.  For job seekers, the strength of an employer’s benefits package can be as valuable as the salary, even more so if they have dependents.  Employers have to become creative in their financial strategies to limit benefit costs.

How are employers dealing today?  Here are 4 strategies that some have adopted:

  1. Introduce higher premiums or employee cost-sharing.  This is a short-term tactic which shifts more of the financial burden to the employee.  Although it’s counter-productive for drawing talent, it is still a frequent tactic.  Employee cost-sharing offers several options, including higher deductibles and out-of-pocket maximums, moving from a fixed-dollar co-pay to a percentage-based co-insurance model, increasing employee cost for using non-network providers, and increasing employee cost for using brand name prescription drugs over generics.
  2.  Level-funding company healthcare costs.  You’re probably familiar with the traditional fully insured plan and the traditional self-funded plan.  Level-funding is a hybrid of the two, whereby the plan is filed as a self-funded plan, and the employer pays a fixed and unchanging premium per employee each month.  However, after one or two years, the plan is evaluated to see if the employer qualifies for a refund of premium if claims were lower than expected.  Likewise, the premium may increase at renewal if claims were higher than expected.  With a bit of ingenuity and planning, the employer could simultaneously implement other methods to encourage behavioral changes that lead to healthier lifestyles among employees, allowing the employer to realize premium refunds rather than increases.  Which leads to….
  3. Health and wellness initiatives.  This method of cost containment is becoming increasingly more common.  Employers have realized that improving employee health and wellness is an effective way to lower healthcare costs and improve productivity.  The key to the success of these programs is the use of incentives, such as rewarding employees for participating in a program or attaining certain health-related goals, such as smoking cessation.  Wellness programs should be tailored to the individuals, meeting them where they are in order to realistically assist them in reaching healthy goals.  Another important condition is the need to measure employee engagement.  If you know who is and who isn’t participating in the program, you will have a better understanding of how to implement incentive-based initiatives for the future.
  4. Consumer-driven health plans.  Typically, we are talking about Health Reimbursement Arrangements (HRA), Health Savings Accounts (HSA), and even Flexible Spending Accounts (FSA).  These plans allow employees to access funds to cover higher cost-sharing provisions in exchange for lower monthly premiums.  With employees being more engaged in the cost of healthcare services, they become better consumers.  They may be more inclined to consider the necessity of higher-cost healthcare in certain situations, e.g. going to an urgent care facility vs. the hospital emergency room. Further, this greater insight into how healthcare dollars are spent may also persuade them to make positive behavior changes in their lifestyles, leading to significant reductions in health plan spending year over year.  This is a win/win for both employer and employee.  Below is a breakdown of the differences between the 3 types of consumer-driven plans.

 

  Health Care FSA HRA HSA
What is it? It’s an account to help employees pay for eligible medical expenses. It’s an account to help employees pay for eligible medical expenses. It’s a personal bank account to help employees save and pay for qualified medical expenses.
How do you get it? Enrollment is through the employer if they offer an FSA.  There is no need to enroll in a health plan. It’s usually connected to a health plan.  If the employer offers an HRA, enrollment is automatic when signing up for the health plan. Requires enrollment in a high-deductible health plan that meets a deductible amount set by the IRS.  Other IRS guidelines must be met in order to be eligible.
Who contributes to it? The employee.  The employer can also contribute if they choose to. The employer.  Employee contributions are not permitted. The employee, their family, the employer, and anyone else that chooses to.
How is the money put into it? The employer will deduct money from the employee’s paycheck, before taxes, and put it into the account. The employer may contribute on a monthly basis, or may fund the entire contribution amount at the beginning of the plan year. The employee can make deposits just like a personal bank account.  Family & the employer can also contribute.  Employee may be allowed to deposit pre-tax money from paycheck.
What happens if I don’t spend all the money in one plan year? The employer may choose to allow a carryover up to the IRS limit of $500. The employer may allow a certain amount to be carried over into the new plan year. Since the employees owns the account, the money will remain until they choose to spend it.
Can I keep the money if I leave my job? No.  The employer keeps the money. No.  The employer keeps the money. Yes.  The employee owns the account.
When can I start using the funds? The employee can start spending down the FSA on the first day of the plan year. Different types of HRAs each have their own rules as to when funds can be accessed.  The employer will set the rules. The employee can start spending down the HSA once enrolled in a high-deductible health plan and has opened the account.
Do I have to pay taxes on the money? No No No
What can I pay for with it? Medical expenses that are determined by the IRS & the employer.  This includes dental, vision, and many other health care services and supplies as listed under Section 213(d) of the Internal Revenue Code. Medical expenses that are determined by the IRS & the employer.  The employer may only allow the HRA to pay for services covered by your health plan.  Some HRAs can be used to pay for dental, vision, & other services/supplies listed under Section 213(d) of the Internal Revenue Code. Qualified medical expenses, including services covered by a health plan as well as expenses listed under Section 213(d) of the Internal Revenue Code.
Can I have other accounts with it? Yes.  The employee can have an HRA or a dependent care FSA. Yes.  The employee can have a healthcare FSA and/or dependent care FSA. Yes.  The employee can have a limited-purpose FSA or limited-purpose HRA, which can only be used for eligible dental and vision services.

While health insurance premiums will continue to rise, employers have options to potentially reduce escalating costs while still providing a valuable benefit to their employees and encouraging employees to become more invested in their own healthcare.  If you’d like to learn how FSAs and HRAs can help you achieve your financial goals, contact us today at accountmanagement@midamerica.biz.

 

MidAmerica Administrative & Retirement Solutions has been providing retirement solutions since 1995, and health and welfare programs since 2002.  Our goal is to maximize benefit dollars for both the employer and the employees.  Our staff of highly experienced subject matter experts, ease of technology, and streamlined administration enable us to reach this goal.  Please contact us if you’d like assistance in reaching your goals.

 

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