Consumer-driven health care – putting more money and decision-making power in the hands of insured employees instead of plan providers – is the emerging standard for health benefits.
A successful model already in place is built around 3 powerful tools that provide terrific benefits for employees and employers alike: flexible spending accounts, high-deductible health plans, and health savings accounts which should accompany HDHPs.
However, recent data indicates that consumers are not using these tools properly. As a result, both employers and employees are missing out on the advantages. The success of the consumer-driven movement depends on the proper use of these accounts, and the potential advantages of a consumer-driven system for everyone are at stake.
Beyond just offering these benefits, it’s time for employers and their benefits advisors to take a larger role in helping employees choose them and use them.
Everybody wins–or should
Employers benefit from the successful use of the consumer-driven model. Well-designed consumer-driven plans right-size employer funded health benefits, leaving more of an employer’s overall compensation budget to reach employees in the form of cash. That means a more motivated, happier workforce; a more attractive package for new recruits; and a competitive advantage for the company.
Employees benefit as well. In addition to lower plan premiums, the consumer-driven health care model gives employees more control over their health care spending in 2 key ways.
First, consumer-driven accounts such as FSAs and HSAs shelter out-of-pocket expenses from taxes, and in the case of HSAs, the contributed money can be invested and grow until it is ready to be withdrawn and spent on qualified medical expenses or plan deductibles. The almost unheard-of tax advantages of these vehicles make it worthwhile for employees to consider these accounts as part of their overall personal financial and health plan.
Second, because the accounts confront employees with the actual cost of their decisions, through higher deductibles and more time spent reviewing out-of-pocket costs, they are motivated to spend less – by living healthier, shopping around for the care they need, or both.
Society benefits, too, because as consumers more directly affect supply and demand they will drive down unit costs of health care, which accounts for nearly 20% of the national economy.
What’s the problem?
Unfortunately, there is evidence that shows employers and employees are not “getting it” when it comes to consumer-driven health care. For example, even though 57% of Americans set aside money for health care, fewer than 1 in 5 use a tax-advantaged HSA or FSA. Additionally, industry statistics show that well under half of HDHP subscribers are opening the HSAs that are supposed to accompany the HDHPs.
So why are employees neglecting to open these beneficial accounts? Or making mistakes such as signing up for only an HDHP without the accompanying HSA when they do?
First, without the right guidance, navigating the new model for the first time can be difficult for employees. For employees, the process involves determining whether the FSA or HSA is better for them, setting contribution levels, and in the case of the HSA, making investment decisions. Those steps are added on to the decision about core plan election, which employees might already find very challenging.
Second, employees are skeptical. When 401(k) retirement plans were launched in the 1980s, people viewed them with suspicion: Where did my pension go? Why do I have to take this money out of my paycheck? Today, accustomed to both responsibility and its rewards, employees expect 401(k) plans wherever they work. Consumer-driven health care has not yet reached this level of acceptance, but it will eventually.
Employers have the power
Employees can’t directly alter the landscape of choices their employers offer, or determine how much support they get in navigating consumer-driven health. The power to give them the options they need, and a streamlined way to take advantage of them, lies with the employer and the employer’s benefits advisor (see chart).
The shift of more control and responsibility for health care expenses from employer to consumer is a welcome trend. The challenge now is to realize its potential. If employers and employees make the best use of the new tools at their disposal, everyone will benefit.