The number of small-business employers choosing consumer-directed health plans (CDHPs) grew from 8 percent to 13 percent in 2008, according to a survey by the Kaiser Family Foundation and the Health Research & Educational Trust (HRET).
High-deductible health plans coupled with a tax-preferred savings option, CDHPs such as health savings accounts (HSAs) or health reimbursement arrangements (HRAs) are undeniably more popular than ever — and not surprisingly, the survey also found that 60 percent of the employers who have moved to these plans cited cost as the primary reason behind their decision. It has been widely reported that fewer and fewer small businesses offer group health insurance as companies find themselves priced out of the market. As a result, employers are increasingly asking their agents about CDHPs.
Still, they have questions and concerns. Aren’t these solutions only for the young and the healthy? Isn’t this just cost shifting? How does an HSA really work?
Fortunately, most of these objections can be surmounted with proper attention paid to planning and communications.
1. Plan designs that make sense
First, help your client select a CDHP that makes sense for their group. A plan that drastically increases deductibles while not limiting out-of-pocket expenses or that does not provide for preventive care can have severe consequences on employees. Look for plans that provide 100 percent coverage once the deductible has been met and that cover preventive care, such as annual physicals. Those who use these plans frequently can actually receive better coverage than those who utilize conventional PPO plans, which typically come saddled with a co-insurance corridor after the deductible has been met and perpetual prescription drug copays. Good plan selection that addresses needs will help eliminate any objections that CDHPs are only for the healthy.
2. Determine the employer contribution
After selecting a CDHP, even one with reasonable benefit levels, your client should see some significant savings in premiums rates compared with the renewal rates for plans they currently offer their employees. The online insurance seller eHealth reported that the average monthly premium for a non-group individual with an HSA-qualified plan in 2008 was $133 versus $161 for a non-HSA plan. Likewise, the non-group family premiums were $302 versus $380. Since premiums for groups are likely to be much higher, there should be some significant premium savings compared with a non-HSA plan.
Encourage your employers to give some of these savings back to their employees in the form of a tax-advantaged contribution to the employees’ HSAs. Why is an employer contribution so important? A U.S. General Accountability Office report showed that nearly half of the people enrolled in HSA-eligible health care plans from 2005 to 2007 did not open an HSA, and about a quarter had no plans to do so. This implies that the majority enrolled in the plans simply to take advantage of the lower premiums. This, however, left them with no back-up to cover the higher deductible and increased their chances that the new plan would fail because of disgruntled employees who would come to view the plan as simply a cost-shifting measure with no direct benefit.
Couple this with a United Healthcare study that found that an employer contribution of any amount tends to increase participation in an HSA. In fact, according to this study, when an employer contributed to the HSA, 86 percent of employees opened an account, whereas only 27 percent did so without an employer contribution.
3. Communicate, communicate, communicate
Even before the final decisions have been made as to which CDHP to offer and how much the employer will contribute, you should begin communicating the benefits and features of the new plan to your client’s employees. It is never too early to start preparing employees for the change to come. Most benefits experts say it’s best to start six months before the switch. Jane Cooper of the Milwaukee-based firm Patient Care suggested that employers tell their workers exactly why they made the change — the business case, if you will. She said that employees need to understand what impact their individual health care costs have on the company’s total costs and profitability, and they need to understand that when the employer pays more in health care costs, less money is available for salary increases and other perks.
Most importantly, employees need to understand what direct impact the new plan will have on them. For this, you can use old-fashioned pen and paper or an online calculator. Many HSA provider Web sites offer such tools, or you can ask your carrier. Allow employees to make side-by-side comparisons of their costs under the old and the new plan design. Make sure they include in the calculation the employer HSA contribution, as well as the tax savings they will see when they contribute their own funds to the HSA.
With thoughtful plan design and well-prepared communications, transitioning small groups to CDHPs need not be a painful experience. In fact, done right, it might be the best thing an agent can do to help their clients keep valuable workers on board – and to preserve their clients for themselves, as well.
Marty Trussell is senior vice president of First Horizon Msaver Inc. He can be reached at [email protected].