An FSA gives employees a systematic way to set money aside, through pre-tax payroll deductions, to pay for eligible health care expenses not covered by their company's health plan. They can use the money to pay for prescription co-payments, contact lenses, dental care, laser eye surgery and other items their employer specifies as eligible within Internal Revenue Service guidelines.
Employees decide how much to contribute for the year. The employee's annual contribution, divided by the number of pay periods per year, is the amount automatically deducted from each paycheck and deposited to the FSA.
A win-win way to save
An FSA offers tax savings and other advantages for both employers and employees.
The plans allow employees to:
* Pay less in income taxes, since they contribute pre-tax dollars to their FSA
* Put as much money into their FSA as needed -- often $5,000 or more -- as long as the amount doesn't exceed the limit set by the employer within IRS guidelines
* Have FSA contributions set aside automatically, usually through payroll deductions, making the FSA a simple, systematic way to save for health care expenses
* Spend the entire amount of their annual FSA contribution at any point during the plan year, even before the money is in the account
The plans allow employers to:
* Reduce payroll taxes, since employees' contributions are pre-tax dollars
* Specify the minimum and maximum amounts employees can contribute to an FSA, within the limits set by the IRS
* Select, from an IRS-approved list of FSA-eligible items, those items for which their employees can receive FSA reimbursement
* Be relieved of the administrative details associated with managing accounts, if the insurance carrier manages the FSA
The only objection to FSAs has been the "use it or lose it" provision. Employees must aim for accuracy in estimating their annual contribution, because any money remaining in the FSA at the end of the plan year is returned to the employer.
Converting users to consumers
Because employees spend their own money for FSA-eligible medical services, they become more cost-conscious consumers of health care. They begin to shop for health care just as they do for other goods and services -- by looking at the options available, comparing costs and then choosing the service or product and price they prefer.
To make it quick and simple for employees to access and manage their FSA dollars, some insurance carriers provide a stored-value card for use at the point of service. The convenience and familiarity of swiping a card appeals to consumers and encourages them to participate in an FSA. Carriers that administer FSAs may also include secure, Web-based FSA status reports to help employees keep track of their account balance and manage their spending.
FSAs signal a growing convergence of health care management and financial management that leads employees to think of health care in a new way -- as active consumers, not passive users. This new way of thinking can help employees -- and their employers -- reduce costs and improve their bottom line.
ALAN GUZZINO is president of Humana's Atlanta, North Carolina and South Carolina market health plan operations and is responsible for the management, strategic planning and growth of those markets. Guzzino, an eight-year veteran of Humana, serves on the board of the Georgia Association of Health Plans. Reach him by e-mail at firstname.lastname@example.org. ROBERT S. WOLFKIEL is vice president of sales for Humana's Atlanta market and is responsible for managing and directing the sales initiatives, enrollment process and profitability of Humana's product portfolio within that market. Wolfkiel, although new to Humana, has more than 14 years of health care industry experience. Reach him by e-mail at email@example.com.
Until recently, consumers had little reason to learn about and understand the true costs of their care. That's because employers who offer health insurance have tended to absorb the vast majority of their employees' health insurance premiums and a large share of claims expenses.
In an effort to maintain a healthy bottom line, some employers are considering solutions that miss a key ingredient necessary for success and employee satisfaction -- consumerism. Employers are reducing benefits, increasing employee premiums and out-of-pocket costs or dropping coverage altogether.
However, technology offers a fresh approach. A new era of consumerism is emerging; employees can now be engaged in choosing and using their benefits wisely.
A fresh approach to rising health care costs
Consumerism is inevitable. While achieving short-term success, every other proposed solution -- government control, employer control, provider control and insurer control -- has ultimately proven inadequate to satisfy consumers and tame the medical cost monster.
Surveys show most consumers believe the total cost of a doctor's office visit is equal to their co-payment. As we enter this new phase of health benefits, the veil must be lifted so consumers understand the economic realities of their choices.
However, simply exposing employees to health care costs will not solve the problem. In fact, merely shifting costs to employees increases consumer dissatisfaction and may drive legislation to protect consumers. To be successful, consumers must have the information necessary to make wise choices, both in terms of cost and quality.
When people spend their own money -- and have access to good, actionable information to help them choose wisely -- they're going to be much better at controlling spending for themselves and their employers.
Health care costs today and tomorrow
While the power to strengthen the health care system and control health cost increases is mostly in consumers' hands, the system's other stakeholders have important roles, too.
- Insurers must engage consumers, so they understand the true cost of their health care and make an effort to keep those costs in check. We must enable consumers to choose and use the benefits they need with the confidence that comes from up-to-the minute, electronically delivered knowledge. At the same time, we must continue to provide catastrophic medical coverage as a reliable financial safety net.
- Political leaders must create a regulatory environment that encourages innovation and administratively efficient benefit plan choices and produces consumer-friendly comparison tools about health care provider cost and quality.
- Doctors and other health care providers must help their patients become truly informed consumers of health care by explaining the range of treatment options and associated costs.
Most of all, consumers must gain a better understanding of the health care system. Through consumer-choice plans, they should be encouraged to investigate treatment alternatives and ask questions about the true cost and quality of services.
Ultimately, we must all work in concert if we're going to put an end to continually rising health care costs. If we stop pointing fingers and start pulling together, we can make consumerism a key factor in our heath care system, solving the cost crisis once and for all while increasing choice, value and quality for employees and their families.
Alan Guzzino is the president of Humana's Atlanta, North Carolina, and South Carolina market health plan operations and is responsible for the management, strategic planning and growth of those markets. Guzzino, an eight-year veteran of Humana, serves on the board of the Georgia Association of Health Plans. Reach him at firstname.lastname@example.org. Robert S. Wolfkiel is vice president of sales for Humana's Atlanta market and is responsible for managing and directing the sales initiatives, enrollment process and profitability of Humana's product portfolio within that market. Wolfkiel has more than 14 years of health care industry experience. Reach him at email@example.com.
Now, at the turn of the millennium, we again find ourselves experiencing rapidly rising health care costs. For nearly two decades, health maintenance organization plans and other managed care products helped to control health care costs, but managed care as we know it no longer works.
For many reasons, health care costs are spiraling out of control and unleashing double-digit health benefit cost increases. Some of the reasons include:
* Skyrocketing malpractice insurance costs
* Legislative mandates
* Consumers increasingly choosing elective health care procedures
* Shortage of skilled hospital workers such as nurses and pharmacists
* Escalating costs of prescription drugs
This new environment has created a dilemma for employers, who must wrestle with providing affordable, meaningful health benefits to employees without damaging their bottom line.
Health benefit companies are developing new ways to control costs. Through the advent of consumer-choice health plans, these companies have sought to eliminate one-size-fits-all health plans and match benefit options with consumers' health and financial needs. In addition, many have made it possible to reduce administrative costs through the adoption of technology that allocates more of monthly premium dollars to pay medical claims.
Technology has brought about dramatic improvements in consumers' lives, but only recently has it begun impacting the health care industry.
Technology has delivered many improvements in health benefits, including:
* Access to real-time information. The Internet provides real-time information on treatments, prescription drug coverage and hospitals, empowering consumers to interact with physicians on a more informed basis with respect to clinical issues and cost. Access to real-time information can provide quantum improvements in disease management and preventive care. Patients and physicians can identify hurdles in advance based on the patient's family history, records and latest research in the medical field, now available online.
* Easier administration. Physicians and other providers can use the Internet to access patient eligibility and benefit information. This provides 24/7 access to coverage information and reduces the cumbersome task of waiting on the telephone for information.
* Control over health spending. Technology is making it possible for consumers to customize health solutions based on individual preferences. Web-based financial calculators have made it possible to weigh plan options based on financial impact.
* Smarter approach to cost control. Online enrollment, billing and reporting, provisions for online credit card transactions and electronic funds transfer payments streamline business processes, and save time and money.
Employers and consumers also can combat the rising cost of health benefits by becoming informed health care consumers. If consumers are encouraged to become engaged in the true cost of their health care and are given actionable, Web-based information to help them make informed health care decisions, health costs can be brought under more effective control. Alan Guzzino is president of Humana's Atlanta, North Carolina and South Carolina market health plan operations and is responsible for the management, strategic planning and growth of those markets. Guzzino, an eight-year veteran of Humana, serves on the board of the Georgia Association of Health Plans. Reach him at firstname.lastname@example.org. Robert S. Wolfkiel is vice president of sales for Humana's Atlanta market and is responsible for managing and directing the sales initiatives, enrollment process and profitability of Humana's product portfolio within that market. Reach him at email@example.com. GHC-16365(GA) 4/04 Offered by Humana Employers Health Plan of Georgia Inc. or insured or administered by Humana Insurance Co.
But that's not enough in this era of health care cost escalation. It's also important to give your employees access to useful information throughout the year.
To address rising costs, you and your insurer should help your employees become active health care consumers by providing meaningful information in an understandable and usable fashion.
You can promote health care consumerism by:
- Identifying real cost drivers in health care
- Explaining how choices affect costs
- Demonstrating the value (cost) of health plan benefits
- Guiding employees through open enrollment to select the health plan that fits their needs
With the advent of consumer-choice health plans, employees have to make more decisions than in the past. They need education and guidance to understand their choices and make informed decisions. Your leadership is vital to employee behaviorial change.
Many consumer-directed health plans do not have an educational component. However, a few insurers are starting to provide year-round, comprehensive employee education to help employees understand the true cost of health care and manage their spending, including turn-key communications packages that begin at pre-enrollment and continue through the plan year.
A good communication strategy makes use of newsletters, Web content and direct mail to educate employees and encourage them to gain a better understanding of their health benefits decisions. Insurers and employers are starting to recognize that it's important to guide members through the complexity of the health care system while placing them in control of health care decision-making.
Employees learn to weigh their options and compare costs and benefits so they select the right amount of coverage during enrollment. Throughout the year, with timely educational communications and Web-based tools and resources, employees learn how to get the most value out of their health benefits plan.
Offer year-round guidance
Before enrollment, during enrollment and after, it's important to give employees tips, tools and guidance to help them make smart use of their health benefits. Communications targeted to the interests of the company and its employees can make a big difference in keeping them on track. Even e-mail messages can reinforce wise decision-making.
Here are just two of the benefits you will reap by developing employees who are knowledgeable about effective use of health benefits.
- Savings -- Employers are finding that employees who are engaged in choosing and using their health benefits become informed, cost-conscious consumers, which can help a company's bottom line.
- Peace of mind -- By answering your employees' questions and giving them confidence in making health care decisions you'll give them a feeling of control over their benefits and their choices, as well as satisfaction with their coverage.
Take an active role in getting your employees up to speed on the many aspects of their coverage. A health benefits education program that actively engages employees year-round can be a real asset in controlling costs and providing much more than just a typical health plan.
And that's a real plus for you and your bottom line.
ALAN GUZZINO is president of Humana's Atlanta, North Carolina, and South Carolina market health plan operations and is responsible for the management, strategic planning and growth of those markets. Guzzino, an eight-year veteran of Humana, serves on the board of the Georgia Association of Health Plans. Reach him at firstname.lastname@example.org.
ROBERT S. WOLFKIEL is vice president of sales for Humana's Atlanta market, responsible for managing and directing the sales initiatives, enrollment process and profitability of Humana's product portfolio within that market. Wolfkiel, although new to Humana, has over 14 years of health care industry experience. Reach him at email@example.com.
These advancements benefit employees, employers, providers and the entire health care system.
* Easier access to health care and cost information. Through the Internet, patients can learn more about health conditions and procedures than ever before. The Internet also gives patients more complete information about the actual cost of medical care, a concept called transparency.
Knowledge about health care options and costs helps turn passive health care users into active health care consumers, a key factor in reducing health care claims.
* Greater choice and control. As health care costs rose dramatically in recent years, many employers chose a unique solution to combat the increases, offering employees a range of health plans with appropriate levels of cost sharing.
With this approach, employees choose a plan with coverage levels consistent with their needs, and they're more likely to use benefits wisely, resulting in reduced claims costs.
These choices wouldn't be possible without Web-based tools that help employees see the financial impact of their decisions. For example, online calculators help guide employees as they research and choose a health plan.
Web-based pharmacy tools assist members as they make prescription drug choices. Online calculators show employees the advantages of contributing pre-tax dollars to a Flexible Spending Account.
* Paperless transactions. Some health benefits companies have introduced stored value cards tied to a member's Flexible Spending Account or Health Reimbursement Account. Members just swipe the card at the provider's office, allowing them to pay from their account at the time of service.
* Simplified benefits administration. Online benefits enrollment saves time and money in HR departments, but technology also helps benefits administrators after the open enrollment period. They can now accomplish tasks such as beneficiary changes, billing and reporting via online self-service channels.
* Predictive data. New advances in data management help employers predict and manage health benefit costs. Predictive tools identify patients who may benefit from disease management programs.
Data analysis flags employee groups that may benefit from preventive care efforts. With these kinds of programs, employers can approach health care proactively, increase the health of their employees and reduce health care claims costs.
* Better communications and better care. Technology provides real-time information to doctors, hospitals, pharmacies, members, employers, benefits companies and others in the health care industry.
Doctors and other health care providers no longer have to wait on the phone for patient eligibility and benefit information; they can use the Internet to get this information 24 hours a day, seven days a week. Doctors and hospitals can see a patient's health conditions and history from a broader perspective, which may lead to better treatment.
The Internet also allows providers to gain information quickly about the latest medical research.
The use of information technology simplifies health benefits administration for employer groups, physicians, hospitals and other health care providers. Technology gives consumers personalized information to help them understand the financial impact of health care decisions and control spending better.
And the good news for employers is that technology plays a key role in the consumer-choice approach that may help them reduce health benefits costs. Alan Guzzino,president of Humana's Atlanta, North Carolina and South Carolina market health plan operations, is responsible for the management, strategic planning and growth of those markets. Guzzino, an eight-year veteran of Humana, serves on the board of the Georgia Association of Health Plans. Reach him by e-mail at firstname.lastname@example.org. Robert S. Wolfkiel,vice president of sales for Humana's Atlanta market, is responsible for managing and directing the sales initiatives, enrollment process and profitability of Humana's product portfolio within that market. Wolfkiel, although new to Humana, has over 14 years of health care industry experience. Reach him by e-mail at email@example.com.
Offered by Humana Employers Health Plan of Georgia, Inc. or insured or administered by Humana Insurance Company. GHC-16490 5/04