Better health insurance Featured

8:00pm EDT June 25, 2007

As the cost of health care continues to rise, employers are seeking alternatives to providing traditional methods of coverage. One option that is gaining popularity is consumer-driven health care plans (CDHP). New rules governing these plans are making them more attractive to employees and employers alike.

“Recent studies now estimate that 38 percent of all employers offer some form of CDHP,” says Stephen J. Peck, president of Kapnick Insurance Group’s Benefits Division.

Smart Business spoke with Peck about consumer-driven health care plans, the advantages that these accounts provide and why these types of programs are here for the long haul.

What is a consumer-driven healthcare plan?

A consumer-driven health care plan is a high-deductible health plan combined with a tax-advantaged spending account. There are two types of spending accounts: health reimbursement accounts (HRAs) and health savings accounts (HSAs). HRAs are owned and funded by the employer and HSAs are employee-owned and fully portable.

HSAs are relatively new, having been created in 2003 by the ‘Medicare Prescription Drug, Improvement and Modernization Act’ with the intent to help individuals save for qualified medical and retiree health expenses on a tax advantaged basis.

How can employees benefit from a health savings account?

There are several advantages to an employee. First, contributions can be made with pre-tax or after-tax dollars. Any contribution made to the account with after-tax dollars can be deducted from the employee’s gross income on his or her federal tax return. Also funds in the account grow with tax-deferred interest. Most unique to HSAs is the portability aspect. These accounts are employee-owned and therefore stay with employees during their lifetime. Another advantage is that unused balances roll from year to year, which has potential to help employees with health care expenditures into retirement.

Are there any potential pitfalls for employees?

I think the primary pitfall is confusion on the employees’ part of what a HSA means to them. A recent Conference Board report indicates that low selection rates remain a significant stumbling block among employers. It stands to reason that if employees don’t understand a fairly new concept such as a HSA, they are unlikely to switch plans.

What can employers do to avoid employee confusion?

The basic premise of consumer-driven health care plans is to make employees take an active role in the purchasing of health care services. The theory being that if employees have a stake in the game, as it relates to health care, they are more apt to choose the most cost-effective service. Employers have an obligation to give their employees the tools to make informed decisions. This is accomplished by ensuring that a proper amount of time is being spent educating employees on the impact of their lifestyle choices. Employers should consider the establishment of health management programs as a means to support a healthy lifestyle choice by employees.

More important is implementing a comprehensive employee communication campaign that educates and informs. Lunch-and-learns, staff meetings, spousal meetings after work, posters and payroll stuffers are effective ways to get the message out. It has been our experience that any type of communication strategy needs to be well thought out, implemented over several months and using different methods of delivery.

Are consumer-driven health care plans, specifically HSAs, here to stay?

Absolutely. The statistics from the U.S. Department of Treasury illustrate the dramatic growth in HSAs. In 2004, it was estimated that 438,000 individuals were covered in a HSA-type program. Last year, 3.2 million people were covered and it is estimated that by 2010, 25 million to 30 million individuals will have a HSA policy.

The regulations continue to be tweaked to make HSAs more consumer friendly. At the beginning of 2007, contribution amounts allowed into HSA accounts were dramatically increased both for individuals and families. Also, if an employee is over 55, they can make ‘catch up’ contributions.

STEPHEN J. PECK is president of Kapnick Benefit Services. Reach him at (888) 263-4656 ext. 1147 or Kapnick Insurance Group is a member of Assurex Global, an international network of insurance and employee benefit brokers.