New benefit trends Featured

7:00pm EDT November 25, 2008

As the health care industry continues to evolve, employers face the challenge of absorbing health insurance increases and the impact they have on the bottom line.

The rise in health care costs continues to be two to three times the rate of inflation. And, as employees are gearing up for open enrollment, employers are contemplating their benefit offerings for the coming year.

“Long-range planning for an employer’s group health plan used to mean a three- to five-year business plan that was drawn up between the company’s decision-makers and their benefit consultants,” says Chuck Whitford Jr., CLU, ChFC, a consultant for JRG Advisors, the management company for ChamberChoice. “Today, employers do not have that luxury and must review what they are doing at least annually.”

Smart Business spoke with Whitford about new trends in benefits that aim to lessen the financial burden on employers.

Why are employers reviewing their strategies on an annual basis?

The financial pressure on all employers increases every year. For example, employers’ contributions for family coverage have increased, on average, by 119 percent since 1999. Today, the average annual cost for family coverage is $12,680 and employers are contributing $9,325, on average. Many employers are paying substantially more and are reaching the breaking point.

What can an employer do to rein in costs?

The first thing employers need to do is look at redesigning their plans in a way that engages their employees. Despite increasing costs, about half of health programs do not have a deductible. If you are offering what amounts to first-dollar coverage, how would anyone expect an employee to understand the true costs of healthcare? Employees have been insulated from these costs since ‘managed care’ was introduced in the 1990s.

How are employers restructuring their health care plans?

The most common benefit designs today still include relatively low copayments for preventive services, such as office visits, routine physicals and immunizations. Deductibles are emerging as the norm when it comes to more costly services, such as diagnostic and outpatient services and inpatient hospital admissions. The implementation of a deductible has the immediate impact of reduced premiums from the insurance company. Oftentimes, the premium savings enables employers to offset the increased out-of-pocket costs for employees by helping them ‘fund’ some portion of the deductible. Depending on the amount of the upfront deductible, our discussions turn to health savings accounts (HSA) and health reimbursement accounts (HRA) and which of these options, if either, makes sense to accompany the deductible.

If an employer has a deductible, is it better to have an HSA or an HRA?

It depends, as both concepts have advantages and disadvantages. Employers can fund either, but all contributions to an employee’s HSA vest immediately. Under an HRA, an employer isn’t funding separate savings accounts but instead is typically only reimbursing a portion of the deductible as employees and dependents incur expenses. In addition, most HRAs do not allow this liability to ‘roll over’ from year to year. Generally, we see deductible reimbursement equal to approximately 50 percent of the employer’s total deductible liability. HRAs have the same regulations that any other self-funded medical reimbursement plan has. To qualify for an HSA, your plan has to meet more stringent federal guidelines. For example, there must be a minimum deductible of $1,150 for single coverage and $2,300 for family coverage (2009 limits). It is important to keep in mind that the deductible applies to all nonpreventive services.

How else are employers getting their employees engaged to control costs?

Employers today are becoming more aware of the benefits of improving their employees’ overall health. Many companies offer financial incentives to employees who have healthy habits and lifestyles or those who participate in workplace wellness programs. More than half of firms with less than 200 employees and more than three out of four of larger firms offer at least one wellness program. The most important goals of any wellness initiative are to get employees to understand their own risk factors (through completing a health risk assessment questionnaire) and to get them to see a physician.

Are there any other strategies employers should consider?

In order to reduce these rising health care costs, some employers have adopted group health plan provisions restricting coverage of spouses. Typically referred to as ‘working spouse provisions,’ this restricts coverage for employees’ spouses who are eligible for other coverage, such as through the their employer. Some employers are charging an additional premium or contribution referred to as a ‘spousal surcharge’ where an employee must pay for coverage for their spouse who has other coverage available and chooses not to enroll in that coverage.

CHUCK WHITFORD JR., CLU, ChFC, is a consultant for JRG Advisors, the management company for ChamberChoice. Reach him at (412) 456-7257 or