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Beyond FSA: the next step to consumer-driven health care (CDHC)

An interview with Benefit Resource Vice President Tom Guiler

Savings of 30 to 40 percent on out-of-pocket health care costs make Flexible Spending Accounts (FSAs) attractive. But, for some employees, not attractive enough.

“Only about 20 percent of employees who could open FSAs do,” says Vice President Tom Guiler. “That creates a barrier for employers who hoped to use FSAs to introduce employees to consumer-driven health care, or CDHC.”

Employers are left scratching their heads, asking: “After FSAs, what’s the next step? What’s the best way to encourage more employees to investigate lower-premium health insurance coverage?”

“It may be the single most-asked question that we’re hearing from employers right now,” Guiler says. “It’s a very hot topic. Employers know that moving just a portion of their workforce into CDHC plans will produce significant savings.”

Instead of planning for annual double-digit increases in premiums, Guiler suggests that employers initiate a long-term strategy of cost containment.

“Most of our CDHC clients enjoy first-year savings ranging from 15 to 25 percent on their share of employee health care premiums.

“An added advantage to this strategy is that employees with a strong CDHC profile—often young, relatively healthy workers with moderate health care needs—enjoy significant savings as well. For the employees, it’s just like getting a raise. It’s a win-win situation all around.”

A best-kept secret: HRAs as an alternative to HSAs

“Because health savings accounts (HSAs) have received so much publicity, they’re often the first CDHC plan that employers ask about. But, for most employers, they’re not the best solution,” Guiler says.

“Consumer-driven health care plans have been with us for more than a decade and we’ve all had a chance to gain some experience. Health reimbursement accounts (HRAs) are just a better way to introduce CDHC. For the past three years, HRAs have been the CDHC strategy of choice—9 out of 10 employers now choose HRAs over HSAs.

“HRAs are more flexible than HSAs. They are more appealing to employees. And they are a more effective vehicle for shifting a portion of an employer’s workforce from traditional high-premium health care insurance to lower-premium plans.”

The beauty of an employer-funded HRA is that it doesn’t have to be tied to a particular health care plan; it can be used with any plan an employer decides makes sense. More specifically, unlike HSAs, HRAs aren’t tied to high-deductible plans.

Resistance to high deductible plans

“Many employers who have evaluated HSA strategies are put off by government requirements that pair HSAs with high-deductible plans. For employees on managed care plans, the shift from a $15 or $20 co-pay to a $3,000 annual deductible is a pretty big leap,” Guiler says.

HRAs offer an interim step. Employers offer a low-premium plan and attach an employer-funded HRA account to offset potential increases in out-of-pocket expenses for employees. Employees are given an incentive to choose a low-cost plan; the HRA reduces their risk.

A varied menu of health care plans satisfies all employees

Employers often offer a multi-plan menu:

a traditional, very high-cost, low-co-pay plan
a mid-range plan
a low-cost option that carries higher co-pays—perhaps the highest out-of-pocket costs that you can have with a health care plan—with an HRA attached to it

“Healthy, single workers who rarely use medical services and don’t want to be over insured will do the arithmetic and say, ‘I don’t go to the doctor that often; I rarely use prescription drugs. This employer-funded HRA is likely to cover my needs. This plan makes real financial sense to me.’

“Others—perhaps people with several children or with medical conditions requiring regular visits to the doctor—will likely choose a traditional high-premium health care plan because, despite rising levels of employee contributions, for them it’s still the most cost-effective choice.”

Funding HRAs from company savings on premiums

“Typically, the dollar amount that employers contribute to HRAs is a function of the premium that the employer is going to save. Say, an employer will save 15 percent, or $700, on his share of premiums if an employee chooses a lower-premium plan. The employer might give half of his savings back to the employee in the form of an HRA. In this case, the employer pockets $350. For a family plan, the savings could be three times that amount.”

The right start—a free CDHC analysis

Creating an HRA-based strategy that fits a company’s financial goals and culture is a complex task—a chore Guiler advises HR directors not to try at home.

“No one plan fits all. Custom CDHC plan design requires expertise, careful analysis of a company’s current benefits and future goals, and an intimate knowledge of ever-changing CDHC regulations. Miscalculations made initially can compound down the line.

“Getting the right start is critical. That’s why we offer companies a free CDHC savings analysis—to start them off with the kind of accurate information that supports sound decision making. The stakes are too high for a best guess.

“We run the numbers for a company in the context of their benefits strategy. Then we follow up—in person—with a detailed analysis and proposal. It’s free, no obligation and probably the smartest thing a company can do for itself right now.”

If you’d like a free, no obligation, CDHC savings analysis, simply call: 1-866-996-5200 or send us a note.

FSAs still offer a good introduction to CDHC

“Of course companies and employees who do have FSA accounts easily advance to more sophisticated CDHC strategies,” Guiler says. “FSA participants know how to comparison shop for health care services not covered by their insurance plan.

“Beniversal™ FSA participants know how easy it is to manage their accounts online or how convenient it is to simply present their Beniversal™ MasterCard® to health care providers. They’re confident that expert help is just a click or a phone call away. For them, the transition to managing an employer-funded HRA account is painless and stress-free.”

When employees progress to a plan that includes a Beniversal HRA, they can keep their Beniversal FSA. Their Beniversal card will automatically access the correct account. Online account services will show activity in each account. “Participants are more confident because they’re working with helpful people and user-friendly systems they already know. No doubt about it, it’s a big advantage.

“Whether employees already have FSAs or not, the key to getting employees on board with CDHC plans is education, education, education and support, support, support.

“That’s why Benefit Resource has developed outstanding educational programs and materials and why it provides such terrific support—via email, phone, web session, or in person. It’s why our customers continue to give us ratings of 95 percent and above for customer satisfaction, speedy reimbursement and professional, courteous service. It’s why our employee participation rates are consistently higher than those of the competition, which translates into greater savings for our clients.”

Learn more

“Employers and HR directors who want to know more about Health Reimbursement Accounts (HRA) can begin with the helpful information on our web site. And because we believe the best education is one-to-one, we’ll be happy to send a CDHC specialist to your office to answer your questions. Just call: 1-866-996-5200 or drop us a note. And don’t forget to ask for that free CDHC savings analysis.”