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More employers will drop health insurance following a trend in retirement benefits

9 Jun

If you are a regular reader you know I am a great believer in unintended consequences. You may also know that during the health care reform debate I said that the legislation was constructed in such a way that employers would be encouraged to drop their coverage, pay the fine and thereby shift employees to the exchanges even if it meant providing employees with an additional payment toward the premium. Given that most Americans would be entitled to a federal subsidy toward the cost of coverage this would result in more costs than projected for the federal government.

For many workers and their employers this is a win-win situation as it is for policymakers seeking more government control over the system (perhaps the intended consequences). It may not be such good news for the federal budget and assumed savings from health care reform.

A recently released study conducted in early 2011 by McKinsey and Co and reported in McKinsey Quarterly reports the following:

Overall, 30 percent of employers will definitely or probably stop offering ESI (employer subsidized insurance) in the years after 2014.

Among employers with a high awareness of reform, this proportion increases to more than 50 percent, and upward of 60 percent will pursue some alternative to traditional ESI.

At least 30 percent of employers would gain economically from dropping coverage even if they completely compensated employees for the change through other benefit offerings or higher salaries.

Contrary to what many employers assume, more than 85 percent of employees would remain at their jobs even if their employer stopped offering ESI, although about 60 percent would expect increased compensation.

One thing is very clear, the world of employee benefits is rapidly changing because of cost pressures and legislation. Pensions have all but disappeared, health benefits are dwindling and shifting costs to workers and even government workers are facing significant changes.

There are only two choices left; employees will be completely on their own for their security needs or there will be more government involvement. Neither is appealing for several reasons.

Employers may see short-term benefits, but in reality they are making a big mistake by losing control, risking higher taxes, creating a detached workforce more distracted by life’s security needs, and dealing with an employee base finding it more difficult to retire.

Employers planning cutbacks in retiree coverage in response to health care reform. Shifting retirees to Medicare Part D and to the insurance exchanges are part of the strategy

10 May

If you are thinking about retiring early, you must factor health benefits into your plans. There is a good chance your employer-provided benefits will not be there. Many employers have been looking for a way out of retiree medical and the Patient Protection Act gives it to them on a silver platter.

Several provision of PPACA provide a greater incentive for employers to eliminate or cut back on retiree coverage. The retiree drug subsidy designed to encourage employers to keep prescription benefits for age 65 and older retirees was made taxable to employers. The Early Retiree Reimbursement Program not only highlighted the concern of elimination of this benefit, but also the expiration of the fund will again cause employers to re-think this coverage. Also, the establishment of the health insurance exchanges in 2014 provides a safety net for early retirees thereby making it easier for employers to drop coverage and possibly provide a fixed dollar subsidy for this private coverage.

A new survey from AonHewitt relates where employers stand on these issues.

As for companies in the survey that pay a portion of health coverage for their retirees age 65 or older, three-quarters currently collect the Retiree Drug Subsidy (RDS).  Of those, 73 percent said they are altering their retiree drug benefits strategy, as health reform eliminates the RDS tax advantages for 2013, and creates enhancements to the Medicare Part D program for retiree drug benefits beginning in 2011.  In fact, 61 percent anticipate announcing these changes by the end of 2011 in order to begin recognizing accounting savings quickly, while 86 percent expect to actually implement these changes

In addition, Aon Hewitt’s survey found that 36 percent of respondents plan to make changes to their pre-65 retiree benefits strategy to directly leverage the health insurance exchanges that states, or the federal government, are required to create in 2014.  What’s more, 21 percent prefer moving to a pure defined contribution approach, where retirees could use an account established by the employer to purchase coverage through the exchanges.  The balance of these employers anticipate eliminating pre-65 coverage in response to the creation of exchanges.

The ongoing debate over health care reform focuses largely on its impact on the federal government budget and deficit.  What we hear too little about are the tens of millions of Americans with good employer based coverage who are feeling the impact of PPACA .  PPACA requirements cause employers to re-think how and if they should provide these benefits.  PPACA does nothing to control the costs reflected in these plans, but in fact increases costs.  Virtually all cost containment strategies being employed result in direct or indirect cost shifting to employees and retirees.

If those who advocate patients having more “skin in the game” or think patients can be made to act like informed objective consumers and thereby control costs are right, by the time this is all over health care inflation should be negative 5%.

401(k)s, HSAs and why your payroll deductions will keep you working to age 70 and beyond

9 May

Some of us delight in accusing politicians of being shortsighted and failing to consider the long-term consequences of their actions or inaction. However, upon further reflection it seems to me that employers are running a very close second.

The disappearance of the defined benefit pension has caused more and more Americans to be on their own saving for retirement. Even before this trend, it was known that Americans were not great savers, especially for things far in the further such as retirement. That didn’t matter as employers were determined to cut long-term liabilities and embraced the defined contribution pension in the form of 401(k) plans. Today we are amazed at the low retirement account balances of many boomers nearing retirement and we worry about not only the savings rate, but their investment choices along with the ability to make the funds last over a multi-decade retirement.

Leveraging this success, employers concluded that the defined contribution approach was also appropriate for health care benefits and so we have a rush to consumer driven health care, high deductible plans and health savings accounts (HSA). Now workers not only are asked to fund most or all their retirement, but also an increasing portion of medical expenses and to accumulate funds for future medical costs in retirement. We have created a thriving business for companies taking payroll deductions. The secret behind consumer driven health care is that individuals have less money to consume with, be it the health plan’s money or their own.

Soon early retiree medical coverage will not be an issue as retirement before age 70 will be non-existent. Hey, perhaps there is a method to this madness as long as employers don’t mind a cadre of seniors on the payroll.

I’m trying to set priorities. Do I save for retirement first or health care expenses? Should I also purchase long-term care insurance to protect my assets? No, protecting assets is not an issue, you must have assets after all and I’m trying to decide if I put mine into retirement or my HSA.

My personal feelings notwithstanding, this wellness stuff may not be a bad idea. Knowing the status of my health will help me make the best decision whether to put my money into a retirement or health care account. If I’m lucky the wellness program will help me keep working forever. Isn’t that what employers want?

I’ve considered one other scenario. I call it the eat now or later diet. If I diligently save for the future I get to eat later and lose considerable weight today. If I choose to eat today I get to lose considerable weight during what may be left of my poverty-stricken retirement years. It’s a complicated choice as you must figure in all those early bird specials and senior discounts.

My government promises me more and more it can’t pay for and my employer takes away more and more it doesn’t want to pay for. This consumer is being driven… nuts.

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Enrollment of adult children to age 26 in parents health coverage higher than expected

6 May

Twenty-six and out!

According to a report in Kaiser Health News, to date in 2011 600,000 adult children have enrolled in their parents health insurance with most of the enrollment coming in employer self funded plans. At this rate it is estimated that the original projection for enrollment of 1.2 million is too low.

Come 2014 employers will lose the ability to decline enrollment if the child has other coverage available through his or her employer. At that point employers offering the best coverage at the lowest cost will become the target for adverse selection as adult children seek the best deal.

Remember, children do not have to be dependent on the employee (many employers have not updated plan language to reflect this), can be married, employed and do not have to live at home. So, the 25-year-old making $150,000 a year on Wall Street can enroll in her parents plan, possibly for free if the parent is carrying family coverage, and avoid the few hundred dollars a month that she may be required to pay for her employers coverage. (another Wall Street bail out?)

And of course, she is eligible for all the “free” wellness and preventive services required under the law thereby compounding the additional cost to the parents plan.

Pay for performance government style, you should be so lucky -1.2 million workers, 737 with poor performance

6 Apr
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Several years ago I looked at the relationship of pay to performance at the state and federal level for government workers. The short answer then and now is, there is no relationship.  True pay for performance and indeed effective evaluation of individual performance is virtually non-existent.  In the private sector a normal distribution may result in at least five percent or so of all employees designated as a poor or unacceptable performer.  A larger percentage would have performance resulting in no pay increase perhaps designated as partially meeting expectations.  However, as you see below, only six one hundredths of one percent of federal workers were rated has having poor performance and thus denied a raise.  No wonder more and more Americans are seeking employment within government.  They can expect regular raises, terrific benefits, good job security and little worry of a poor performance evaluation.   Can such an environment create anything better than overall mediocrity?  I wonder if the 737 are still on the job?

Take a look at this from the Federal Times:

Does job performance play a factor in employee raises and step increases?

Unions defending the General Schedule say yes.

But the latest numbers say clearly no.

Only 737 out of more than 1.2 million GS employees — or one in every 1,698 — were denied a regularly scheduled step increase and accompanying raise in 2009 because of poor performance, according to data provided by the Office of Personnel Management at Federal Times’ request.

That equates to a 0.06 percent denial rate, which is far lower than any estimates given of how many poor performers exist in the work force. OPM estimated in 1999 that poor performers make up approximately 3.7 percent of the federal work force. A 2000 survey by the Merit Systems Protection Board found that 14.3 percent of federal employees were judged by co-workers to be performing below reasonably expected levels.

In a 2010 government-wide employee satisfaction survey, only 36 percent said they thought differences in performance among employees are recognized in a meaningful way. Only 35 percent said they thought promotions in their work unit were based on merit.

As low as it is, the 0.06 percent rate of denied step increases in 2009 is the highest rate in recent years. OPM statistics show that between fiscal 2004 and 2008, the number of employees denied step increases each year varied between 556 and 696 — or between 0.04 percent and 0.05 percent.

Each grade under the GS system has 10 steps, and every one, two or three years, employees are eligible for a step increase and accompanying pay raise until they reach their grade’s top level. Raises vary between 2.6 percent and 3.3 percent.

These figures are likely to embolden critics of the current federal pay system who argue that federal pay and promotions have no link to employee job performance.

Defenders of the GS system say that step increases are not automatic, and that managers have authority to deny them to poor performers. They oppose new pay-for-performance systems intended to make it easier to withhold pay raises to unsatisfactory employees.

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I’m still critical of employer wellness programs when it comes to reducing health care costs

24 Mar

Measuring the results of a wellness program is always questionable. In fact, most employers don’t measure much and what they do measure has little to do with lowering health care costs. Here is an example of some guidance for measuring a wellness program. It comes from an e-mail I received.

Year 1 Goal: Focus on Participation

60% of employees participate in at least one program element

Year 2 Goal: Add Risk Reduction and Satisfaction Metrics

Health risks improve by at least 2% as measured by health appraisal questionnaire
90% employee satisfaction with the program

Measurable improvement in biometric scores(e.g., BMI, cholesterol, blood pressure) compared to year 1

Year 3 Goal: Increase Expectations; Add Financial Performance Metrics

80% employee participation in health screening and other programs over the previous three-year period

50% spouse participation in health screening

Measurable reduction in health care costs and/or absence rates, corresponding to health risk and/or biometric improvements

A few thoughts:

Participation in one or all elements of a wellness program does not mean you are saving money or improving productivity. That is like assuming employees who attend a retirement or financial planning seminar leave the meeting and actually implement the strategies presented and follow them for the next thirty years, they don’t.

Employee satisfaction with the program is no measure. Employees will be satisfied with a free lunch too, even if burgers, fries and a milkshake are on the menu.

As for a “measurable” reduction in health care costs or absence rate…after three years of such a program, not even a slowing of costs, but a reduction…give me a break.

In addition, how are you going to measure that and attribute it to your employees now knowing their BMI or cholesterol levels?  This is like politicians saying they are raising the budget by $50 billion instead of $60 billion while claiming they have reduced the budget deficit by $10 billion.

While there is hope that better lifestyles will improve health and perhaps manage costs over time, in the short-term health costs may rise with these programs. The person learning of high blood pressure may now be under a doctor’s care taking medication. The same is true for the person with high cholesterol or glucose. Is this better than some more serious and expensive result left untreated?  Of course it is, but that hardly represents a measurable reduction in health care costs within three years and likely much longer.  In addition, the individual must remain an employee for many years in order for the current employer to reap any benefit.

All this for a lousy tee shirt and a $25 credit!

There are a number of organizations selling wellness programs and making a lot of money doing it.  Some employers like the publicity claiming success in lowering health care costs because their employees take a health risk assessment. Some in HR are making a career out of health and wellness, it’s the in thing to do after all.  Today wellness is like apple pie and mother, who can mount an argument against it? 

That’s all fine and no doubt over time many people will benefit, but employers embracing the concept should look past the hype and understand the real impact and cost of such programs. If the goal is to save money, employers must establish realistic long-term goals and measures that are statistically valid, track the actual behavior and claims costs of individuals, etc.   Let’s see claims data on each employee for five years before and five years after the start of a wellness program.    If you don’t find that the most active participants already had lower claims experience and health care costs are lower than at the start of the program, I will be a believer.  That’s a lot easier said than done.

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How did sick days become a pension bonus?

14 Mar

Here is what may appear a dumb question, what is the purpose of sick days?

Logical answer: to pay an employee when he or she is sick AND unable to come to work.

This answer implies a few things. Sick days are not to be used to stay home and wait for the plumber or to care for a child. (That time is called vacation or personal days if you have them). Also, sick days are not a guarantee or a way of accumulating extra cash. Sick days are non existent if you are lucky and you are not sick.

Too bad in many cases, especially when it comes to state and local governments, unused sick days become a termination bonus paid when an employee leaves the job or retires. In many cases these payments are unlimited, in others the payments may have a dollar limit. However, these payments have extra value when they are added to the pension calculation as frequently happens.

If you agree with the concept (old fashioned I know) the your pay assumes you will be on the job each day unless you are truly sick and unable to work, then where is the justification for paying twice for days you worked and then compounding that by including the duplicate pay in a pension thus boosting that payment for life?

While this practice is not limited to public employees, it is by far more common in the public sector. This is just another example of how far we have moved away from the basics.

Federal employees trying to protect their turf, hey they are only human

11 Mar
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This from the government employee website

A coalition of 15 federal unions, management groups and other employee groups is pushing back against proposals to cut federal pay, benefits and staffing levels as part of a deficit reduction plan.

Hey we are all human, we want to protect what we have earned and we pick and choose the right facts to make our case.  However, sometimes this is on a grand scale and related to issues that affect more than the individuals directly involved.   Take a look at this letter.  Pay particular attention to the section I highlighted in bold.  They are right you know, very few private sector employers require employee contributions to defined benefit plans.  Of course, the point left out is that very few and a declining number of private sector workers have a defined benefit pension which has been replaced with defined contribution plans requiring workers to fund 75% to 100% of their retirement income with no guarantees on the actual benefit. 

And here is more convoluted logic from the letter. There is no reason to make changes because the pensions are fully funded and financially sound.  Okay, but how much money does it take to keep them that way?  The point is not the current status of the fund, but the generosity of the plan that dictates the amount of funding required in the future.

This is from the government employees website: 

In a Jan. 13 letter to President Obama and Office of Management and Budget Director Jack Lew, the Federal-Postal Coalition said that recommendations from the White House’s bipartisan deficit reduction commission are based on bad assumptions and will harm the federal work force. The letter urges Obama and Lew not to include the recommendations in the fiscal 2012 budget proposal that will be released next month.

Freezing pay — the commission proposed a three-year freeze, one year longer than the 2011-2012 freeze Obama ordered — will hurt the government’s ability to recruit and retain talented workers, the letter said. And the proposal to cut the work force by 10 percent “is more about politics than good human resource management,” the coalition said.

“In light of the growing number of critical challenges being tasked to federal workers, the government cannot afford to make substantial reductions to the earned compensation of individuals who have dedicated their careers to public service,” the letter said. “We ask that you defend the integrity of a system that provides wages, health and retirement benefits compensation to 4.6 million federal workers and annuitants.”

The coalition opposes the deficit reduction commission’s recommendation to increase the amount federal employees pay into their retirement systems, and to start calculating annuities based on the average of employees’ five highest salaries instead of the three highest. The commission in December said feds should contribute half the cost of their pensions instead of 1/14 of the cost.

But the coalition said that would result in a significant pay cut, and said most medium and large private-sector employers have not required workers to make any contributions toward defined benefit pensions. The letter also cited a Congressional Research Service report that said over 75 years, the securities in the retirement and disability fund will grow to 18 times the amount needed to pay annual benefits.

“There is no public policy basis to accept the proposed reductions to federal civilian retirement since the Civil Service Retirement and Disability Fund is fully funded and financially sound,” the letter said.

A mandate by any other name. Employers “mandate” saving for retirement, what’s the big deal with health insurance?

10 Feb

Depending on your point of view, you may be for or against the mandate under PPACA to enroll in health insurance. Regardless, the provision certainly has gotten people riled up, likely all the way to the supreme court.  That mandate is “necessary” because a lot of people are irresponsible and will not pay for health insurance,  and instead you pay for their health care.

That irresponsibility carries into another area as well and that is saving for retirement. However, in this case it is employers doing the “mandating” and nobody seems to get excited.

More and more employers are using auto enrollment for their 401(k) plans. That is, an employee is enrolled in the plan upon employment at a modest percentage (3% or so) and defaulted into a fund selected by the employer.

Save damn it, save!

In addition, a small but growing number of employers are using re-enrollment. Under this process the employee’s investments are moved into a fund selected by the employer. The fund is likely to be a target date retirement fund which includes a mix of investments deemed appropriate for a persons likely retirement date.

Employers use these “mandates” because many workers simply do not pay attention when hired, do not enroll and many (most) individuals have no clue what they are doing when it comes to investments. Employer paternalism is alive and well in this regard.

Yes, the employee can opt out of auto enrollment (most don’t because they frequently do not even know they are contributing believe it or not) and can change investments after a re-enrollment.  However, the point is someone, in this case the employer, is taking action because of inaction by the individual. Sad that such actions are necessary, but a good thing nevertheless.

Enter the federal government and a mandate to enroll in health insurance or pay a penalty. In other words you can still opt out but with some cost like the real cost of not saving for retirement.  In both cases the failure of the individual to act prudently has consequences for society as a whole.

I consider  myself on the conservative side and I’m all for individual liberty, but nearly fifty years of running both health and retirement plans tells me individual liberty is not always consistent with individual responsibility (or common sense).

I am skeptical, if health and wellness programs work, if they save money for an employer…PROVE IT!

18 Jan

Oh no, they want facts and figures.

I am a skeptic, I do not think anything that employers have done have controlled health care costs. Oh yes, they have lowered their costs in some cases, but that only means they have shifted costs someplace else, usually to the employee and in minor cases to providers by lowering payments or restricting access.  After all is said and done, once the initial reduction is achieved for one party, costs resume their upward trend as usual.  I remember the good old days when pre-admission testing was the key, followed by second opinions for surgery, then we had to lower the length of stay for hospital admission and after that was successful, the cost per day continued to rise.  We tried HMOs and PPOs and screwed that up. 

Today we are on a quest for major cost shifting on one hand and a dream of a healthy workforce on the other.

The former is known as consumer driven health care or high deductible health plans and the later wellness programs.  The former seeks to shift more and more costs to the employee and family in a quest to have them shop for health care as they do a new car.  The later claims short-term results by making workers healthy through screening, education and various programs.  Nobody can argue with the desirability of helping people stay healthy and if lower costs are a benefit, that is great.  The problem employers’ face is understanding what is possible and proving wellness programs do work.  Most employers are riding the wave of PR and have no idea if they are now or will ever save money with a wellness program.  Two things come to mind that should be obvious to any employer.  First, unless dependents are one hundred percent included in the program, employers are missing any opportunity to manage about 60% of their plan costs.  Second, any savings to be realized will be years in the future.  An obese person to day may have zero health care expenses; a person with high cholesterol may have no symptoms for many years.  Will these people be your employee when the expenses actually occur?

Never have so many employers embraced an idea (a costly idea in many cases) without a clear way to measure results and to prove effectiveness. 

“We have a 90% participation rate in our health risk assessment (HRA)!  Whoopee, could that be because you charge a higher premium if the employee does not participate?  More to the point, what does a high participation rate actually achieve?  How many employees took action based on the results?  How much in healthcare costs were saved or avoided?  Did costs go up in the short run because of actions the employees did take?  How were the spouses affected?  Did absenteeism change because of the new information employees had about their health status?

Intuitively wellness programs are a good thing. I mean, how can they be bad?  If an employer wants to provide this kind of assistance, that is also a good thing.  However, if you are selling wellness efforts as a cost saving or productivity improvement vehicle…PROVE IT!

Following is an article prepared for Quinnscommentary on this subject.  Take a look.  If you are interested in measuring a wellness program, you may want to look at their website.

 

Wellness Program Observations

 By Shankar Sahai

Health Cost Intelligence

 Most businesses start with conducting a pilot program while rolling out a wellness program. A very sound strategy indeed. The pilot is planned well, executed meticulously and in most cases, results from it are considered successful. All is well and good! Next, the business either constructs results based on actual performance of the pilot or in some cases forms an “educated” opinion based on the mood of the administrators and executives involved with the pilot.  The program is rolled out to multiple sites over the next few months and all is assumed to be going great until after some months the management decides to look into the results from the rollout. In most cases, the management is in for a surprise since the results are not consistent with what was perceived during the pilot. There are several reasons for this, but some of the more important ones are that the general roll-out is not thought through, goals and objectives not well communicated to the responsible parties and not enough done to measure the progress of the program. According a leading source the spending on wellness programs is increased (35%) in 2010 over 2009 but only 35% of companies actually measured the benefits and progress of their programs. (Source: http://www.shrm.org, Dated: Jan 2011)

The attrition rate is often seen as a major benefit for wellness programs in the workplace. It is worth noting the attrition rates in any company are based on several factors. Some of these factors are job expectations, pay, benefits, hiring process (is the right person being hired to do the job?) and many other factors. Wellness programs offered play a role in the overall mix. It’s never easy to isolate the impact of each factor on the attrition considering that no business stands still and certainly the environment around them is constantly changing from the rapidly changing economic reality to the more gradual change in the profile of their customers and applicant pool. The impact of wellness programs varies from one business to the next. In addition, in most cases, even within a company varies from one location to another. Hence, there is almost no trend around wellness programs and attrition that stands out. Each case is unique and must be looked at individually.

Another fact that customers looking for attrition payoff should expect is that an impact is seen around second to third year after rollout. In some cases, there may not be in any impact at all or there even might be a negative impact. In general, it’s advisable for a business with a wellness program to expect substantially lower results after general rollout than the ones seen during the pilot. In summary, most businesses will see benefit from the roll-out of the wellness programs and most will be able to improve the returns by tweaking and targeting their programs more efficiently.

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Confessions of an employee benefits professional, great myths in employee benefits

13 Jan

Quick, give me a new buzz word for how important employees are to this organization

Providing employee benefits to workers is a complex and very expensive undertaking made more so by more complex laws and regulations that have grown tremendously since 1974.  Employee benefits are long-term commitments and liabilities.  Workers come to rely on them heavily for a substantial portion of their families security now and in the future.  While you can argue whether or not all this security should be tied to the employer, as long as it is and as long as employee benefits are part of the employment and compensation deal those commitment should be honored.  Employer should not make “promises” they cannot or do not intend to keep.  Employers should not provide plans they cannot continue to fund in good times or bad. 

Over the years I often heard things like “our employees are our most important asset,” or “we cannot succeed without you,” or “we need our employees engaged,” or any number of similar expressions of commitment to the workforce.  Well, if all that is true (and it really is), why do the security packages for this important asset to any organization become the first targets of cost cutters?   Hey, if you don’t want to provide employee benefits to workers fine, don’t.  If you need to cut a new deal, make trade offs. Better still, put a new deal in for new workers so they know upfront what to expect and count on, but don’t pull the rug out from under people who earned what they have today.

  1. Employee benefits are part of your compensation; if there were no benefits, your pay would be higher. 
    • Really, ask the retiree who worked thirty years for his pension and health benefits and then saw the benefits cut or eliminated after he retired. Hey Mr.CEO, we were only kidding about that bonus you got four years ago, we want it back.
  2. We are giving you a healthy living credit if you participate in our wellness programs.
    • Did I forget to mention that we already built that credit into the premiums you pay so if you participate in the wellness program you are really just breaking even?
  3. We are converting to a cash balance pension plan because it will give you greater flexibility, it is easier to understand, you can see your account grow each year and we know you will appreciate it more
    • I may be able to see my account grow, but keep it invisible and at the same level it was before. I understand the old plan as much as I need too – I get a monthly income for life and I do appreciate it.
  4. We are converting to a high deductible, consumer driven health plan with an HSA so you can become a better health care consumer.
    • Here are a few bucks toward the possible $4,000 out-of-pocket costs your family will have before our new plan pays a dime. Alternatively, you can put your own money in the plan and use it today or tomorrow or when you retire. It’s all really quite simple, we are saving a bundle cutting your benefits
  5. Effective next January we are dropping health plan A, getting a new carrier for Plan B and eliminating the plan where you can go to any doctor you like. 
    • I have no idea what I am doing, but a consultant convinced me all these changes would save the company money…at least this year.  Sorry for disrupting health care for you and your family, your wife will understand.
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When your employer gives you a new deal in employee benefits…read the fine print. HSAs are a case in point

12 Jan
Health insurance premiums paid on behalf of wo...

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For years the employee benefits community has been using tax and choice tricks to convince workers of the value of them having control over their benefits. Flexible benefits, 401(k) plans, cash balance plans, FSAs and HSAs are all examples where less cost for the employer gets a spin as a benefit for the worker i.e. more flexibility, portability, choice and sometimes lower cost. The reality is that the only benefit for the worker is that without these lower value programs they would likely have even less.

The HSA came on the scene several years ago as the answer to rising health care costs. If workers had a stake in the cost of services they would be more prudent consumers (as if anyone needing healthcare was ever a “consumer.”)

The reality is that high deductible health plans save employers money, may avoid the occasional office visit and cause financial problems for lower income families. There is little evidence they affect buying health care in any significant way or that they have any impact on overall health care costs.

The next time your employer says “Have I got a deal for you.” You say, “A deal for who?”

HSAs and HRAs See Growth Over Four-Year Span:

Assets Have Also Increased While Account Balances Fell

WASHINGTON—The number of health savings accounts (HSAs) and health reimbursement arrangements (HRAs) increased to 5.7 million in 2010 , according to a new report by the nonpartisan Employee Benefit Research Institute (EBRI). Assets in these account-based health plans increased to $7.7 billion in 2010.

HSAs and HRAs can be used to reimburse participants for qualified medical expenses. They are offered by some employers in order to give their workers more control over funds allocated for health care services.

Growth in these accounts is tracked by the EBRI/MGA 2010 Consumer Engagement in Health Care Survey, which also examines numerous other aspects about health care consumers who use these plans, in comparison with traditional health plans. The findings are published in the January 2011 EBRI Issue Brief, “Health Savings Accounts and Health Reimbursement Arrangements: Assets, Account Balances, and Rollovers, 2006–2010,” online at www.ebri.org

Among other findings, the EBRI/MGA survey found no relationship between either account balance or rollover amounts and various cost-conscious behaviors such as checking prices before getting services, or asking for generic drugs instead of brand names, among other things.

“It is expected that individuals who are given more control over funds allocated for health care services will become more cost conscious, especially once they become more educated about the actual price of health services,” said Paul Fronstin, director of EBRI’s Health Research and Education Program and author of the report. “However, no evidence was found to support this with respect to some of the measures used in this study of cost-conscious behavior.”

Among the survey’s findings:

· Steady growth: The number of HSAs and HRAs grew to 5.7 million in 2010, up from 1.2 million in 2006. Assets in these accounts also increased to $7.7 billion in 2010, up from $835.4 million in 2006.

· Average account balances: Although HSAs and HRAs continue to grow, the report found the average account balance dropped slightly in 2010 to $1,355, down from $1,419 in 2009. Men held higher average balances ($1,525) than women ($1,321). Older individuals (ages 55–64) held higher average balances ($1,791), than those younger than ($1,250–$1,400). Additionally, the study found that people who exercised, did not smoke, and were not obese held higher balances than those with less healthy behaviors.

· Rollovers: Despite a decline in the average rollover amount in 2010, total assets being rolled over have been increasing; $4.2 billion was rolled over in 2010, up from $4 billion in 2009. The average rollover increased from $592 in 2006 to $1,295 in 2009, and fell to $1,029 in 2010. The percentage of individuals without a rollover decreased from 23 percent in 2006 to 10 percent in 2009 and increased slightly to 13 percent in 2010.

· Race: Minorities with HRAs or HSAs have higher account balances that whites with these accounts. On average, minorities have an account balance of $1,531, while whites have an account balance of $1,387. However, both experienced a decline between 2009 and 2010; however, the decline was larger among minorities.

· Household Income: Account balances increased with household income. The average account balance was $1,166 among individuals with less than $50,000 in household income; $1,303 among individuals with $50,000−$99,999, and $1,742 among individuals with $100,000 or more. Account balances increased for those with less than $50,000 in household income; fell for those with $50,000−$99,999, and stayed the same for those with $100,000 or more.

· Education: Education has an impact on account balances independent of income and other variables. Individuals with a high school degree or less have an average of $1,219 in their account, while those with a college degree have $1,519, and those with a graduate degree have $1,558. Only individuals with a graduate degree experienced a decline in their average account balance in 2010.

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Employers; (please) communicate, communicate

12 Aug

As each week goes by we come closer to implementing different requirements under the Patient Protection Affordable Care Act (PPACA). Most people are still confused about what this all means. Employees may have inflated expectations, they probably do not expect large premium increases and they may not be focusing on the choices and decisions they have to make.

Employers are burdened with a tremendous amount of new administration and with some important decisions (not to mention annual enrollment and related health benefit changes).

All of this presents opportunities and challenges. One thing is very clear, both from a strategic perspective and from a legal one employers will want to ramp up communications. Creative employers can turn legal obligations into positive employee relations, improved labor relations and perhaps cost savings. Now is not the time to rely on corporate speak and legal jargon.

Take each relevant element of PPACA and EXPLAIN it to employees. Tell them it’s objective, how it affects them and their employer, what impact there may be on health care costs and when appropriate, what action they should take to maximize the benefit value.

Employers must comply with the law, but they should do so by placing themselves in the best possible light; employees will appreciate the extra effort.

Keep communication simple, light and personal (there nothing more personal in the workplace than employee benefits especially health benefits). Use channels that meet today’s needs like e-mail and the Internet. Make sure communication reaches the home. Use this opportunity to explain health care costs and the individuals role in managing those costs. Promote your wellness and cost containment efforts along with required information. Explain why controlling costs is vital for the employer and thus important to workers as well. If you are self insured make sure your employees know what that really means (especially related to PPACA matters), including the role of your administrator in paying claims and resolving claim appeals.

There was a great deal of misinformation during the health reform debate, take this opportunity to communicate the facts as reform affects your company. Show your employees you care. A modest investment in communications pays big dividends.

Do wellness programs work? Are employers getting their money worth? Will free preventive services improve health or simply add to costs?

15 Jul

Do wellness programs work?  The answer depends how “work” and “wellness” are defined. 

There is also the fundamental question of whether the employer has the obligation or the incentive to invest in such activities.  Some would argue that wellness on the job pays dividends in terms of lower health care costs, and improved productivity and presenteeism.  The PPACA puts new emphasis on wellness by requiring new plans to provide 100% coverage for many preventive services, tests and screenings.   Cancer screenings, including mammograms and colonoscopies, as well as obesity prevention services, immunizations, blood pressure screenings and tobacco cessation services are among those that will be available to consumers without a copayment or other direct costs for consumers on new health plans after Sept. 23  On the other hand, PPACA also spells the gradual demise of the employer-sponsored health benefits plan meaning that Americans will be more and more on their own to evaluate, obtain and utilize their health benefits…the 170 million with employer coverage today in any case.

Here is the standard case for employer-based wellness programs:

Given what we know about the negative impact of unhealthy behavior, for both employees and businesses, it is not enough to focus solely on insurance premiums when we have an opportunity to do so much more. Employees represent a company’s most valuable asset, and creating a healthy workforce is a business strategy that can lead to cost savings and increased productivity — as well as improved employee satisfaction.

In fact, employers are likely to see a productivity impact long before they see an impact on their claims experience. So there is a tremendous advantage in helping healthy employees to stay that way — and in motivating those with existing conditions to take a more active role in managing their health.

Workforce health initiatives, such as programs that promote healthy eating, exercise, or disease management, can do a lot to support this effort. A great way to start is by encouraging employees to take advantage of the rich resources already available to them. For example, all Kaiser Permanente members enjoy access to self-care tools, health education classes, coaching, and more. And employers can supplement their employees’ self-care by bringing programs to their workplace, where employees normally spend the majority of their days.

Workforce health programs can change the lives of employees and can also have a real impact on their job performance. Imagine for a moment how much better employees feel when they exercise regularly and eat healthy meals — and when they can manage and control their symptoms of asthma or depression. Consider what effect their positive outlook can have on their work, as well as on the cost of their health care.

Kaiser’s Christine Paige, on designing a wellness program that works

Clearly encouraging wellness is never a bad thing and many large employers have invested heavily in such activities, but few, if any, can provide empirical data to quantify the benefits.  Keep in mind that most such programs primarily focus on the employee, but about 60% of all health care costs for a group plan are incurred by the dependents enrolled in the plan.  These folks (and their health care costs) are largely unaffected by employer based wellness programs except for educational communication.

Then there is the question of participation, when programs are offered do a sufficient number of employees participate to make a real difference on the entire workforce?  When annual screenings are held or the employee completes a health risk assessment, is there sufficient follow up to make a difference?  There is also some evidence that in the short run routine screenings actually increase health care costs.

Employee turnover is another issue for employers.  If an employer invests in wellness, will the employee still be employed when the long term benefits are achieved?  With the average person holding six to eight jobs in a career, it is hard to see how any one employer will benefit.

Finally there is the question of incentive.  One would think that better health and quality of life on their own would be sufficient incentive for an individual to take care of himself or herself.  Sadly, we know that not to be the case, but should the employer pay the cost to get people to change behavior, is it just a good and nice thing to do or a wise investment?  Under PPACA many employers will have little choice in providing some preventive services.  The rules to maintain grandfathering for existing plans are so onerous that it is unlikely many plans will keep that status for long and thus will become subject to the requirement to provide 100% coverage for many preventive services.

Covering a new array of services with no cost sharing by patients may increase demand, probably will drive up prices because of that demand and will definitely add significant cost to all health benefit plans.  Whether there is a return on that new investment remains to be seen.  We may be prolonging or saving lives, but there is no guarantee that any of this will help control health care costs.  People are people and unless we change attitudes and behaviors all the free stuff from their employer or the government will not matter.

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