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Tony Novak, CPA, MBA, MT
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Design tips for consumer-driven health plans
by Tony Novak, CPA, MBA, MT
, revised 11/20/11
Consumer-driven health plans are praised as the best way to reduce employer health plan costs and improve employee satisfaction with health benefits. These relatively new health plans rely on simple economic principles of allowing spending decisions to be made at the employee level and incorporating incentives to encourage smart shopping and prudent spending. This approach has proven successful for every size and type of employer – from small firms with only one employee to conglomerates with thousands of workers. Yet many employers who adapt these benefit plan designs do not take advantage of the full savings potential.
Following are some ideas for maximizing the benefits of consumer-driven health plans.
1. Cover the legal requirements
The requirements vary slightly depending on the type of health plan selected, but most tax-qualified health plans share the same three basic requirements: a) the plan must be in writing, b) the plan must be communicated to employees, and c) uninsured claims must be validated by a disinterested third party (or alternately, if using a heath savings account, the funds must be held by a qualified trustee). It does not make sense to cut corners on the legal requirements. Most benefit providers and advisers include this as part of their basic service.
2. Include both insured and uninsured options
Some plans provide for only health insurance or uninsured reimbursements. It makes more sense to mix-and-match, allowing each employee to find the combination of benefits that works best in his or her specific situation.
3. Provide more insurance choices
It does not make sense to limit the number of health insurance choices in a consumer-driven health plan. Benefits are maximized when here are at least a handful of insurance choices available to employees. Fortunately the Internet makes this easy by listing plans side-by-side at commercial enrollment services like www.FreedomBenefits.net .
4. Outsource the benefit plan support
It does not make sense to use internal company resources to handle employee benefit questions and plan paperwork when this service is available from professional benefits firms for as little as $50 per month. (Freedom Benefits Association at www.FreedomBenefits.org charges $150 per quarter for firms up to 25 employees).1
5. Utilize PPO Discounts
Most people think of PPOs as only a savings vehicle for insurance plans. In fact, utilizing the pricing power of Preferred Provider Organization (PPO) networks is an easy way to reduce all types of out-of-pocket health care expenses that are not covered by health insurance. This includes prescription drugs, dental and orthodontic expenses, chiropractic care, well-care and alternative medicine, nutrition products and more. Freedom Benefits uses the PPO networks at www.Ehealthdiscountplan.com that are available at less than $200 per year for a member’s entire household – all completely independent from insurance. An average savings of 20% to 25% can be expected, so it is easy to see that any employee with significant out-of-pocket cash expenses for health-related items will save money using this plan design option. Simply adding this as a voluntary option to an existing employer-provided health plan is an easy way to stretch the benefits by 10% or more.
6. Offer COBRA alternatives
Although companies with more than 20 full time employees are required to offer COBRA coverage by law, it makes sense to offer eligible employees additional options. Too often, members select COBRA because they were not aware of any better options. There is a well-established link between high COBRA usage and high claims experience, and this ultimately hurts the employer by pushing up the renewal price on group insurance. Companies with a high COBRA utilization may find it difficult to purchase group insurance at the best available prices because underwriters factor this into the initial price offer. Companies with less than 20 employees should never offer COBRA coverage because this is not authorized by law and may backfire if the insurance company learns that an ineligible person is covered under the company health plan. A simple starting point is www.COBRAplan.com that includes an extensive list of “Frequently Asked Questions” about COBRA and COBRA alternatives.
7. Combine health plan designs
There is no requirement to have only one health plan and in many cases it makes sense to offer two or more plans. For example, an employer-funded Health Reimbursement Arrangement (HRA) is the best way to provide employer-paid health benefits, but a Health Savings Account (HSA) or Cafeteria-type Flexible Spending Account (FSA) might be the best way to allow tax-free voluntary employee contributions. (Links are provided to Web pages with more information about each type of plan mentioned in the example. There are many other possibilities not listed here). In other cases, the best plan for the regular employees may not be the best plan for the owners or partners of a business. An expert’s help can help make this selection process easier by explaining the differences and advantages of each plan. The additional effort spent understanding this slightly complicated area of health plan design can produce significant results. Once introduced to the new concept, employees adapt easily to the coverage provided by two or more health plans and in most cases show appreciation for the innovative and progressive thinking demonstrated by the employer in providing for their health benefits.
8. Reward owners, managers and senior employees
Older workers typically have higher health care expenses than younger workers. This group also tends to make up the ownership and management of most firms, so it makes sense to favor this group when designing the health plan. It is possible to do so without risking a discrimination problem by using creative benefit plan formulas. While the formula may vary from firm to firm, it is possible to consider seniority and class of employees when designing a company health plan. It is also possible to exclude young employees, recent hires and seasonal employees from a specific part (or all) of the company’s health plan. Admittance can be viewed as a reward for attaining a designated company ranking and the level of benefits provided can be an incentive to remain with the firm.
Each business has a different makeup of performance goals, employee demographics and health plan budget. Every employer-provided health plan should be designed to maximize the benefits to employees at the lowest possible cost and administrative requirement. Best results are obtained when the business owners works with their accountant or insurance broker who, in turn, utilizes the service of a benefit plan design specialist.
1 Pricing may change for 2012.
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