<i>Dear Workforce</i> What Are People Doing About Health Costs
August 6, 2004
Dear Creative Solutions: When it comes to priorities, controlling health care costs tops employers' benefits-related agendas. Many employers find themselves having to make changes to the plan's design at the 11th hour to address a large rate increase. Sometimes the employer must accept the increase and share it with the participants. Unfortunately, these solutions are temporary and do not distinguish among low, medium and high users of the plan. Flexible-benefit plans sought to mitigate this same predicament back in the 1980s and 1990s. Although not a new concept, flex plans are making a comeback as the composition of the U.S. workforce continues to change, and as employees feel the pinch of increased premiums. With a flex program, the employer can adopt a "defined contribution" approach to benefits, deciding at the start of each plan year how much it will spend on benefits that year. Then, the employer makes available various levels of coverage at various prices. At open enrollment, employees can either tailor their benefits and contributions to fit their own needs or choose to receive cash compensation instead. More recently, employers have begun introducing consumerism and consumer-driven plans that also can be viewed as an attempt at equitable distribution of health care dollars. In one model, the employer allocates a specific dollar amount to a Health Reimbursement Arrangement (HRA) for each covered person (perhaps $1,000). The account is used to reimburse the first $1,000 of medical expenses before a "high" deductible kicks in and a traditional medical plan is layered on top. For big users of medical care, the account balance will be zero at the end of the year. For low users, accounts may be used to reimburse over-the-counter drugs, dental, vision or other qualified expenses, or the person may roll the balance to accumulate in future years. Perhaps a hybrid approach would have the employer offering more than one high deductible option as part of a consumer-driven health offering (perhaps $1,500 and $3,000). People who don't use medical care as much would be able to buy into the $3,000 deductible option at a lower contribution rate. Regardless of what form they take, health plan designs that promote consumerism, make employees more aware of costs, and foster equitable treatment of all employees will play a growing role in employers' health care cost management efforts. SOURCE: Elizabeth A. Dudek, Vice President, The Segal Company, Washington, D.C., Sept. 22, 2003. LEARN MORE: Please read ourFour Questions About Consumer-Driven Health Plans. The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion. Also remember that state laws may differ from the federal law.