NH Case New Holland, an agricultural machine manufacturer, announced in 2000
that it would discontinue retiree health benefits for new employees, and those employees
who were eligible for retiree health benefits would have to pay for 60 percent of
cost increases beginning in 2006.
Double-digit health increases and wasted money—more than 70
percent of employees were paying family premiums of more than $2,000 a year but
spending $1,000 on actual health care—were the culprits.
"We had to draw the line," says Amy Kesler, a company spokeswoman.
In fact the Racine, Wisconsin-based company had to overhaul its benefits not just
to reduce costs but to prepare employees for the future.
"The change was needed to help employees save for retirement,"
Kesler says.
The first thing CNH decided was that no matter what new plan
it created, the company would pay the same amount for each of the four plans it
offered, keeping its costs fixed among plan designs. It would be up to employees
to decide what kind of coverage they wanted.
Of the four plan designs CNH introduced in 2006, two would
look familiar to any benefits-plan designer. A preferred provider organization network
appeals to people who know they will use a lot of health care—those with chronic
illnesses or planning an elective surgery. The PPO plan has the highest monthly
premiums but the lowest deductible: a $92-a-month premium for salaried employees,
a $300 deductible, and a 15 percent co-insurance up to an $1,800 out-of-pocket maximum
for employees who earn less than $50,000 or a $2,300 out-of-pocket maximum for employees
earning more than $50,000. Forty-three percent of participants enrolled in the PPO
plan.
The drawback is that in a world without retiree health benefits,
the plan offers no option to save for retirement health care expenses.
A second option is a high-deductible plan: $2,200 for single
coverage, with a health savings account. The company did not fund the savings account,
but with premiums of just $5 a month for salaried workers, 13 percent of them signed
up. Whether individuals will take their savings and invest it in their accounts
for future use remains to be seen. Experts say employees at companies that do not
fund accounts generally don’t fund it themselves, either.
"I’m not convinced that people are taking savings and putting
it into health savings accounts," says Chris Calvert, vice president and senior
health consultant at Sibson Consulting. "Most are taking the extra $100 a month
and at the end of the year buying a plasma TV."
CNH also created its Consumer Choice Plan and Consumer Choice
Savings Plan, both of which are intended to take a portion of a person’s savings
and siphon it into a health retirement account. The account is owned by the employee
after five years of employment.
The Consumer Choice Plan features two deductibles separated
by a health reimbursement account, which is funded and owned by the company to pay
for individual employee health expenses.
For individuals, the first deductible is just $250. After
that deductible is met, employees will use the $1,000 from the company-funded health
reimbursement arrangement to pay for care. After that $1,000 is spent, employees
must pay a second deductible of $750. Meanwhile, preventive care is covered 100
percent and prescriptions are covered at 70 percent of cost after a $50 deductible.
Though the secondary deductible is itself a new way of looking
at these plans, things get really interesting if money remains in the account at
the end of the year. This is when the company automatically siphons a portion of
the health reimbursement account into a company-owned retiree health account and
then applies the rest to next year’s deductible. With a twist, of course.
For individual plans, only $500 of the money left over at
the end of each year can be used to pay for next year’s deductible. The rest goes
into a health retirement account.
"If you don’t spend it you don’t lose it," Coogan says. But, he adds, "Some of it
has to go to pay for retiree medical."
For example, if none of the $1,000 CNH originally contributed
is used, that rolls over to next year’s accounts. Of the $1,000, $500 is put toward
next year’s $1,000 deductible and the rest is put into a health retirement account
that earns interest and can be owned by the employee after five years.
The reasons for designing the plan in this way are manifold.
One is to counter an argument that is being heard with increasing frequency: Consumers
are no longer price conscious once they build up an HSA that is larger than the
deductible. Many say this is nonsense, since an HSA is real money owned by individuals.
But at CNH, no matter what the savings habits of employees, each year they will
have to pay out of pocket for a portion of their health care.
"It keeps employees aware of the cost," Coogan says. "Otherwise
you are almost back to providing first-dollar coverage."
By tailoring the Consumer Choice Plan this way, the plan does
not meet the federal guidelines for an HSA.
The Consumer Choice Savings Plan, on the other hand, has a
$2,200 deductible for single coverage, making it eligible by law for an HSA. The
idea behind this plan is that employees who are near retirement can fund the HSA
themselves and combine those savings with the leftover money in the company-funded
HRA. This plan attracted 4 percent of participants. Forty percent of participants
enrolled in the Consumer Choice Plan.
The company is calling the changes a success. Its projected
cost increase for 2007 is 3 percent. Critics have said these plans are overly complicated,
but Kesler says constant communication with employees made the transition easy.
"Communication is key in rolling this out," she says. "And
it will continue to be important."
Workforce Management, April 9, 2007, p. 29
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