Hogg (2003) cites some “quick-fixes”, including higher employee contributions, higher co-pays or deductibles, and higher out of pocket expenses. Some employers have even reduced the matching benefits on 401(k) plans or adjusted profit sharing contributions. All of these and more, however, have had little effect on the cost or quality of healthcare.
Caplan (2002) suggests several alternatives employers are considering to bring employees flexibility while still providing savings to the organizations. Among those suggestions are:
- Consumer Driven Health Care (or Defined Contribution Medical Expense Plan): This is a medical expense plan under which an employer makes a fixed contribution with which an employee can purchase his/her own coverage. The employee has increased responsibility for the selection of his or her own coverage.
- Archer Medical Savings Account (MSA): This is a personal savings account from, which non-reimbursed medical expenses, including deductibles, percentage participation, and co-payments can be made. It is used with a high deductible medical expense policy.
- Health Insurance Purchasing Cooperative (HIPC): This body acts as a broker between the purchasers and providers of medical expense coverage.
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Section 125/Flexible Spending Accounts: This is a provision in a cafeteria plan that allows an employee to fund certain benefits on a pre-tax basis by electing to take a salary reduction to fund the cost of any qualified benefits included in the plan.
- Supplemental Benefits: These are voluntary accident and health plans that employees can pay for on a pre-tax basis through payroll deduction. These benefits can expand your benefits program without direct cost to your company or organization.
The synthesis of the research shows the most common alternative as the consumer-driven health plans. Consumer-driven programs shift a majority of the responsibility for managing health costs to employees by engaging employees in assuming more responsibility for their own health care. Under the current managed care option, there is no incentive for employees to examine the quality or total cost of the providers they utilize. This, in part, has allowed health care outlays to increase to a level that is unmanageable.
Health Reimbursement Arrangement (HRA) has been the most popular of the consumer-driven plans. The HRA allows employees to make the decisions regarding their use of health care services. Employers provide their employees with control over their health care dollars. This allows employees to take personal responsibility for their health care purchasing decisions (Priority-Health.com, 2004).
In an HRA each employee has an "account" that the employer puts money into. The employee would use these funds for non-preventive services and surgeries before the insurance begins to pay. The accounts generally range from $500 – $2,000. According to Chris Delaney, marketing director at Definity, as cited in Rebeck (2004), a consumer-driven plan provider, the average employee never exceeds the $2,000 mark. If employees stay within their account limits, they have no co-pays or deductibles. The employee would have provider quality and pricing information available, and therefore be able to make an informed decision. However, if the employee does not use all the funds in the account, then that amount can roll over to the next year and the account grows. This way, there is an incentive to make wise purchasing decisions and not over-utilize or abuse the insurance coverage. To discourage employees from avoiding health care altogether in an effort to save money, or choosing a face-lift instead of a pap smear, for example, most HRAs provides 100 percent coverage of preventive health-care services, such as breast and colon exams, annual physicals, and vaccinations.
The obvious goal and advantage for employers is about containing costs. Caldron (2003) cites CareGain in New Jersey as one example. CareGain offers an HRA that requires employees to pay only a small deductible. To fund the difference, employers establish personal accounts in each employee's name. This not only limits the employer's financial exposure but also provides a stop-loss mechanism for employees. CareGain states that over 75% do not use more than $1,000 worth of health care services, a savings of 25% on average. One of CareGain’s clients, a 100-member firm, recently slashed its premiums from $800k to $490k. The company used $250,000 of that savings to fund the employee accounts so that each employee could have access to $2,500 for health expenses leading up to the deductible.
This represented a $60,000 savings right up front. If, over the course of a year, every employee used the $2,500 in his or her account, the net savings would still be $60,000. But chances are that the majority of employees will not even come close to that amount, creating a greater savings for the company by the end of the year. If only 30 percent of funds in the accounts are used, for example, the company would realize a savings of 70 percent (ibid).
Caudron (2003) cites another example, Budget-Rent-A-Car, has approximately 650 employees (out of 7200 total) under an HRA plan in 2003. The employees that are in it have been very receptive and like the plan according to Chris Lanning, head of HR at Budget. The HRA has helped turn employees into more conscious consumers of health care.
Budget estimates that his company will save about a $1 million this year with its HRA plan, and that estimate assumes that employees will spend all their HRA dollars without rolling over any of the funds. Lanning underscores the cost advantages of an HRA over more traditional plan structures. Caudron (2003) notes that Budget’s HMO is costing $1000 more per employee this year than the HRA plan.
HRAs are attractive for employees, as well. HRAs allow an employee to move any leftover funds to Consolidated Omnibus Budget Reconciliation Act (COBRA) payments if they decide to leave the company. Beyond that, money in a health reimbursement account can be spent on services that traditional plans do not generally cover -- things like physical therapy and alternative medical treatments. Moreover, since an HRA is treated as a benefit and not compensation, it reduces an employee's overall tax rate.
In conclusion, every decade or so employer subsidized health care undergoes a major change, dependant on economic conditions. ERISA (Employee Retirement Income Security Act of 1974) set minimum standards for most voluntarily established pension and health plans in private industry to provide protection for individuals in these plans. Flex time emerged in the late 1970s and early 1980s to allow employees to work earlier or later shifts than the norm, share jobs, telecommute from home or provide satellite offices closer to many employees' homes than the company's main office. Following that was the managed care in the late 1980s to the present. Managed care lowered health costs for a while, but health costs, due to new treatments, technology, research and development and even government regulation have forced employers to find more affordable health benefits packages for their employers. Consumer-driven health care and more specifically Health Reimbursement Arrangements may be the answer for the near term.
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