Consumer-driven Health Care Plans Sometimes they work--and sometimes they don't.
By John Ritter
If you own a small business, you know what a large expense health insurance has become. We now see employee-only rates exceeding $500 a month and family health insurance rates that rival your mortgage. Has the term "affordable health insurance" become an oxymoron like "healthy tan?"
Is there something you can do to mitigate annual increases of double digits?
In an effort to control costs, many individuals and business owners are turning to a new concept called consumer-driven health plans (CDHP). What is a CDHP? Generally speaking, a CDHP is a three-tier structure of payment for health care:
A tax-exempt health account that an individual uses to pay for health expenses up to a certain amount
A high-deductible health insurance policy that pays for expenses over the deductible
A gap between those two in which individuals pay any health care expenses out of their own pockets
The idea behind consumer-driven care is that people will become smarter shoppers and look for the best value for their health care dollars. Two terms are used when discussing CDHPs: "consumer empowerment" and "consumer accountability."
Consumer empowerment refers to the fact that participants are given the power to make choices about how their health care dollars are spent. The participants will compare providers and costs, and the consumers become their own advocates.
Consumer accountability involves participants being accountable for their health care decisions. They have more responsibility for the financial consequences of their choices.
How It Works Here's where it gets a bit complicated and why working with a professional may be beneficial in helping you choose what's best for you and your company.
You first need to decide if you want to choose a health savings account (HSA) or a health reimbursement arrangement (HRA).
A health savings account is a tax-sheltered savings account similar to an IRA, but earmarked for medical expenses. Deposits or contributions are tax-deductible and can be made by either the employer or employee and can be withdrawn by check or debit card to pay routine medical bills with tax-free dollars.
What is not used from the account each year stays in the account and continues to grow through interest on a tax-favored basis. HSAs under a group policy are owned by the employee and the money goes with them when they terminate employment.
A health reimbursement arrangement is an account that is paid solely by the employer and reimburses qualified health expenses, including health insurance premiums. Medical expenses reimbursed through an HRA are excludable from the employee's gross income and are, therefore, not taxable.
An employer can choose to allow unused HRA funds to roll over from year-to-year or not. HRAs are employer owned and any unused monies stay with the company upon termination of an employee.
Yes or No? These plans are getting more and more popular. A local newspaper reported last year that 10 percent of all employees in the greater Kansas City area are now covered under some sort of CDHP. Is a plan such as this right for your company? Would your employees understand how an HSA or HRA works? Can or does it work?
There seem to be mixed feelings.
Supporters of consumer-driven health plans say it's the best way to make the health care system more efficient and affordable for everyone. It forces the consumers to get "skin in the game," which will make them use their health care dollars more wisely.
Critics say it will fail on both fronts and makes health care inequalities even worse. More so, it's just cost shifting-making the people who need care pay more with the higher deductibles, especially those with chronic conditions.
A study by the U.S. Government Accountability Office found that many employers offered CDHPs because of a desire to promote cost-consciousness among employees, to expand employees' choice and control of health coverage options and to provide a tax benefit for employees.
Health care has become one of the most debated issues with the upcoming election. Are CDHPs the answer? Would your most valuable asset-your employees-embrace this type of plan? Perhaps a discussion with your insurance agent will help you arrive at an informed decision versus one driven solely by cost.
John Ritter is an employee benefits broker for Metzler Bros. Insurance Agency in Kansas City. He specializes in working with small and medium size businesses. You can reach him at (816) 421-7117 x316 or .
