Cost & Government Regulations Are Major Factors
If you’re like most employers, covering the costs of your employees’ health care is a major concern. Expenses for employee hospitalizations, chronic diseases and drug costs are threatening to swallow up annual profits for businesses.
Employer-sponsored health premiums rose 203% between 1999 and 2015.[i] This is why more employers are choosing high-deductible health plans (HDHP), as the graph below shows. Is it possible to manage health care costs and still do business?
What Is an HDHP?
A high-deductible or consumer-driven health plan has lower premiums and higher deductibles than traditional insurance plans.[ii] Instead of copays, a covered employee would pay health costs until the deductible is met.
Many companies offer a Health Savings Account (HSA) or a Health Reimbursement Account (HRA) that offers significant tax advantages for both employers and employees. The HDHP combined with HSA or HRA contributions can shelter income from taxes while helping to keep premiums low.
How can your Human Resource department explain this shift in benefits, when only 12% of adults have a basic understanding of health terms?[iii] Here are some real benefits to tell employees when migrating to an HDHP:
- “Your income tax will be lower.” Employees contributing to an HSA will shelter that income from federal taxes. This can add up to 39.6% in savings, depending on the tax bracket. Can anyone say “free money”? Especially when companies add their contributions to an HSA if an employee participates in the program.
2. “You will have more control over how you spend your health dollars.” One reason HDHPs are also called “consumer-driven” is because employees have choices about where they shop services. If the same treatment for a respiratory infection can be obtained by a telemedicine call instead of the family doctor, out-of-pocket savings can really add up. And many employers offer price comparisons for services that allow smarter choices before getting treatment.
3. “You will have an automatic nest egg for health expenses.” It’s not easy to save, but payroll deductions can ease planning for costs. And the beauty of HSAs is that employees take this account with them, even if they change jobs. HRAs reimburse qualified medical expenses up to a fixed amount each year — another tax-free savings funded by employers, which can be rolled over to be used in subsequent years.
In this tumultuous era of health care, employees are gaining an increasing amount of financial responsibility. This gives smart employers the opportunity to treat your staff as partners in decision-making.
Educating your employees is a key foundation to bridging the transition to HDHPs as a benefits option. The next blogs will provide important steps to make that transition successfully, and how to manage expectations during the change.
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[i] “Recent Trends in Employer-Sponsored Health Insurance Premiums,” Kaiser Family Foundation, January 5, 2016, http://kff.org/infographic/visualizing-health-policy-recent-trends-in-employer-sponsored-health-insurance-premiums/ (accessed June 16, 2016).
[ii] High Deductible Health Plan (HDHP), HeathCare.gov Glossary, https://www.healthcare.gov/glossary/high-deductible-health-plan/ (accessed June 29, 2016)
[iii] Quick Guide to Health Literacy Fact Sheet, http://health.gov/communication/literacy/quickguide/factsbasic.htm (accessed June 29, 2016)