HOW TO DO IT
Dear CEO:
In Part 1, I wrote about why you must take the lead to drive a new health benefits strategy for your company. Now, I’d like to talk about both the short- and long-term components of that strategy.
Short-Term: Turn your employees into savvy medical purchasers.
1. Implement universal High-Deductible Health Plans (HDHPs). Your current rite of annual, bit-by-bit increases in deductibles and copayments is like cutting off a dog’s tail an inch at a time. Stop doing that. Move all your employees now to HDHPs and health savings accounts (HSAs). Ideally, implement the maximum medical-cost-sharing allowed by the new health reform law (i.e., same as current HSA maximums of $5,950 for individuals, $11,900 for families), and get rid of all fixed-dollar copayments in favor of deductibles and coinsurance to communicate actual medical prices.
2. Maintain employee premium contributions. Despite the much lower premiums for the new HDHPs, don’t reduce employee premium contributions. Keep them at current levels.
3. Contribute all the resulting premium savings to employees’ HSAs. This part is crucial. You must recognize that the substantial premium savings generated by the above two actions actually belong to your employees. Keeping the money for your company’s bottom line would be cutting their total compensation, which will make you less competitive in your labor markets. Instead, deposit all the savings directly into their HSAs to assure they will have the means to pay for their higher deductibles and coinsurance.
What about HRAs as an alternative? It is possible to approximate the benefits of HSAs with an HRA program, but forcing workers to surrender their savings in the event of job loss leaves them worse off—especially if they leave for medical reasons. This will also make you less labor competitive if and when employee-owned HSAs become standard.
4. Communicate! Make it clear to your employees that you are restructuring—not cutting—their benefits in anticipation of the revolutionary changes they will face under health reform. Be honest in telling them you’re taking money away from their insurers and giving it to them—and that you’re not keeping any of it. Provide information and assistance on making wise medical purchase decisions.
5. Encourage additional employee HSA contributions. Especially for employees with medical expenses that exceed their HSA balances, encourage them to make their own tax-exempt contributions (if you haven’t maxed them out with yours). You can facilitate this with automatic payroll deductions and HSA deposits.
6. Make disease prevention work. If you have self-funded or experience-rated health plans, offer additional HSA contributions (or lower cost-sharing) to employees who successfully control their health risks such as smoking, alcohol, weight, cholesterol, blood pressure, and blood sugar. In other words, create incentives for your employees to successfully use all those preventive services you are now required to provide for free.
Current law allows you to pay up to 20% of premiums for such incentives, which the Affordable Care Act (ACA) increases to 30% in 2014 (and up to 50% at HHS’ option). Pay these rewards only for successfully controlling such health risk factors, not for merely trying (or for filling out “health assessment” questionnaires). If your state allows it, stop hiring smokers altogether, as Cleveland Clinic has successfully done since 2007.
These immediate actions will give your employees the power of the purse to become successful, value-conscious medical consumers who, over time, will demand, receive, and act on clear, provider-specific price and quality information.
Once you’ve done all this, you’ll need to prepare the following long-term strategy to allow your employees to demand the same accountability from their health insurers.
Long-Term: Stop providing health insurance.
Once the health insurance exchanges become available, stop providing your own health plans and give your workers all the money you were spending so they can choose it for themselves. Assure tax exemption (and, if possible, ACA penalty avoidance) by setting up exchange participation as a formal employer group health plan. In moving the insurance purchase decision from your HR department to your employees, you will empower the same value-consciousness for buying insurance that you will have already given your workers for purchasing medical services. You may help them make informed decisions, but you will no longer decide what they must buy.
Stay Flexible…and Informed.
This is an outline for your new health benefits strategy. It, and the tactics to implement it, will need to be reviewed and modified as time reveals the details of ACA regulations, the effects of legal challenges, subsequent legislative fixes, and how the states implement the exchanges. While you needn’t immerse yourself in the details, you must ensure that your strategic goals are adhered to: To empower and ultimately liberate your employees as value-conscious consumers with the total financial control necessary to force insurers and providers to eliminate the two-thirds or more of all medical costs that add no patient value.
This won’t be easy. The status quo players that currently support employer-sponsored insurance are also dependent upon its continuance. They will resist these changes. That’s why you must drive this new strategy and enlist your fellow CEOs to do the same thing. Fortunately, your approach will become the new standard, which means that new solutions (and solvers) will emerge to facilitate it. The end result (as hard as it may be to envision now) will be soaring medical quality and plummeting costs. Do your employees and your company a big favor and help make it so.
All the best,
Steve
Applause, applause, applause. I couldn’t agree more. Maybe because this is exactly what we did about 4 years ago. We were able to fund about half of the HSA with our premium savings. Then we did an analysis of the reduced amount each employee had to pay for their own premium and that amount was enough for them to fund the remainder of their HSA. We have preserved this over the years by increasing the deductible. There is some question whether we will be able to continue this with the promised insurance premium increases this year.
The most important advise is #4 – Communicate. This approach is foreign to most employees. It takes time and effort to get folks to embrace the concept.
The biggest problem with the approach is the inability to shop for competitive prices. You would think that the insurance carrier could provide their negotiated prices with every provider for all common procedures. But no, it is impossible to get anything like a cost before actually incurring the expense. Too bad.
I’ve been thinking what to do with our employees. We have always just had a fixed cash payment we add to their pay but no sponsored plan. Since they are almost all very young, I think an HSA would be ideal for them. Thanks for this round of the blog. I’d hoped to just stay under 50 employees and dodge this whole round of “tax increases,” but it looks more and more like business is going to be stuck with the ceaselessly growing medical establishment.
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Steve – Need to send you a big, big thanks. We just signed up our new Medical Insurance and went with an HSA with $3,000 deductible. We kept the associate contribution the same, and set up an HSA with $2,500. Still saved money which we are putting into wellness! Everyone seems to be excited about helping to cut cost. Wouldn’t have done it without your talk in New York.
Reply to the new HSA user – Be sure to plan training sessions with your staff. No matter how excited they seem now, the first few times they have to pay for prescriptions or $250 for a doctor visit, they will question the value of this switch. They need to take advantage of the $4 prescription plans offered on generic drugs from many chains. Try to help them shop for cost effective (for them) testing laboratories based on negotiated prices from your policy carrier. They will eventually learn to love the program.
We found that young families with several children have the toughest time. They have learned to visit the doctor at the drop of a hat. That means lots and lots of charges against their deductible.
Also try to find a policy that aggregates the deductible across family members. Otherwise each person has to meet the $3,000 deductible.
Best of luck. welcome to the HSA party.