Employment Resources

When an employer invests the time and money in implementing a new benefits plan for employees, it wants the plan to be a success, attract employee participation and increase employee loyalty, and come in at the budgeted amount. Achieving these ends is easier with some plans than others, and consumer-directed health plans, in particular, can have a rough entry into a company’s benefits package. This might be because consumer-directed health plans are not as readily understood by employees as other types of health plans, or it might be because employees — rightly or not — suspect the plan is a cost-cutting measure for the employer rather than a benefits option that might meet their needs.

Employers can take steps when designing, implementing, and communicating a consumer-directed health plan to increase the likelihood that employees will embrace the plan enthusiastically — or at least give it serious consideration if choosing from a menu of plan options.

A study from Aetna shows how a thoughtful and strategic consumer-directed health plan implementation can have positive results. Aetna interviewed employers that had achieved significant success with their consumer-directed health plans — annualized cost trend rates 50% below average, and combined employer/employee savings of $15 million per 10,000 employees over a four-year period. These employers had four things in common concerning their consumer-directed health plan strategy:

1. Fostered a culture of health care consumerism among all employees, beginning with senior executives.
2. Implemented a focused employee communication and education campaign.
3. Offered wellness programs and incentives for healthy behaviors, as well as 100% coverage for preventive care.
4. Carefully constructed a benefits package that included appropriate levels of employee responsibility.

An issue brief from the Center for Studying Health System Change, in analyzing factors critical to consumer-directed health plan adoption, notes that these plans are complex, requiring employee understanding of the federal tax rules for the savings account component of the plan, including contribution caps and what medical expenses can be paid with health savings account funds. Consequently, consumer-directed health plans require extensive employee education. In fact, a study from Towers Perrin concluded that even a well-designed consumer-directed health plan is not likely to be effective unless it is combined with a thorough and continuous education strategy. The study found that people often misunderstand the risk associated with the savings account component of a consumer-directed health plan, because they confuse it with other forms of health care coverage. For example, they think the use-it-or-lose-it rule associated with flexible spending accounts applies, and don’t understand that their health savings account funds will roll over from year to year.

In looking back over the factors identified in the surveys cited above, the following — at a minimum — should be considered critical to consumer-directed health plan success:

• Position the consumer-directed health plan as part of an overall health and wellness strategy. Cover preventive care generously, and provide incentives for employees to get and stay healthy.
• Educate employees on the ways in which a consumer-directed health plan is similar to a traditional plan, and the ways in which it is different. Employees need to understand that although their health plan deductible will be higher, their financial risk is limited, and is offset to a degree by lower premium costs.
• Show the company’s commitment to the consumer-directed health plan by engaging top management in plan buy-in and by making some type of company contribution to the account portion of the plan.
• Communicate the plan on an ongoing basis. Publicize good experiences, and share cost-savings data.

Consumer-directed health plans can be a win-win for employers and employees, but for that to happen employees need to embrace the plan, and the consumer-oriented mindset that goes along with it.

Health Savings Accounts (HSAs), part of the consumer-directed approach to health care, provide a tax-favored way for individuals to save for and pay for medical expenses. HSAs also offer employers a way to better define their contribution for health care and transfer to employees more control over how health plan dollars are spent.

To add an HSA to a benefits menu, an employer must offer a high deductible health plan (HDHP). An individual must be covered by an HDHP to participate in an HSA.

The basic definition of an HDHP is this: A plan with a minimum deductible of $1,100 for individuals/$2,200 for families, and an out-of-pocket expense limit that does not exceed $5,600 for individuals/$11,200 for families (2008 limits). Previous guidance clarifies that “family coverage” means any coverage other than self-only.

Notice 2004-71 provides extensive guidance on what types of expenses are counted as out-of-pocket expenses, for purposes of determining whether the plan meets the requirement that such expenses not exceed the published limits. As would be expected, amounts paid to satisfy a deductible are counted, as are copayment and coinsurance amounts, even if they would not count against the deductible under the terms of the plan. In the case of cumulative embedded deductibles under family coverage, a plan would not qualify as an HDHP for families where the number of covered individuals is large enough that the cumulative deductible could exceed the $11,200 limit (such as for a family of six with a per person deductible of $2,000 and no cap or maximum family deductible). Notice 2004-71 lists certain types of expenses that are not counted toward the out-of-pocket expense limit:

• Premiums
• Amounts paid above the usual, customary, and reasonable (UCR).
• Precertification penalties, including higher coinsurance amounts for out-of-network providers.
• Amounts paid for services that are not covered benefits under the plan.
• Amounts paid after the lifetime plan maximum is reached (the Notice cites as reasonable a plan with a $1 million lifetime benefit maximum).
• Amounts paid after annual or lifetime limits on specific benefits are reached, so long as these limits are reasonable.

On this last bullet point, Notice 2004-71 states that restrictions or exclusions on specific benefits are reasonable only if “ … significant other benefits remain available under the plan in addition to … ” those subject to the restriction. This Notice provides an example of a plan (self-only coverage) with a $1,100 deductible (2008 minimum deductible) and 100% plan coverage thereafter, up to a $1 million lifetime maximum, and a $10,000 annual limit on benefits for any single condition. Because the annual single-condition limit is not reasonable, expenses incurred by an individual after meeting the deductible are counted toward the HDHP $5,600 out-of-pocket expense limitation (2008 individual out-of-pocket maximum).

A plan without an expressly stated limit on out-of-pocket expenses can still qualify as an HDHP, if the terms of the plan are such that the $5,600 individual/$11,200 family maximum cannot be exceeded. For example, a plan with a $2,000 deductible for self-only coverage that pays 100% of expenses after the deductible satisfies the maximum out-of-pocket requirement for HDHPs, even if it does not contain an express out-of-pocket maximum.

The economic stimulus package enacted earlier this year includes provisions that extend and strengthen the privacy requirements of the Health Insurance Portability and Accountability Act of 1996 (HIPAA). These changes affect employer health plans significantly, together with the various vendors and contractors that provide services to these plans.

HIPAA regulates the use and disclosure of an individual’s protected health information held by health care providers, health plans, and health care clearinghouses (referred to under HIPAA as covered entities).

Vendors and contractors to health plans — such as those providing legal services, accounting services, consulting services, information technology and the like — are considered business associates and previously were not subject to the HIPAA privacy and security rules directly. They did, however, sign business associate agreements to maintain the privacy and security of protected health information, so as to enable the covered entities they contracted with to comply with HIPAA.

In a significant change to this approach, the Health Information Technology for Economic and Clinical Health Act (HITECH), part of the American Recovery and Reinvestment Act of 2009 (ARRA), extends HIPAA’s privacy and security provisions to business associates that provide services to health plans, thus making them directly subject to these provisions in the same way that covered entities are, and also subject to the same direct government penalties as covered entities in the event of a breach. In another significant change, HITECH specifies breach notification procedures that must be followed when there is an unauthorized disclosure of unsecured protected health information. Under regulations issued by the Department of Health and Human Services, these provisions require both the covered entity and business associate to notify each affected individual directly (including any individual whose unsecured protected health information “is reasonably believed” to have been compromised) of a breach “without unreasonable delay but in no case later than 60 calendar days after discovery of the breach.” The regulations specify methods of notice, including use of prominent media outlets if the breach is believed to involve more than 500 individuals. They also specify the information that should be included in a breach notification.

The regulations also define the technologies and methodologies that can be used to secure protected health information. Because the breach notification requirements apply only to unsecured protected health information, when health information is secured in the ways outlined in the regulations, the breach notification requirements do not come into play.

HITECH also directs that penalties collected in enforcement proceedings will be channeled back for additional enforcement efforts. Some commentators have noted that this might indicate more aggressive enforcement of HIPAA’s privacy and security efforts down the road.

Employer health plans and other covered entities will need to review and amend their contracts with health plan service providers to reflect these changes. HITECH states specifically that HIPAA requirements that relate to security and that are applicable to covered entities, in addition to now being applicable to business associates, “shall be incorporated into the business associate agreement between the business associate and the covered entity.”

The Department of Health and Human Services has issued initial guidance on HITECH provisions, but more will be forthcoming. The timetable for implementation of HITECH provisions affecting the HIPAA privacy and security requirements varies. Given the complexity of these new rules, and their potential impact if not followed, companies with health plans subject to HIPAA should take steps now to ensure they are up to speed with compliance.

Just as employers that match employees’ 401(k) plan contributions see higher employee participation in the plan, employers that contribute to employees’ health savings accounts (HSAs) are more likely to see eligible employees open an HSA.

An examination by UnitedHealthcare of HSA-eligible participants found that when an employer made an HSA contribution on its employees’ behalf, 86% of eligible employees chose to open an account, compared with 27% who opened an account when the employer did not provide “seed money.” Account adoption was highest among employees who earned less than $25,000 annually, with 64% of employees at this income level having an account. The percentage of employees who opened an account then steadily dropped as income level rose: 56% of those in the $25,000-$49,999 earnings range, 52% of those in the $50,000-$99,999 earnings range and 50% of those earning $100,000 or more. However, as might be expected, the average employee HSA contribution rose as income level rose: $1,166 for employees earning less than $25,000 annually, $1,422 for those earning $25,000-$49,999, $1,823 for those earning $50,000-$99,999 and $2,290 for those earning $100,000 or more.

Neither age nor marital status drove or deterred an employee’s likelihood to open an account, according to the survey. More than half of young singles (62%), singles over age 40 (52%), young couples (58%), young families (59%) and mature families (55%) opened an HSA. However, the highest contribution rate was seen among families, both young and mature. Also, employees of small companies were more likely to open an HSA if eligible, with 74% of small company employees taking this step, compared with 67% of employees at mid-size companies and 45% of employees at large companies.

The vast majority of HSA-participating employees had account balances at the end of the year, a testament to the usefulness of HSAs as a savings tool for future health care expenses, including retiree health care expenses.

As this survey suggests, HSAs have application across all income groups, life stages and employer environments, making it an appropriate health plan offering for just about any company to consider.

College students covered under a parent’s health plan will be able to keep that coverage while taking a medically necessary leave of absence from school, under a new law.

Under H.R. 2851 — also known as Michelle’s law — group health plans or insurers may not terminate coverage of a dependent child who is eligible for coverage under a parent’s plan on the basis of being enrolled in a post-secondary educational institution, when that dependent takes a medically necessary leave of absence from school due to a serious illness or injury. Coverage must remain in place for one year after the medically necessary leave of absence begins, or the date coverage would otherwise have terminated under the plan, whichever occurs first. So, for example, if the plan by its terms will cover a college student enrolled on a full-time basis until the end of the year in which the student turns age 22, a student beginning a medically necessary leave of absence could not have coverage terminated until the earlier of that date, or one year after beginning the leave.

Plans and insurers may require a written certification by a treating physician verifying that the covered dependent is suffering from a serious illness or injury, and that the leave is medically necessary.

Also, if the health plan under which the dependent is covered changes, the dependent must be allowed to continue coverage under the new plan.

According to estimates from the Congressional Budget Office, less than 1% of students go on medical leave of absence annually, and about half of these are covered as dependents under employer-sponsored health insurance.

The new law is effective for plan years beginning on or after October 9, 2009.

The cost of preventable medical errors exceeds $17 billion annually, with nearly half of these expenditures representing direct health care costs. Medical errors, by some estimates, are the eighth leading cause of death in the United States. In addition to health care expenses and the costs associated with untimely mortality, the cost of medical mistakes includes lowered workplace productivity, unnecessary absences, and an increased incidence of disability.

The scope of “medical errors” is broad. According to a report from the Institute of Medicine (IOM), medical errors fall into these categories:

• Diagnostic errors — Mistaken or delayed diagnosis; failure to use an indicated diagnostic test; use of an outmoded test or therapy; failure to take action as a result of patient monitoring or test results.
• Treatment errors — Mistakes made during an operation, procedure or test; mistakes in administering a treatment; incorrect prescribing or dosing of medication; delaying treatment in response to an abnormal test result; providing care that is not indicated.
• Preventive errors — Failing to provide prophylactic treatment; inadequately monitoring or following up.
• Other errors — failing to communicate; equipment failure; other system failure.

Most data on medical mistakes centers on errors that occur in the hospital setting. For example, the IOM estimates that 44,000 to 98,000 people die each year in hospitals as a result of medical mistakes, and a report from HealthGrades found that Medicare patient safety events and deaths resulting from hospital errors cost approximately $2.0 billion from 2005 through 2007. In contrast, little data exists on the extent of medical mistakes made in physicians’ offices, nursing homes, pharmacies and urgent care centers, and in the course of home health care.

Though much of the cause of medical errors is systemic, employers can play a role in reducing the incidence of such errors. According to the IOM report, by raising expectations for improvements in safety and for health care providers’ performance, purchasers of health care — including employers — can impact patient safety positively and thereby lessen the chances of errors occurring. One way employers can do this is by making safety a primary factor in the contracting decision process.

Employers can also contribute toward lowering the rate of medical errors by communicating actively the importance of the issue to employees. With employer group health plans being a major purchaser of health care in the United States, this puts employees and dependents who use this care on the front lines of battling medical mistakes. The IOM notes that, for example, in the case of errors involving medications, patients can provide a major safety check in hospitals, clinics and physicians’ offices. Patients should know which medications they’re taking, what their medications look like, what their usual dose is, and what possible side effects can result, and notify their doctor immediately if they notice anything seemingly wrong with their prescription or any side effects. Resources on patient safety are available on the Web site of the Agency for Healthcare Research and Quality, http://www.ahrq.gov/qual/errorsix.htm.

Talking to employees about the role they can play in this regard — in a company newsletter article, in benefits communications materials, or during a lunchtime presentation — can impress on them that by being an active participant in their health care, they can lessen the chance that they will be a victim of a medical mistake. Reducing the incidence of mistakes can help to control costs for both an employer and employees, and can improve employee patient safety substantially.

The number of people enrolled in consumer-directed health plans continues to grow, and satisfaction with these plans remains high, according to several recent surveys. Furthermore, many of those covered by consumer-directed plans say they wouldn’t have health insurance coverage otherwise, indicating that consumer-directed plans should be considered a key element of any health care reform proposals.

The Kaiser Family Foundation/Health Research & Educational Trust reports that 13% of firms that offered health benefits in 2008 had a consumer-directed option-a high deductible health plan (HDHP) paired with either a health reimbursement arrangement (HRA) or a health savings account (HSA). This is up from the 10% of employers that offered a consumer-directed plan in the previous year. Enrollment in these plans grew from 5% in 2007 to 8% in 2008, with most of the increase occurring among workers in small firms (three to 99 employees), where 13% of eligible employees now were enrolled in consumer-directed plans.

An annual census of health insurance carriers conducted by the industry trade group America’s Health Insurance Plans shows similar growth. The survey, which focused on HDHP/HSA arrangements only, reported enrollment in these plans in the group market rose to over 4.6 million in 2008, up from 3.4 million in 2007. Almost a third-31%-of new coverage issued in the small group market was for HDHP/HSA products.

The growing number of employees covered by consumer-directed health insurance products report that they are, by and large, satisfied with their coverage, and they also are likely to be actively engaged in their health care. A survey by OptumHealth of individuals enrolled in HSAs found that 82% were satisfied with their accounts. Most of these individuals-80%-had set up HSAs in order to be able to save for future health care expenses, and 70% had an annual income of $75,000 or less. Also, 30% said they would not have health insurance if it weren’t for their consumer-directed plan coverage.

Both the respondents to the OptumHealth survey and those to a survey by HSA Bank reported behaviors indicative of engaged health care consumers. For example, 64% of the OptumHealth survey respondents said they inquired about generic options for medications and 47% said they asked their health care provider about charges for services. Furthermore, a large majority-83%-agreed people should approach purchasing health care services as they do other major consumer purchases, and research their options in an effort to try to get the best price. Among the respondents to the HSA Bank survey who were in a consumer-directed product:

• 26.2% of those who had visited a doctor in the past 12 months had inquired about the cost of the visit prior to making the appointment.
• 32.9% of those who had visited a doctor in the past 12 months had asked about lower cost alternatives for recommended treatments.
• 79.5% of those who were prescribed a prescription drug asked for a generic instead of a brand name product.

With continued growth of consumer-directed plan enrollment, and cost-conscious consumer habits, these types of plans hold great potential for effectively controlling a company’s health plan cost growth.

Most people and businesses probably accept the logic that companies implementing wellness initiatives must be saving some money as a result. If employees lose weight, stop smoking, become more active, and have tools to detect and begin to manage potentially serious conditions at an earlier, more treatable stage — all of which can result from wellness program initiatives — it seems reasonable to assume that a company’s health care costs should be affected favorably. Yet, data on wellness initiatives’ return on investment (ROI) remains elusive, which can spell trouble for these programs when economic conditions call for justification of every dollar a department spends.

In times of scrutinized budgets and spending cutbacks, wellness programs that require little or no expense outlay, yet address either (or both) disease prevention or early detection — the dual focus of wellness initiatives — might be the best (or only) option for cash-strapped businesses. Here are some ways to bring wellness programs into the workplace without making a significant capital outlay:

• Use premium incentives and surcharges to motivate employees to engage in healthy behaviors or abandon unhealthy ones. For example, offer employees a credit they can use to offset their required health plan premium contribution in exchange for participating in a health risk appraisal, or charge a lower health plan premium contribution for nonsmokers than for smokers.
• Take advantage of wellness features that are included in your company’s health care plan and promote them as part of your wellness program. Consult with the health plan carrier to determine what offerings are available. Check to see if the carrier offers additional wellness-related services outside of your health plan and, if so, consider adding some of these to your plan. This might raise the health plan premium somewhat, but remember that employees will help to pay for the cost of the additional wellness efforts through their share of the premium payment.
• Look for free resources in the community that can be made available to employees as part of a wellness initiative. For example, a local health department might have individuals who could speak to employee groups on seasonal health issues, such as the flu or about resources the community makes available to residents, such as immunization clinics.
• Explore offerings that might be available through nonprofit organizations that focus on a specific disease. A Calendar of National Health Observances (available at www.healthfinder.gov/nho) lists contact information for hundreds of such organizations, and some of these might be sponsoring activities in your area with a wellness focus (for example, National HIV Testing Day, Melanoma/Skin Cancer Screening and Detection Month).
• Check to see whether hospitals in your area offer free blood pressure and/or cholesterol screenings.
• Try to develop partner-type relationships with local hospitals, clinics, and other organizations (for example, the YMCA) to make free or low-cost wellness activities available to employees.

According to the Alliance for Wellness ROI, an intercompany cooperative formed to standardize the terminology and measurement of wellness return on investment, published ROI resulting from wellness programs ranges from $1 to $20 for every dollar spent on wellness initiatives. Unfortunately, since this is such a dramatic range, questions arise as to what exactly is being measured. Arguably, measurement of wellness ROI should include not only reductions in health care costs, but also Workers Compensation cost savings, reduced absenteeism and disability, productivity gains, and improvements in employee morale and retention. However, until reliable measures of wellness ROI become standardized-enabling benefits departments to clearly justify program costs-no- and low-cost wellness opportunities are likely to be necessary staples of corporate wellness initiatives.

Consumer-directed health care plans can lead to savings for employers, according to two recent studies. Savings are greater for full replacement plans, or when the consumer-directed plan offered as an option is implemented in conjunction with strategies that foster engaged consumerism, education, and wellness initiatives.

One of the studies, from Aetna, reviewed health care claims and utilization data from 2.6 million plan members, 410,000 of whom were enrolled in a consumer-directed plan that included a Health Savings Account (HSA) or Health Reimbursement Arrangement (HRA). Cost savings were reported as follows:

• For full replacement plans, employers saved $21 million per 10,000 members over a five-year period.
• Employers that offered the consumer-directed plan as an option to a traditional health care plan saw $7 million in savings per 10,000 members over a five-year period.
• Employers that offered the consumer-directed plan as an option, but additionally implemented certain identified strategies, recorded $23 million in savings per 10,000 members over a five-year period. These strategies included nurturing a workplace culture that encouraged employees to be engaged health care consumers; implementing a focused and ongoing education program; offering wellness programs and incentives for healthy behavior; fully covering preventive health care services; and designing the consumer-directed plan to create the appropriate amount of employee responsibility. This type of high-level plan savings also was achieved by employers offering the consumer-directed plan as an option, when they also encouraged enrollment in the plan through low employee premium contributions and/or increased employer contributions to the HSA or HRA.

Research from the University of Minnesota funded through the Robert Woods Johnson Foundation and the Department of Health and Human Services found that full replacement consumer-directed health care plans achieved a level of savings not seen in previous studies in which employees had the option of choosing another type of health plan. Data from this study came from four large employers covering more than 61,000 plan members, and examined claims and enrollment data for the year prior to and the year following consumer-directed plan implementation. One employer saw a 4.1% decrease in total plan expenditures and another saw a decrease of close to 1%. The other two firms both saw increases, but only of 1.3% and 3.6%, both well below reported national health care cost trends for the year.

Both studies also looked at consumer-directed plan members’ use of preventive care services. The Aetna study found that, compared to PPO members, consumer-directed plan members sought preventive care more often, and accessed screenings for diabetes and breast and cervical cancer at the same or higher levels. The Minnesota study, in contrast, found that total replacement consumer-directed plans led to a decrease in use of preventive care services, even though such care was covered at 100% with no cost sharing in the studied plans. The authors speculated that because patients sometimes are reminded of the need for preventive care when seeing a doctor for other reasons, a decline in the frequency of non-preventive care visits could be leading to the observed reduction in use of preventive care. Since regular use of preventive services is important in the maintenance of good health, these latter study findings would indicate that communications and education about the availability of preventive care services under the consumer-directed plan will be needed in order to sustain savings over time.

A sputtering economy and declining stock market have been taking a huge toll on investors’ portfolios, including employees’ 401(k) accounts. According to Fidelity Investments’ annual State of the 401(k) update, drops in the stock market resulted in the average workplace 401(k) account balance falling 27% in 2008. This drop occurred despite participant contribution levels that continued at slightly higher rates than in 2007.

Such losses can be frightening to any investor, but are likely to be particularly so to employees. For many 401(k) participants, their plan account represents their largest single asset outside their home and a primary expected source of retirement income, but also their only experience in stock market investing. Such high stakes, coupled with fear and inexperience, can be fodder for lawsuits, as employees look to recover losses. Although ERISA Sec. 404(c) can protect plan fiduciaries from liability for the consequences of participants’ investment decisions — if the provisions of that section are followed — fiduciaries continue to have the duty to act prudently and solely in the interest of plan participants when selecting the investment options offered by the plan and when selecting investment managers. Furthermore, both investment offerings and investment managers must be monitored to ensure that they continue to be prudent choices. With the 2008 U.S. Supreme Court case of LaRue v. DeWolff, Boberg & Associates permitting a plan participant to sue plan fiduciaries to recover individual losses alleged to be caused by a breach of fiduciary duty, an increasing number of lawsuits may be forthcoming, to test the extent of the ruling in that case.

Clearly, present-day circumstances should provide ample motivation for 401(k) plan sponsors to take steps to make sure they have adequately protected themselves in the event of a lawsuit by a plan participant. The following are among the issues to consider in conducting such a review:

• Investments. Review your plan’s investment line-up to determine whether the selection available to participants is appropriate. Does the line-up offer choices along the risk and return spectrum to all ages of participants? Are any pre-mixed funds based on age or expected retirement date appropriate for your employee population? If the plan includes a default investment for participants who have failed to direct the investment of contributions, review this option to ensure that it continues to be an appropriate choice. If your plan currently does not have a written investment policy in place, or does not use an independent outside consultant to assist in selecting and monitoring investments, take steps to incorporate these into your investment procedures.
• Fees. Determine the amount of current participant fees associated with your plan’s investments, and benchmark them against industry standards.
• Investment managers. Review — or create if you don’t already have them — the written processes you have in place for the selection and monitoring of investment managers.
• Administrator. The plan administrator is the face of the plan to employees. Solicit and monitor participant feedback on the administrator so that you know of any problems before they grow into headaches for you, or worse. Further, have criteria in place to assess the plan administrator’s performance on an ongoing basis and to benchmark performance against industry standards.
• Compliance. Are your plan’s administrative procedures in compliance with current regulations? If you intend your plan to be a participant-directed individual account plan, are all the provisions of ERISA Sec. 404(c) being followed?
• Communications. With the market changing so much over the past year, and the effect this will have had on participant accounts, it’s likely that communications that were appropriate during times of surging account values may not be so appropriate today. Revisit your plan communications materials and assess them accordingly. Saving for retirement remains vital to employees’ future financial security, but different messages may be needed to convey this, given today’s uncertain economy.