Executive PerspectivesWhat Todays Business Owner Needs To Know July 2014

HSAs More Effective at Consumer Engagement Than HRAsWhich type of health plan is more likely to get workers involved in their own health care: Health savings accounts (HSAs) or health reimbursement arrangements (HRAs)?

The two account-based types of health insurance are similar, but a new report from the nonpartisan Employee Benefi t Research Institute (EBRI) fi nds that people with HSAs are more likely to engage in cost-conscious behavior related to use of health care services than are those in HRA.

For example, HSA participants are more likely to report that they asked for a generic drug instead of a brand name; checked the price of a service before getting care; asked a doctor to recommend less costly prescriptions; developed a budget to manage health care expenses; and used an online cost-tracking tool provided by the health plan, according to the EBRI data.

Adults with an HSA were also more likely than those with an HRA to be engaged in their choice of health plan. Individuals with an HSA were more likely than individuals with an HRA to report that they had participated in a health-risk assessment, health-promotion program, or biometric screening program when it was available.

“HRAs and HSAs may be similar, but there are some key differences that may produce different incentives related to using health care services, and different consumer engagement experiences,” said Paul Fronstin, director of EBRI’s Health Research and Education Program, and author of the report. “The data show that those with an HSA were more likely to respond to health pricing than were those with an HRA.”

An HSA is owned by the individual with the high-deductible health plan and is completely portable. There is no annual use-it-or-lose-it rule associated with an HSA, as any money left in the account at the end of the year automatically rolls over and is available for future use. Both individuals and employers are allowed to contribute to an HSA. Distributions from an HSA can be made at any time. An individual need not be covered by a high-deductible health plan to withdraw money from the HSA. This means that individuals who do not use all the money in their HSA during their working years can use it to pay out-of-pocket expenses when they are retired.

In contrast, an HRA is an employer-funded health plan that reimburses employees for qualifi ed medical expenses. HRAs are typically set up as notional arrangements. Leftover funds at the end of each year can be carried over for future use (at the employer’s discretion), allowing employees to accumulate funds over time. In principle, at least, this provides

In This Issue:• HSAs More Effective at Consumer Engagement Than HRAs

• Majority of Employers Believe ACA Has Had a Negative Impact on Their Company

• U.S. Employers Interested in Exploring Stricter Rules Around Health Benefi ts as Part of Their Health Strategy

This newsletter is for informational purposes only and should not be considered as legal advice.

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Executive Perspectives July 2014

an incentive for individuals to make health care purchases responsibly. However, an employer is not required to make the unused balance available to a worker when he or she leaves.

Ultimately, an HSA creates a stronger fi nancial incentive than an HRA for workers to be more engaged in their health care because the account is owned by the worker and completely portable upon job change, EBRI found. Other research has also found that HSA plans have a greater effect than HRA plans on the use of health care services and the cost per episode.

Majority of Employers Believe ACA Has Had a Negative Impact on Their Company More than half of single employers believe that the Affordable Care Act (ACA) has had a negative effect on their company, according to a new report from the International Foundation of Employee Benefi t Plans. Nearly 90 percent of employers expect ACA to increase their company’s health care costs in 2014, resulting in many employees seeing higher out-of-pocket costs and increased premiums and deductibles.

“We are seeing fi rsthand how the Affordable Care Act has had major implications on employers and their employees,” said Michael Wilson, CEO of the International Foundation. “Employers are taking a variety of actions to mitigate costs and in most cases are sharing the cost impact with their workforce.”

The report, 2014 Employer-Sponsored Health Care: ACA’s Impact, analyzes employers’ concerns with ACA and the health care law’s challenges and opportunities. The survey specifi cally looks at plan design and funding, methods for communicating with employees, reactions to health insurance exchanges, cost management initiatives, potential impact on health care benefi t costs, and more.

Notable changes related to health insurance plans for employees and expected cost adjustments from employers include:

• Nearly one-third of employers have increased out-of-pocket limits, increased participants’ share of premium costs and/or increased in-network deductibles.

• More than one in fi ve have increased copayments or coinsurance for primary care and/or increased employee proportions of dependent coverage costs.

• More than two in fi ve employers expect to see the greatest cost increases due to ACA in 2015.

• Costs associated with the excise tax on high-cost group health plans (aka the “Cadillac tax”), general ACA administrative costs and transitional reinsurance fee costs are predicted to be the top three ACA cost drivers beyond 2014.

The report fi nds that the majority of large employers have not made broad workforce adjustments due to ACA, but many smaller employers, those with 50 or fewer employees, have made changes to their workforce due to the increasing costs associated with ACA. According to small employers these changes include:• Nearly one in six has reduced their workforce.

“We are seeing fi rsthand how the Affordable Care Act has had major implications on employers and their employees. Employers are taking a variety of actions to mitigate costs and in most cases are sharing the cost impact with their workforce.”

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Executive Perspectives July 2014

• More than one in ten have reduced hours so fewer employees work full-time.

• More than one in ten have frozen or reduced pay raises and compensation.

• One in ten has cut back on hiring in order to stay under 50 employees.

“Despite the majority of employers fi nding the implementation of ACA to have a negative effect on their company, there have been several positive opportunities as well. Many employers have taken action to increase awareness and communicate with their employees about ACA, which has resulted in greater participant engagement with their health care benefi ts,” said Julie Stich, Director of Research at the International Foundation. “In addition, most employers will continue to provide health care benefi ts in order to retain current staff, attract future talent, and maintain or increase employee well-being.”

Overall, nearly three-quarters of respondents will continue to provide health care coverage for all full-time employees in 2015, representing a steady increase in confi dence in employer-sponsored coverage since 2012 when this fi gure was below half. More than one in fi ve report they are very or somewhat likely to continue providing coverage. Less than one percent of respondents stated they will discontinue coverage to all full-time employees in 2015.

Looking ahead, one-quarter of employers have already started to redesign their health plan to avoid triggering the 2018 excise tax, also known as the “Cadillac tax.” More than one-third of employers are considering this action. Larger employers are particularly likely to be taking this action, with nearly 40 percent of employers with more than 10,000 employees taking action to avoid the excise tax.

U.S. Employers Interested in Exploring Stricter Rules Around Health Benefi ts as Part of Their Health Strategy

A new survey by Aon Hewitt, the global health solutions business of Aon plc, shows that while employee cost shifting remains the most prevalent technique in employers’ health strategies today, there is growing interest in adopting new health tactics to mitigate cost and improve population health in the future.

According to Aon Hewitt’s Health Care Survey of more than 1,230 employers covering more than 10 million employees, 52 percent of employers said their current health strategy is focused on traditional trend mitigation approaches, such as employee cost shifting. However, just 21 percent said this would be their preferred approach in three-to-fi ve years.

Instead, employers are considering new tactics that are more requiring of employees to take action.

In the next three-to-fi ve years, more than 60 percent of employers plan to “gate” employees to richer designs, where employees are required to complete a “task” to access richer design options. About one in fi ve employers gate their employees today.

“Gating strategies are becoming an increasingly attractive incentive technique among employers as they look to improve the health of their employee

“...nearly three-quarters of respondents will continue to provide health care coverage for all full-time employees in 2015, representing a steady increase in confi dence in employer-sponsored coverage since 2012...”

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Executive Perspectives July 2014

populations,” said Jim Winkler, chief innovation offi cer of Health & Benefi ts at Aon Hewitt. “For example, employers may offer a basic high-deductible plan to their entire workforce, but make a richer PPO option available to those employees who complete a health risk questionnaire or biometric screening.”

In addition, 68 percent of employers plan to adopt reference-based pricing—where employers set a pricing cap on benefi ts for certain medical services for which wide cost variation exists with no discernible differentiation in quality. Just 10 percent of employers have adopted reference-based pricing as a health tactic today.

“Despite the long-term promises of innovative strategies, employers are still gravitating towards existing cost control tactics because they can see immediate benefi ts,” added Winkler. “However, these traditional cost-sharing approaches will not be as effective in the future, and employers will need to adopt multiple strategies to improve the foundation of how benefi ts are delivered, including funding, design, clinical and provider system changes.”

Additional Plan Design Strategies

According to Aon Hewitt’s survey, employers are also considering implementing the following tactics to mitigate health costs in the next three-to-fi ve years:

• 72 percent of employers are or will be reducing subsidies for dependents

• 52 percent of employers anticipate using unitized pricing—where employees pay per person and

not individual versus family—up from 5 percent today

• 42 percent of employers are considering offering high-deductible health plans as a full replacement plan, up from 15 percent today

• 24 percent of employers plan to offer employees tools to guide decisions in plan selection and utilization, up from 19 percent today

• 92 percent plan to offer cost transparency tools, up from 49 percent today

“The fundamentals of health care still matter, but employers are increasingly realizing that traditional approaches to mitigate health care cost trend need to be advanced,” said Tim Nimmer, chief health actuary for Aon Hewitt. “Over time, plan design strategies will evolve to be more requiring of employees, and individuals will be held more accountable for their health and for using health care. At the same time, we see that employers are increasingly committed to providing employees with decision support tools that provide greater transparency around the cost and quality of care, so that individuals can make more informed health decisions for them and their families.”

“...these traditional cost-sharing approaches will not be as effective in the future, and employers will need to adopt multiple strategies to improve the foundation of how benefi ts are delivered, including funding, design, clinical and provider system changes.”