LifeHealth.com



Benefits myth-busting

by Robert DiMase

Robert DiMase is Executive Vice President, Sentinel Financial Group, a benefits consulting and administration practice in Reading, Mass. He can be reached at 781-914-1200.

As healthcare costs continue to increase at a rapid rate, employers are continually looking for ways to reduce costs while maintaining a reasonable level of benefits for employees. Although there are many tools available to accomplish these objectives employers often fall into benefits traps. We will try to uncover some of these myths and shed some light on what is "confirmed" or "busted".

The Flexible Spending Account: uniform coverage rule often results in employers losing money

The key is to shop around, but ultimately if you want to maintain the same provider network your options may be limited.

The uniform coverage rule requires healthcare expense Flexible Spending Account (FSA) plans to operate like insurance plans, rather than mere reimbursement accounts. This means that employers must make the full amount of coverage elected by a plan participant available to the employee from the start of the plan year, regardless of how much has been paid into the account up to that point. Employers may not deduct from employees' final paychecks premium payments that are due for the rest of the year as a method of minimizing their loss.

This is a concern for many of plan sponsors who may choose to not offer the plan due to this perceived risk. Each year we evaluate our FSA plans with a December 31 plan year-end and provide a summary of forfeiture activity. Our study data has indicated that 79 percent of plans final reconciliation resulted in a zero or positive balance. The average balance was $2,954 while the average negative balance was $509.

While most plan sponsors are rightfully concerned about the potential liability of the "uniform coverage" rule, our experience has found that a vast majority of our plan sponsors actually realize a refund of plan forfeitures.

Only healthy employees save money by choosing a high dollar deductible health plan

While this may be true for many, we are finding increasing proof that the chronically ill employee often can realize significant savings as well, particularly those who take multiple regular medications. The savings are generally accomplished inadvertently by plan sponsors who will cost share the high dollar deductible plan more favorably than the traditional copay plan while offering a comparable or more favorable "out-of-pocket" maximum. Thus the chronically ill employee will save money via the employer cost share, quickly hit the plan's out-of-pocket maximum and enjoy 100 percent coverage for many other services for the remainder of the calendar or plan year.

Unfortunately as this phenomenon becomes more prevalent insurance carriers are finding that the premiums being charged for these plans are deficient and many are increasing premiums at rates exceeding more traditional plans.

Only five percent of members incur 33 percent of all health care expenditures

According to Blue Cross Blue Shield of Massachusetts 67 percent members incur $0 to $999 in health care expenditures annually, representing only 23 percent of total costs. Twenty seven percent of members incur $1,000 to $4,999 in health care expenditures annually, representing 44 percent of total costs. While five percent of members incur over $5,000 in health care expenditures annually, representing 33 percent of total costs.

Unfortunately this statement is true. Young healthy groups should always self-fund their medical insurance

While this statement may be true for the larger employer with 500+ employees it is often not the case for smaller employers. Most insurance carriers make their biggest underwriting profits in the fully insured middle market and are not eager to see their customers self insure. Many carriers won't even offer a self insured product unless the account maintains a certain number of employees. For those that do provide the alternative, you will often find the financial arrangement to be unattractive despite the possibility of savings.

The key is to shop around, but ultimately if you want to maintain the same provider network your options may be limited.

Everyone should open up a Health Savings Account (HSA)

As Health Savings Accounts (HSA) become more of a household term we are seeing many financial institutions, eager to get their share of the pie, advertise HSA investment products. What is often misunderstood is that in order to establish a HSA, the account holder must be covered by an HSA eligible high dollar deductible health plan. In order for a health plan to be considered HSA eligible the following conditions must be met:


Additional limitations apply for those participating in Flexible Spending Account or Health Reimbursement Account plans and for those covered by Tricare (military healthcare). While HSA eligible plans are clearly becoming more prevalent, a very small percentage of the insured population is covered by an HSA eligible health plan.

Insurance company profits are responsible for our rising health care costs

In 2007 the United States five largest health insurers covered 105 million members (approximately 35 percent of the U.S. population) and had profits of $11.8 billion. Total estimated 2007 U.S. healthcare spending was $2.3 trillion. An aging population, more expensive technology, consumer demand for high tech services and providers, medical malpractice and defensive medicine, new prescription drugs including specialty drugs and injectables, e-technology investments and cost shifting at the state and federal level add up to an inflation rate in health care that significantly outpaces CPI.

While insurers can always do a better job at helping to control costs, their 2007 profits represented a mere .5 percent of total healthcare costs.