Law Practice Today

Employers in the United States – including law firms – spent 87 percent more on health benefits for their employees in 2006 than they did in 2000. What’s more, the amount they are currently paying will mostly likely double over the next seven to ten years.

“ There are many factors driving this increase – including skyrocketing prescription costs, rising hospital and physician costs, advances in medical technology, an increase in chronic conditions due to unhealthy lifestyles, an increase in use, a population that is aging and a lack of consumer involvement in the purchase of healthcare,” said David Levitz, executive vice president of GCG Financial.

Levitz spoke on current trends in health benefits at a quarterly core competency session of the Mile High Chapter of the Association of Legal Administrators, held May 16 th at the Adams Mark Hotel in Denver. He is the Executive Vice President of GCG Financial (www.gcgfinancial.com). Also participating in the presentation was Jeff Kolker, Vice President for Employee Benefits for GCG Financial and Melanie Barnard, Employee Benefit Consultant in the Denver office.

“ When the cost of health benefits increases, businesses have traditionally pursued a number of options,” said Kolker. “You can increase the cost to employees in the form of a larger premium contribution. You can decrease the scope of benefits you cover. You can increase point-of-use cost sharing. You can restrict provider choice. You can change carriers (although this cost relief is almost always temporary). You can consider self-funding or alternate funding.”

“ However, we recommend that employers ‘think outside the box’ to come up with new choices that change consumer buying patterns,” said Kolker.

“ The same consumers who would put a lot of thought into making purchasing decisions about new cars, new televisions or computers, or new kitchen appliances put very little time or effort into making a purchasing decision about healthcare,” said Kolker.

“ Under a ‘first dollar’ system, why should they? Employees appreciate health benefits, but have little invested in the decisions they make,” said Kolker. “In 1960, consumers paid 49 percent of the total cost of their healthcare. Today, thanks to the role of employee benefits in recruitment and retention packages, they pay just 13 percent.”

Increasingly, employers are attempting to control costs by encouraging employees to become more involved with their healthcare decisions. Two ways of accomplishing this are consumer-driven health plans and wellness plans.

Consumer-driven Health Plans

Consumer-driven health plans give employees a stake in their healthcare spending – so they are more likely to think twice before entering the system. CDHPs achieve lower premiums by combining a medical plan (usually high-deductible) with a funding instrument that helps members meet the deductible with pre-tax dollars.

These funding instruments can be flexible spending accounts, health reimbursement accounts or health savings accounts. Currently, according to GCG Financial research, 14 percent of employers offer CDHPs and 37 percent are considering this option.

A high-deductible health plan saves money for employers by not paying “first dollar” for healthcare. Although most policies pay for 100 percent of preventive care, the insured (through the funding instrument) is responsible for all other payments up to approximately $1,100 for individuals and $2,200 for families. When the deductible is reached, regular insurance resumes.

“ CDHPs are designed to engage consumers (and ultimately change their behavior) by giving them the opportunity to maximize their healthcare benefits,” said Kolker. “This can be done by taking more direct control over managing their care options, determining how their healthcare dollars are spent and choosing their preferred therapeutic regimens.”

Most employers are familiar with flexible spending accounts, which have been around for a while and which are employee-owned accounts created to reimburse qualified medical, dental and vision expenses not covered by an insurance plan with pre-tax dollars. Any amounts not used are forfeited at the end of the plan year.

A health reimbursement account is an employer-owned promissory account created to pay qualified medical, dental and vision expenses. The employer controls the eligible expenses, makes the contribution when a claim is filed and enjoys the tax deduction. Access to unclaimed amounts can carry over from year to year and can be used by former employees to purchase COBRA or individual health insurance.

“ The newest funding instrument to be used in conjunction with a high-deductible health insurance plan is a health savings account – a consumer-owned, tax-advantaged savings account that functions a lot like an IRA,” said Kolker. “As such, HSAs offer savvy healthcare consumers an exciting new savings and investment vehicle.”

HSAs are always combined with a high-deductible health plan. They must be fully funded and held outside employer general assets. Both employers and employees can contribute pre-tax dollars to an HSA up to the combined 2007 maximum of $2,850 for an individual or $5,650 for a family (indexed for inflation in future years) – with catch-up contributions for individuals age 55 or older. Interest or investment earnings grow tax-free.

The account accumulates from year to year (creating a nest egg for future medical expenses) and is portable. If the owner takes money out of the account for a non-qualified expense, he or she must pay taxes plus a ten percent penalty. Once the account-owner reaches age 59-1/2, funds can be withdrawn without penalty for non-medical expenses – but would still be subject to state and federal income tax.

“ Because employees get to keep any money that they do not spend, they are more conservative with their medical spending,” said Kolker. “Because they see the actual bills (before paying them from the HSA account), they are not artificially insulated from an awareness of the true cost of medical care.

“ Law firms and other employers should be very careful how they roll out any kind of CDHP,” said Kolker. “Employees tend to suspect some kind of ‘take-away’ or ‘cost-shift.’ They are scared by what can look like a large amount of out-of-pocket expense before they meet the deductible. You need to communicate early and often to dispel this fear and encourage enrollment.”

To help employees see the benefits of a CDHP, GCG Financial recommends offering employees a number of plan choices and using a plan-comparison tool that will calculate the total costs over time of the various options. The firm also recommends launching any CDHP with a financial incentive to influence enrollment – like a higher initial corporate share or a corporate contribution strategy that favors lower-paid employees.

Wellness Programs

Research estimates that 70 percent of healthcare expenditures are due to illnesses (and associated costs) that would be avoidable by proper diet, exercise and not smoking or preventable if detected and treated in a timely fashion. As a result, an increasing number of employers are turning to workplace wellness programs as a way to detect illness, involve employees in their healthcare decisions and reduce healthcare costs.

“ While wellness programs are a cost to the employer in the short-term,” said Kolker, “a well-designed program is cost-effective in the long-term because it forestalls health insurance, workers’ compensation and disability claims, and because it leads to employees taking less time off because of illness or injury.”

The most common workplace wellness programs include an employee assistance program (32 percent); health risk assessments (32 percent); health club membership discounts (17 percent); blood pressure screening (15 percent); smoking cessation programs (15 percent); cholesterol screening (14 percent); chronic disease management programs (11 percent); and obesity management programs (8 percent). Three percent of employers contract out their wellness programs to outside vendors.

To encourage employees to participate in wellness programs, many employers are giving workers an incentive – like cash, gift certificates and merchandise discounts, days off, lower medical premiums, and FSA or HRA credits. “With no financial incentive, participation in a wellness program will be 20-30 percent,” said Kolker. “With the right amount of financial incentives, participation leaps to 60 to 80 percent.”

“ Under the new HIPAA wellness program rules, rewards and incentives are now allowed if they meet five criteria,” said Barnard. These include:

1. The total reward is limited to no more than 20 percent of the cost of the coverage;
2. The program must be reasonably designed to promote health and prevent disease;
3. The program must provide eligible participants with the opportunity to qualify for the reward at least once per year;
4. The reward must be available to all similarly situated individuals and allow a reasonable alternative standard (or waiver) to those who find it unreasonably difficult or medically inadvisable to satisfy the standard; and
5. The plan must disclose the terms and conditions of the program, including the availability of an alternative standard or waiver of the standard.

“ Basically, rewards and incentives must be based on participation in the wellness program, not particular outcomes,” said Bernard.

Taking another approach, some employers are offering disincentives for those who do not participate in wellness programs. “These penalties can often pay for the entire program,” said Kolker.

Faced with rising healthcare costs, law firms and others can respond by thinking “outside the box” – integrating consumerism and wellness programs into their health plans.

Janet Ellen Raasch is a writer and ghostwriter who works closely with lawyers, law firms and other professional services providers – helping to establish them as thought leaders within a targeted market through publication of articles and books for print and rich content for the Internet. She can be reached at (303) 399-5041.