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Waiving HDHP Deductibles Has Little Effect on Premiums, Study Says

Waiving HDHP Deductibles Has Little Effect on Premiums, Study Says

by | Aug 30, 2022 | Uncategorized

Employers who offer health savings account-eligible high-deductible health plans (HDHPs) to employees can significantly expand pre-deductible coverage for certain drugs used to manage chronic conditions — with only a tiny effect on premiums.

That’s the finding of a new study from the Employee Benefit Research Institute (EBRI).

The reason: According to research from Johns Hopkins University, poorly managed chronic medical conditions cost employers an estimated $198 billion every year.

These costs show up in several ways:

  • Direct usage of medical services such as preventable ER visits and hospitalization
  • Absenteeism
  • Illness-related presenteeism
  • Cost of temporary workers
  • Overtime costs

Johns Hopkins also estimates employers lose another $178 billion per year in workers’ compensation costs, Family Medical Leave Act costs, and wages and benefits paid during workers’ absence.

 

The growing cost burden of HDHPs

By 2030, unmanaged chronic diseases such as diabetes, high blood pressure, heart disease, asthma and depression are projected to cost an estimated $2 trillion in direct medical costs, as well as an additional $794 billion in indirect costs like lost employee productivity.

While the combination of health savings accounts (HSAs) and HDHPs was supposed to help reduce costs by encouraging consumers to take more ownership of their own health care, deductibles on important preventative drug therapies cause plan members to skip needed medications.

This has been shown to lead to much more expensive conditions later, including blindness, amputation, heart attacks and strokes.

Conversely, workers and covered family members are significantly more likely to be medication-compliant when these drugs are exempt from their health plan’s deductible — and therefore less likely to be hospitalized, become disabled or need more expensive medical treatment.

Among HDHP plans that expanded pre-deductible coverage to 116 drug classes used to manage expensive long-term, chronic medical conditions, the cost of these drugs was almost entirely offset by reduced health care utilization.

Among the study’s highlights:

  • When plan sponsors allowed plan beneficiaries to access these medications with zero out-of-pocket cost-sharing (e.g., no deductible and no coinsurance), the net impact on premiums was an increase of 4.7%.
  • When employer HDHP plans allowed plan members to access these medications with a coinsurance charge, but no deductible, the direct net effect on premiums was an increase of only 1.3%.

Improved disease management

The EBRI study only measured the direct impact on premiums of expanding pre-deductible coverage to these medications, largely through reduced health care utilization costs, which show up later in the form of higher premiums.

EBRI’s research suggests that employers can realize significant improvements in workforce health and wellness by expanding “first dollar” coverage of certain medications. Helping workers manage their chronic diseases has other powerful positive indirect effects on employers’ bottom lines.

Under current law, HDHP plan sponsors have limited flexibility to cover more than a limited list of 14 medications and services before deductibles are met.

But there are several innovative strategies employers can use to close the coverage gap and encourage employees to get the care they need to prevent them from getting sicker, including HSAs and health reimbursement arrangements.

Diabetes Wellness Programs Can Boost Productivity, Reduce Costs

by | Aug 24, 2022 | Uncategorized

Physicians and employee health experts are increasingly recommending that employers include diabetes screening, prevention and management in their company-sponsored wellness programs.

Diabetes — known as the “silent killer” — afflicts more than 29 million Americans, or 9% of the population.

Type 2 diabetes — or adult-onset diabetes — accounts for about 90% to 95% of all diagnosed cases of diabetes. Type 2 diabetes is associated with older age, obesity, family history of diabetes, history of gestational diabetes, impaired glucose metabolism, physical inactivity, and race/ethnicity.

The fallout from the disease has a significant impact on businesses as it can lead to stress, depression and a number of other health problems, including cancer, stroke and heart issues. That in turn leads to lost productivity for you as well as presenteeism, or the dilemma of a worker being at work but not being productive.

Medical costs and costs related to time away from work, disability and premature death that were attributable to diabetes totaled $245 billion in 2019, according to the U.S. Centers for Disease Control. Of that total, $69 billion was due to lost productivity.

With these statistics in mind, it’s imperative that employers help their workers manage their diabetes. Helping them get diabetes under control or helping them avoid developing the disease can keep your productivity strong, reduce your workers’ comp claims and also chip away at your health insurance expenses thanks to lower premiums.

 

Diabetes means decreased productivity

Of the roughly $69 billion that U.S. employers lost in 2019 from decreased productivity due to diabetes:

  • $21.6 billion was from the inability to work as a result of diabetes.
  • $20.8 billion was from presenteeism.
  • $18.5 billion was from lost productive capacity due to early mortality.
  • $5 billion was from missed workdays.
  • $2.7 billion was from reduced productivity for those not in the labor force.

Prevention and management

Employers can help by providing their employees with a voluntary diabetes management and prevention program. This wellness benefit can take many forms.

The Integrated Benefits Institute during an annual forum recently held a session highlighting what some employers are doing to educate their workers on how to manage diabetes:

  • The San Francisco Municipal Transportation Agency has partnered with the American Diabetes Association to deliver educational seminars on diabetes to its workforce.
    The agency also offers as part of its diabetes program health risk and orthopedic assessments, glucose and cholesterol screenings, nutritional counseling, exercise classes and a walking club. (Since the transport agency’s wellness plan provider initiated the diabetes program, its workers’ comp claims have also fallen.)
  • Caterpillar, Inc. found diabetes to be one of its primary cost drivers, so it now provides incentives for employee risk assessments and care management. For example, half of the employees in its diabetes management program reduced their A1C levels (a measure of diabetes control), while 96% reported measuring these levels regularly and 72% reported meeting recommended activity levels.
  • The City of Asheville, NC, used local pharmacists to coach employees on how to manage diabetes. More than 50% of those in the program experienced improved A1C levels, and the number of employees with diabetes that achieved optimal levels increased.
  • Vanderbilt University expanded a pilot program of intensive exercise and nutrition that helped employees with diabetes improve cholesterol and blood sugar. About 25% of the employees were able to stop taking their diabetes medications.
  • The Ohio Police and Fire Pension Fund works with its health insurer to offer its employees access to diabetes prevention and control programs. Employees voluntarily participate in worksite health screenings. Those who have pre-diabetes can attend YMCA-led diabetes prevention programs either at work or in the community.

The takeaway

Having a diabetes wellness program among your voluntary benefit offerings can help your employees avoid diabetes or manage it if they already have the disease. That helps not only their health, but also your bottom line.

If you would like to know more about educating your employees about diabetes and helping those with pre-diabetes or diabetes manage their condition, call us.

Ask an Expert: Is there a 30-day grace period to make changes to elections in cafeteria plans?

by | Aug 17, 2022 | Uncategorized

Q: We have an employee who wants to make changes to her cafeteria plan election, even though benefits are already effective. Is there a grace period that allows her to change her election?

Employers: Don’t make this common cafeteria plan mistake!

Once cafeteria plan benefits become effective, the elections are “locked in.” Employees cannot change their minds and make changes to pre-tax cafeteria elections during the plan year, once benefits become effective — unless a special enrollment period as defined under IRC Section 125 applies, or the employer is correcting an administrative error.

Many group health insurance plan sponsors and administrators have the mistaken belief that the law allows employees enrolling in Section 125 cafeteria plans to change their elections, as long as they do so within 30 days of the plan becoming effective.

This is not correct. And this misconception can have serious consequences. It can even jeopardize the tax-favored status of the entire plan.

The facts

While most insurance carriers and cafeteria plan benefit vendors allow for changes to employee pre-tax elections in cafeteria plans within 30 days, the IRS does not.

Once coverage becomes effective, the elections are irrevocable. Employees cannot change their minds during the plan year outside of a special enrollment period authorized under Section 125. Examples include a change in marital status, change in employment, reduction of work hours, enrollment in a qualified health plan, among others.

The IRS has issued informal guidance that employers can correct an administrative error without jeopardizing the plan’s tax-favored status. But there must be “clear and convincing evidence” that the change in election is being made to correct an administrative error.

An employee changing his or her mind does not count.

 

The consequences

If an employer makes a change to an employee’s cafeteria plan election, there’s no applicable special enrollment provision such as a change in marital status, and there’s no clear and convincing evidence of an administrative error, the IRS may disallow the entire plan.

That means the tax benefits of your Section 125 cafeteria plan will disappear, resulting in income tax liability for the worker.

Illness or Injury: How Your Business Can Protect Your Employees

by | Aug 10, 2022 | Uncategorized

According to a recent survey, four in 10 American workers live paycheck to paycheck. This means that an unexpected illness or injury that takes someone off the job for more than a few days can have devastating consequences for many of your employees who depend on their wages to survive.

You as an employer can help by offering group disability insurance to your employees.

 

What it covers

This insurance helps replace a portion of a worker’s income if they loses their income due to an injury or illness. Generally, the benefits are paid monthly for the duration of the illness or injury, and only cover a portion of lost wages.

Typically, disability insurance policies will replace between 50 and 65% of a worker’s income.

Broadly speaking, there are two kinds of disability insurance policies — short-term disability insurance for events that disrupt income for less than 90 days, and long-term disability policies, which cover benefits for a longer period of time.

 

Advantages of group coverage

Group disability coverage has advantages for both the employer and the workforce. Advantages to the employer include:

  • Reduced costs compared to offering individually underwritten policies to everyone.
  • Increased employee loyalty — especially after someone on the payroll has a claim and word gets out that these valuable benefits kicked in.
  • Tax-deductible premiums.
  • Easy, streamlined administration.
  • List billing.

Advantages of group disability insurance to the worker include the following:

  • Affordability. The employer subsidy makes it possible for workers to get coverage they would be unable to get on their own.
  • Pre-existing conditions that would make it impossible for employees to get coverage as individuals, may be waived in a group plan.
  • Streamlined application process — no medical exam required.
  • No prior year tax returns or income verification are required. The employer reports income information to the disability insurance carrier.

In addition, some policies are portable: If an employee leaves the company, they can sometimes keep the policy, though they lose the employer subsidy. Portability is an important feature, because disability insurance can be difficult to qualify for on the individual market.

 

Disadvantages

All coverages have advantages and disadvantages. These are some of the disadvantages:

  • Less flexibility. Managers and supervisors may have different needs and risk profiles compared to rank and file employees.
  • Less coverage. Some workers may be able to get more robust plans on the individual market than carriers offer via group plans.
  • Benefits are taxable to the recipient.
  • More restrictive definitions. With disability insurance policies, the definition of the word “disability” in the contract itself is of paramount importance. For example, some policies, known as “own occ” policies, pay benefits if you cannot work in your own profession.
    Other policies will not pay benefits if the worker can work in any occupation. All things being equal, own-occ policies are preferable — but they tend to have higher premiums, and are less prevalent in the group disability insurance market.

 

Taxation of disability insurance

Group term premiums are generally deductible to the company as a business expense, just like any other wage expense. The value of the premiums, however, is not usually taxable as income to the worker.

Disability insurance benefits may or may not be taxable, depending on the circumstances.

Generally, if the recipient didn’t pay taxes on the premiums, then the benefits are taxable as ordinary income. This is true for most employer-paid group health insurance plans. If the employee paid part of the premiums, then a similar percentage of benefits will be tax-free.

Importance of Educating Gen Z Workers on Benefits

Importance of Educating Gen Z Workers on Benefits

by | Aug 5, 2022 | Uncategorized

It always takes more time than usual to onboard new employees — particularly ones who are new to the workforce altogether — to your employee benefits plans.

Keep in mind that the ritual of choosing a benefits package is a brand-new experience for people who are new to the workforce, and you should prepare to educate new employees on how to effectively choose and use their new coverages, as well as all the details like premiums, deductibles and out-of-pocket expenses.

The importance of this can’t be overstated. If they are not educated on their options and how health plans work, those new to employment can make poor decisions that could have serious financial repercussions. Indeed, a 2021 study found that 29% of Gen Z respondents are carrying medical debt.

If you can help them avoid amassing medical debt, and if they can get the most out of their benefits, you can increase worker satisfaction and retain key talent.

To help these new recruits get the most out of the benefits you offer, you can start by focusing on the following:

 

School them on health insurance

To many new Gen Z recruits, signing up for health insurance and actually using their benefits is a foreign concept. Many of them may have stayed on their parents’ health plans and they may have no idea exactly how it works. Take the time to help your new hires understand the math behind choosing the right plan for them.

You’ll need to set aside time to teach them about:

Their share of premiums — Explain to them that the payment of health insurance premiums is split between the employer and employee, and that their share of premium may vary depending on the health plan they choose.

Deductibles — Explain how deductibles work and that depending on their plan they may pay the full price for health care services until they’ve met their deductible. This is especially important if they are signing up for a high-deductible health plan (HDHP).

Copays — Every plan has a different copay that your employees are liable for. Typically, the higher the premium up front, the lower the copay. And some copays may only kick in after an employee has met their deductible.

In-network vs. out-of-network care — Most health plans have networks with which the insurer contracts to receive preferential rates that they negotiate with providers. It’s important that health plan enrollees understand that if they seek care outside of the network, they may end up paying for the care themselves with no assistance from the insurance company (except in some circumstances).

Relate to them the high cost of going out of network and the importance of seeking care from in-network providers. Also teach them how to find in-network care and how to shop around for different treatments and procedures.

The freebies — Under the Affordable Care Act, health plans are required to cover a list of 10 essential services, particularly preventative procedures like colonoscopies.

Tax-advantaged accounts — If you offer health savings accounts (which must be tied to HDHPs), flexible spending accounts or health reimbursement accounts, it’s important that you explain how they work, and how employees can fund these accounts with pre-tax dollars.

The various accounts have different rules for what services or medical costs can be reimbursed by these accounts. Explain how and if they can carry over excess funds at the end of the year to the following year for FSAs and HRAs, and how HSAs can be kept for life — and that they can invest the funds in those accounts much like they would a 401(k) plan.

 

Financial wellness

Most students in the U.S. get very little, if any, education about managing their finances, and it’s falling on employers to help their workers make smart financial decisions so they don’t find themselves swimming in a sea of debt or not having any funds set aside for emergencies.

HR teams and managers can reduce this stress by implementing programs to help educate new hires to understand their benefits packages, particularly if you offer a 401(k) plan. You can teach them about these tax-advantaged accounts and the importance of saving for retirement.

If you match their contributions, explain how that works, particularly how the longer they stay with you the more they are vested until they reach 100% after a certain number of years of service.

 

Continuing education

You can keep the benefits conversation going all year by having an open-door policy for your employees if they have questions or concerns about their benefits.

Most plans include a number of resources and websites where they can get a full picture of their benefits and how they work.

 

The takeaway

Educating your Gen Z employees about the benefits they receive from your organization, and helping them make the right decisions, will boost their overall job satisfaction.

The work you do will also show them their employer cares about their well-being, health and financial success. That builds loyalty and helps you retain key talent.

Time to Comply with Health Plan Transparency Rules

by | Jul 27, 2022 | Uncategorized

July 1 was the deadline for health plans to make public their in-network negotiated rates, out-of-network billed charges, and more.

While health plans will be required to post this information, employers who sponsor their group health insurance for their employees will need to take steps to ensure that their plans comply with the law, if they have not already done so.

The transparency rules taking effect were ushered in by the Consolidated Appropriations Act of 2021 and rulemaking from the 2020 Transparency in Coverage Rules by the Centers for Medicare and Medicaid Services.

The rules require that non-grandfathered insured and self-insured group health plans post machine-readable files on a public website no later than July 1, 2022. A public website, under the rules, is one that does not require a log-in or password to access.

The machine-readable files should include:

  • In-network rates for each item or service provided by in-network providers, including any negotiated rates, fee schedule rates used to determine cost-sharing, or derived amounts — whichever rate is applicable to the plan.
    If a rate is percentage-based, include the calculated dollar amount, or the calculated dollar amount for each National Provider Identifier-identified provider if rates differ by providers or tiers. Bundled items and services must be identified by relevant code.
  • Out-of-network allowed amounts and billed charges with respect to covered items or services, furnished by out-of-network providers during the 90-day period starting 180 days prior to the machine-readable file publication date.

What you need to do

Plan sponsors:

  • Must update the machine-readable files at least monthly. So, you should establish processes to coordinate regularly with the carrier in an insured plan, and with the third party administrator in a self-funded plan. You should confirm the date your insurer will make available the machine-readable files each month.
  • Should check with your insurance company if they will be hosting on their public-facing websites the machine-readable files, or if the insurer expects the employer to post the machine-readable files on their own public site.
  • Should Identify the plan or plans you sponsor and retrieve the links to the machine-readable files for each plan.
  • Should post the machine-readable files on your public-facing website if the insurance company has decided to delegate this responsibility to the employer.
  • Should post a link on your website to the insurance carrier’s website if the insurance company plans to publish the machine-readable files on its site. However, if the group health plan contract states that the insurer is fully responsible for posting these files, this may not be necessary.