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Executive Perspectives

What Todays Business Owner Needs To Know July 2014


HSAs More Effective at
Consumer Engagement Than
HRAs
Which 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 Beneft Research Institute (EBRI) fnds
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 EBRIs 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 qualifed 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 employers
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 Benefts 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 fnancial
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
Beneft Plans. Nearly 90 percent of employers expect
ACA to increase their companys health care costs
in 2014, resulting in many employees seeing higher
out-of-pocket costs and increased premiums and
deductibles.
We are seeing frsthand 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:
ACAs Impact, analyzes employers concerns with
ACA and the health care laws challenges and
opportunities. The survey specifcally looks at plan
design and funding, methods for communicating with
employees, reactions to health insurance exchanges,
cost management initiatives, potential impact on
health care beneft 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 fve have increased copayments
or coinsurance for primary care and/or increased
employee proportions of dependent coverage
costs.
More than two in fve 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 fnds 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 frsthand 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 fnding 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 benefts, said Julie Stich, Director of Research
at the International Foundation. In addition, most
employers will continue to provide health care
benefts 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 confdence in employer-sponsored
coverage since 2012 when this fgure was below half.
More than one in fve 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 Benefts 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 Hewitts 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-fve years.
Instead, employers are considering new tactics that
are more requiring of employees to take action.
In the next three-to-fve 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
fve 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 confdence in
employer-sponsored coverage since
2012...
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Executive Perspectives July 2014
populations, said Jim Winkler, chief innovation offcer
of Health & Benefts 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 pricingwhere employers set a
pricing cap on benefts 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 benefts, 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 benefts are delivered, including funding, design,
clinical and provider system changes.
Additional Plan Design Strategies
According to Aon Hewitts survey, employers are also
considering implementing the following tactics to
mitigate health costs in the next three-to-fve years:
72 percent of employers are or will be reducing
subsidies for dependents
52 percent of employers anticipate using unitized
pricingwhere employees pay per person and
not individual versus familyup 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 benefts
are delivered, including funding,
design, clinical and provider system
changes.