By Rob J. Thurston

To control costs, you can either switch providers, limit coverage or try something different. Here’s what that something different might look like.

Would you like to finally implement a new health-care plan where your employees will feel that you:

  • respect them,
  • provide them with more autonomy,
  • give them better information,
  • offer them more “real” incentives,
  • are willing to share more of a financial stake in the cost of their health care?

Could that even be possible? Especially when, according to Dave Williams of Human Capital, “Ironically, even after investing enormously in employee benefits, To control costs, you can either switch providers, limit coverage or try something different. Here’s what that something different might look like. the benefits often fail to produce the desired results for the company and the employees. Poorly managed benefit plans can actually make employees less happy, less loyal, and less productive. Adding insult to injury, the average employer spends $14,000 on benefits per employee per year (more than 42 percent on top of payroll according to the U.S. Dept. of Commerce), but employees typically undervalue their benefits at less than 50 percent of their actual cost.”

According to most consulting and health-care firms, the average rate increase for health-care benefits will be more than 13 percent for 2004. In the past, most employers would switch healthcare providers and carriers on average every four years, hoping to reduce their rates of coverage. But organizations remain stuck in an inflationary spiral of health-care costs – despite utilization review and managed care.

Here’s what the choices look like: Stay where you are and face a 13 percent-plus rate increase, switch health-care providers and carriers again, or do something else. That something else might involve consumer-driven health-care plans (CDH or CDHCP), health reimbursement accounts (HRAs), retiree medical accounts (RMAs), flexible spending accounts (FSA s) and debit/credit cards.

CDH and HRA s

Employees, too, are upset about rising healthcare costs and not being able to make their own decisions about health care. They want control – more of a consumer-driven approach to benefits. That’s one factor that has prompted employers to look at the new health reimbursement accounts (HRA s) that have been available since June 2002. HRA s feature employer-funded accounts for medical expenses reimbursement, usually combined with high-deductible health insurance. Employers may fund up to the deductible or a lower amount. These accounts can help an employer limit his costs while giving an employee control of and access to health-care spending.

Although these HRA s are relatively new, there’s some evidence that both employers and employees like them. New research by Mercer Consulting suggests that employers seeking relief from rising health-care costs are increasingly turning to consumer- driven health or HRA  plans and achieving positive results.

Employers who offer an HRA  plan are getting about 15 percent of eligible employees to sign on, Mercer finds. Forty-five percent said employee response to the HRA  plan has been “strongly positive,” while none reported “strongly negative” feedback.

In terms of account funding, the median amount provided by employers in health reimbursement accounts is $750, with a median deductible of $1,500 for single coverage. Nearly one in five employers allows for account rollovers into retirement so workers may finance retiree health coverage.

CDH plans appear to be doing exactly what benefits experts predicted: saving employers money. Eighty-five percent of employers told Mercer the CDH plan is their lowest-cost health plan option. Looking forward, all current CDH plan sponsor respondents indicate they will offer the plan again next year.

Ron Kirkpatrick of Liberty Health Group has several dozen HRA  clients linked to debit cards. That firm allows employees to rate their physicians, providers and to receive incentives by being efficient health-care consumers. Though average client size is only 150 employees, Kirkpatrick says the cost containment and health-care savings have been dramatic.

Ric Joyner of EFlexGroup, Inc. has helped many clients offer an HRA  linked to a debit card. Joyner uses upfront deductibles and copays that can be paid for, pretax, via a flexible spending account (FSA ) linked to the HRA  (funded by the employer). To speed up the claims process, EFlexGroup uses technology to issue reimbursements daily via electronic funds transfer, paper checks with explanations of benefits, and with debit cards.


Rising health-care costs among retirees are leading many employers to explore retiree medical accounts (RMAs) as well. A recent Watson Wyatt study found that a “small but increasing number” of companies has begun to introduce retiree medical accounts as an alternative to traditional retiree medical benefits. With an RMA, an employer contributes a fixed dollar amount to an account, which the retiree uses to purchase health insurance. Contribution formulas differ, but employers typically credit a fixed dollar amount for each year the employee participates in the plan. In the Watson Wyatt sample of 56 large employers, annual credits ranged from $750 to $2,500 per year of participation, and interest rates on the accounts ranged from 5 to 7.7 percent both before and during retirement.

According to the study, only 2 percent of large employers have RMAs for current retirees. However, 7 percent have adopted them for future retirees and 13 percent have RMAs for new hires.

Debit/Credit Cards

Many employers have also started using debit cards to help employees offset expenses with faster reimbursement of out-of-pocket health-care costs for bothFSA s and HRA s.

Since 1978 the growth of FSA s has been slower than expected. There are only 24 million such accounts in the United States. But the growth of debit cards has been even slower. Since 1998 there have only been about 500,000 debit cards implemented. A recent IRS ruling on debit and credit cards should increase future usage and the level of participation. (The ruling set up guidelines for employers to avoid any liability due to workers who may misuse the cards, and eased demands that workers provide receipts.) However, many employers have been disappointed that more employees are not using debit cards and that their availability has not increased participation in FSA s and even HRA s. These employers see the time and investment in debit cards as a major expenditure with little return on investment.

In fact, employers should be worrying more about future ROI. If changing your health-care strategy and adding a HRA /FSA  with debit/credit cards will increase your ROI, minimize your current/future risk and guarantee greater satisfaction by employees of their benefits, then how much time, money, and strategy you have implemented in the past should be irrelevant.

You Do It Best

Employers are likely to return to asking employees to make more decisions about their health care. But employees want information about these CDH plans. A survey of HRA  participants found that the No. 1 item they wished for was to have more information and access to the Internet to get those answers from their employer – not from a consulting firm.

From the employer’s perspective, an added benefit of providing such information is that the employee’s ability to work with people they know and trust, to interact with a Web-based system and to understand their own type of benefits, will increase the average level of participation per employee. The higher the participation level, the greater employee satisfaction, which will lead to less turnover.

Employers may be able to provide a higher level of customer service. For instance, most companies can put as many staff as need be on their healthbenefits plan team during peak work periods (open enrollments, year-end processing, etc.) to ensure that all functions are handled promptly without reducing the quality of service. It may be harder for a consulting firm or outside vendor to do so without incurring additional expense or charging companies more money.

Your HR/benefits personnel know the benefits plan better than anybody else. You can staff your self-service processing unit with existing benefits staff, thus immediately adding a high degree of plan knowledge to your team.

Right out of the gate, your HR/benefits staff will understand an employee’s unique needs. Plan participants will feel more comfortable talking to fellow employees than to employees of another company. If the self-service information needed by the plan participant is of a sensitive nature, he could access much of the information via automated Web self-service technology. In most cases, having someone who understands the working environment is a real advantage of self-service.

And in most cases, only the employer can truly know if employees would view CDH plan service negatively. You might ask your employees what they prefer. A survey of employees to accurately gauge perception and the use of focus groups helps discover what employees really want. You may be surprised by the results of the surveys and focus groups. Why? Because employees really would rather have the freedom to make their own decisions, to use internal self-service technology, with the option of employer live support, to go as slow or fast as they want regarding the administration and communications of health benefits.

Your management is focusing on cost-effective solutions to health care to control costs – in other words, on the bottom line. The promise of consumer- driven health-care plans is that they can help you manage health care and benefits like a business operation.

Rob J. Thurston is president of the Human Resources Consulting Group, and a national speaker and author on HR consulting and systems development. If you’d like to receive a list of HRA , debit/credit cards, software, and consulting firms providing advanced technology systems for benefits enrollment, communication and administration, email him at This email address is being protected from spambots. You need JavaScript enabled to view it..

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