March 2009

Account-Based Health Plans (ABHPs) have been a key part of the movement toward health care consumerism. ABHPs generally consist of a high deductible health plan coupled with some form of savings account, such as a Health Savings Account (HSA) or Health Reimbursement Account (HRA). In theory, ABHPs have the potential to lower individual and corporate health care costs by raising consumer awareness of cost — through measures such as the high upfront deductible — and by providing incentives, through the savings account accumulation, to choose the most cost-effective, quality care and forego unnecessary care.

However, not all employers that implement these plans see the expected drop in cost, nor the plan participation they envisioned. A study from Towers Perrin analyzes the factors in account-based plan strategy, design, implementation and management that characterize successful plans. High-performing programs, the study found, have the right approach to implementation, delivery and employee engagement.

One of its “most striking findings,” according to the study, is the critical role that comfort with financial risk plays in employees’ acceptance of and engagement with account-based plans. Thus, helping employees gain confidence in their ability to manage financial risk, in order to enable them to embrace the responsibilities necessary for a good account-based plan experience, is a key indicator of program success. ABHP participants who said they felt comfortable with the level of financial risk their plan exposed them to were more likely than those who were not comfortable with risk to:

• Assess their plan experience as good (88% vs. 29%)
• Say they understood how their health benefits program works (86% vs. 41%)
• Say they thought they could affect their own and their employers’ health care costs (73% vs. 50%)
• Find it appropriate that they pay a share of health care cost increases (71% vs. 40%)
• Agree that they should pay a larger share of the cost if they use more expensive health care (61% vs. 30%)

The study stresses that employers are capable of increasing employees’ comfort with risk, with benefits communications being the critical element to accomplishing this.

Another characteristic of successful programs was their ability to build a new mindset, both for employees and employers, around health and long-term commitment to the program. According to the study, both employees and their employers need to build a new mindset in order for ABHPs to reach their full potential. For example, the study found that participants in account-based plans were less satisfied than participants in traditional plans with various aspects of their health plans. However, the study states that employee dissatisfaction appeared to be based more on perception than on a realistic comparison of plan features and benefits, indicating that the account-based plan participants were thinking of their health plan in a one-year cycle — like traditional plans run — rather than in terms of the long-term benefits of an account-based plan.

According to the study, successful programs also were able to create an organizational culture in which employees trust management and believe that the company cares about employees’ well-being, and to use strategic change management initiatives, ongoing communications and visible leadership to build trust and a healthy work environment.

In sum, companies that assessed employee readiness for change, communicated honestly and consistently about the account-based plan program, and launched the program within a structured change management strategy achieved better success with their ABHPs than companies that focused on isolated plan elements or applied traditional communication techniques. Thus, companies must recognize that account-based plans are, for employees, an entirely new way to think about health care, and approach implementation strategy and communications accordingly.

Employers may amend Health Care Flexible Spending Account (FSA) plans to permit reservist employees called to active duty to request distributions from their accounts. Qualified reservist distributions (QRDs), as these disbursements of health care FSA funds are called, were created by the Heroes Earnings Assistance and Relief Act of 2008, and guidance for QRD administration can be found in Internal Revenue Service Notice 2008-82. They are an exception to the general rule that health care FSA distributions can only be made for substantiated medical expenses.

An employee who is called to active duty for a period of 180 days or more, or for an indefinite period, may request a QRD (so long as the plan provides for it, as described below). The request may be for all or a portion of the balance in the employee’s FSA. The employee must make the request no earlier than the date of the order or call to active duty and no later than the last day of the plan year (or grace period if the plan uses one) during which the order or call to duty occurred.

The Notice specifies that QRDs are optional with an employer, meaning that an employer can choose whether or not to amend its cafeteria plan to permit them. However, if QRDs are to be permitted, a plan amendment is required, and a QRD may not be made until the plan is amended. However, Notice 2008-82 does provide a transition rule for QRDs made before January 1, 2010. This rule enables plans to be amended retroactively to permit QRDs requested on or before December 31, 2009, so long as the QRD satisfies the other requirements and the retroactive amendment is made by December 31, 2009.

The plan amendment should specify how the FSA balance of the employee requesting a QRD is determined. This could be the amount of the annual election minus disbursements to date; the amount actually contributed minus disbursements to date; or some other amount (but not to exceed the annual election minus disbursements). If the plan amendment does not specify this, the amount available for the QRD will be contributions minus disbursements. The requested distribution must be paid within a reasonable time, not to exceed 60 days after the request has been made. The QRD amount will be included in the reservist’s gross income in the year paid, and must be reported on the employee’s W-2.

The plan amendment also can specify a process for employees to request a QRD, including how many requests may be made by an employee during the same plan year and whether the employee may continue to submit FSA claims after the date the QRD is requested.

The effective date of the law creating QRDs was June 18, 2008; thus, a QRD can only be made with respect to FSA balances in effect on or after that date. Also, QRDs cannot be made from non-health FSAs, such as dependent care spending accounts.

Most of us probably associate high health care costs with older employees. Although it’s true that many health problems — especially certain chronic conditions such as hypertension, high cholesterol, and diabetes — tend to surface as an employee ages, the roots of such health issues frequently are sown at a young age. A survey from employee assistance program provider ComPsych finds that employees in their 50s and 60s had an overall healthier lifestyle than their co-workers in their 30s, indicating that wellness initiatives should in some fashion target these younger workers to help them avoid significant health problems down the road.
On several measures of healthy lifestyle, the older workers in the ComPsych study scored better than the younger workers:

• Healthy diets: 52% of workers in their 60s ate healthy diets, compared with 18% of employees in their 30s.
• Exercise: 27% of employees in their 50s exercised more than four days a week, compared with 20% of those in their 30s.
• Outlook on life: 83% of workers in their 60s reported a very positive outlook on life, compared with less than half (46%) of workers in their 30s.
• Stress: Less than a third (30%) of employees in their 60s said they had high stress levels, while almost two-thirds (65%) of those in their 30s reported high levels of stress.

Where employees are in their lives at these ages can partly explain these differences, according to ComPsych. Employees in their 30s are more likely to be in the midst of raising a family, which can add financial and time pressures that manifest themselves in more sedentary lifestyles, less healthy food choices and other negative, unhealthy behaviors. Since most people do follow the circle of life that places them squarely within such pressures during their 30s, employers should devote some attention to directing these employees to resources that can help them more effectively deal with this exciting but difficult time.

There are several ways to do this. Most companies’ health plans today include some types of wellness programs. Since younger workers are more receptive to new types of technology, make sure your wellness program communications include Web-based information, lifestyle quizzes, presentations, etc. Instead of simply communicating wellness program resources on paper, consider a CD or DVD presentation. When communicating on paper, use concise text and lots of graphics, so that materials aren’t tossed away as too time-consuming to read.

Use the same techniques for communicating the availability of the employee assistance program (EAP) and its resources. The stressors facing employees in their 30s can be abundant, with parenting young children, possibly dealing with aging parents, managing mortgage and credit card debt, etc. Stress can have a direct negative affect on one’s health. The often-overlooked EAP might be available to provide referrals for counseling for managing stress, as well as for financial issues. As with wellness programs, communicate the EAP through various media, including ways that target young, tech-savvy employees.

Your young employees might not be running up large medical bills today, but this will change as they age unless they begin to make the kinds of lifestyle decisions that bode for good health into their midlife and later years. Persuade them to tap into resources that can help them make healthy lifestyle changes sooner, rather than later. Contact us. Our specialists are eager to discuss these and other ideas for broadening the scope of your benefits offerings.