How to Introduce a Consumer-Driven Health Plan to Employees

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Employers can create the most attractive Consumer-Driven Health Plan for employees, while maximizing the impact and ROI of employee benefits, by offering a balanced health plan mix and robust Health Savings Account contributions within a multi-year rollout strategy.

To create the most attractive Consumer-Driven Health Plan for employees and to maximize the impact and ROI of employee benefits, we suggest offering a balanced health plan mix, robust Health Savings Account (HSA) contributions, and a proactive education and communications plan within a multi-year rollout strategy.

Offer a Balanced Health Plan Mix

Like much of anything, when an individual is provided too many choices to assess, it can be challenging to make a decision. During the roll-out of a Consumer-Driven Health Plan (CDHP), we recommend offering a balanced health plan mix, with two-to-three choices. This balance means continuing to offer employees the plans that they’re used to: a PPO and/or HMO, plus the new High-Deductible Health Plan (HDHP) and Health Savings Account option.

When selecting a High-Deductible Health Plan, choose carefully. If the deductible is set too high, it can deter employees from choosing that plan, thereby losing potential CDHP plan participants. Remember, just because a plan has a “high” deductible, doesn’t mean that it needs to cost $5,000 out-of-pocket annually. If an unreasonably high deductible is chosen, it can cause dissatisfaction or unforeseen financial strain in the wake of illness or injury.

A balanced health plan mix includes the PPO and/or HMO plans that employees are accustomed to, in conjunction with a Flexible Spending Account (FSA). If an employer isn’t offering an FSA with their other plans, it’s best practice to begin offering the HSA and FSA concurrently.

Introducing the HSA and FSA Concurrently

If an employer already offers a PPO and/or HMO with an FSA, their employees should be ahead of the learning curve. An FSA has a lot of similar implementation and use attributes to an HSA. Employers and employees should expect a shorter acclimation period for a Consumer-Driven Health Plan if they already have experience with the FSA. With time, however, both will learn that there are some beneficial differences with an HSA.

For employers already offering an FSA, they will be familiar with plan documents, tax savings, using a website to administer accounts, and providing seed money for FSAs. An employee would have familiarity with pre-tax deductions and discovering what is - or isn’t - a qualified medical expense under an FSA. Plus, they would be knowledgeable about utilizing a debit card to make qualified purchases, saving receipts, the claims process, and the use of a website or mobile app for account tracking and planning. All of these attributes are similar to utilizing a Health Savings Account within a Consumer-Driven Health Plan. Experience with these features will make it easier to educate employers and employees on how to gain the highest value from a Consumer-Driven Health Plan. Keep in mind that while FSAs and HSAs should be offered concurrently, achieving full HSA replacement is a multi-year endeavor that will require a consistent educational investment.

3 Steps to Introducing a Consumer-Driven Health Plan to Employees

consumer driven health plan adoption success

When introducing a Consumer-Driven Health Plan, consider a multi-year strategy. If possible, a three-year rollout plan.

Year One: Boost Confidence for Early Adoption

In year one, the majority of employees will likely continue to choose the plan that they’re accustomed to: a PPO or HMO. Employers will need to temper employee fears of the unknown for the HSA-eligible plan; knowing that their primary obstacle in choosing the HSA-based CDHP may be the concern that they’ll be unable to afford the out-of-pocket costs. For those that choose the PPO or HMO plan, this is where offering a FSA is beneficial. The FSA can serve as a segue into potential HSA use in year two or three.

For those employees that are on the fence during the first year, employers can provide a boost of confidence for early adoption by converting 100% of the premium savings for the CDHP versus PPO or HMO. Those funds are then invested in employee HSAs. This commitment may increase enrollment during the first year, which is essential for plan success. A positive first-year experience, from employers and employees alike, can drive “water cooler talk” and provide momentum for traditional plan converts during the following year’s Open Enrollment.

consumer driven health plan curbing rising costs white paper

Year Two: Plan Confidence And HSA Balances Are Growing

In year two of the Consumer-Driven Health Plan, the early adopters’ Health Savings Account balances are building up. With increasing plan confidence, and some health savings put aside, employees are more convinced about their health plan choice. As early adopters boast the differences between HSAs and FSAs over “water cooler talk,” traditional plan, and FSA enrollees are discovering the benefits from someone first-hand. The early adopters are endorsing the CDHP option, and FSA enrollees are listening. The early adopter’s positive first-year experience may excite traditional enrollees to make the switch in year two.

It’s at this point that employers can begin scaling back their employees’ health savings account contributions. Instead of converting 100% of the premium savings between the CDHP and PPO or HMO, employers can covert 80%. That savings differential is then invested in employee health savings accounts, while employers now realize a 25% premium (annual premium inflation plus 20%), plus 7.65% tax savings.

Year Three: HSA Contributions Are Not the Only Driver

In the third year, many employees realize that early and second-year adopters are reaping the benefits from their Consumer-Driven Health Plan. Those already enrolled are benefiting from lower premiums and a triple tax-advantaged health savings account, among other benefits. They’re building their health savings nest egg. Those employees that were on the fence may rethink their health strategy and select the CDHP option. At this point, employer HSA contributions are not the only driver. This is an excellent time to begin converting 50% of the premium savings for the CDHP versus the PPO or HMO. Employers now realize a 55% premium (annual premium inflation plus 50%), plus 7.65% tax savings.

Many other plan designs can earn CDHP enrollments. Alternatively, employers could contribute and maintain 100% of the premium savings for the CDHP versus the PPO or HMO, similar to the year one example above. As premiums increase annually, assuming both non-HDHP and HDHP rise at the same rate (approximately 5%), the employer ends up saving money on the differential between the set HSA contributions and health insurance premium inflation, plus 7.65% tax savings. Other options include reducing the number of plans that employers offer over time. Maybe begin with three or four plans and then slowly narrow the options to one or two health plans, one being a Consumer-Driven Health Plan. No matter how you structure the rollout, a robust first-year adoption is critical for success.

Discover how a Consumer-Driven Health Plan can help manage rising healthcare costs. Download the white paper, Curbing Rising Costs: How to Manage Increasing Healthcare Costs With A Consumer-Driven Health Plan.

Disclaimer: the content presented in this article are for informational purposes only, and is not, and must not be considered tax, investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, including fund prospectuses, and consult with appropriate tax, investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.

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