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09 Trendbook: Benefits
Vol. 53   No. 12
Except as noted, the articles in this section were adapted from articles written by Stephen Miller, manager of the SHRM Online Compensation and Benefits Focus Areas.

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Health Costs: Better Prospects For Employers Than for Employees

Other, Higher Forecasts

After double-digit yearly growth rates in employers’ health benefit costs in the first half of the decade, the percentages dropped to single digits three years ago and have remained there. Preliminary survey findings released by Mercer, an HR consultancy, indicate that costs will rise in 2009 by 5.7 percent, the lowest rate of increase in more than 10 years.

A reason for the decline: Employers are taking steps to trim health costs. Mercer found that 59 percent of employers intend to increase deductibles, co-payments, co-insurance or employees’ out-of-pocket spending limits. From 2003 to 2007, the median family deductible for in-network services in a preferred provider organization (PPO)—the type of plan offered by the most employers—rose to $1,500 from $1,000.

In fact, employers’ projected 2009 health cost increases would be higher than 5.7 percent—nearly 8 percent on average—if they renew their current health plans and make no changes, according to the survey. For employers with 10 to 499 employees, the increase would be about 10 percent.

“It’s a relief to see cost growth trending down, even slightly,” says Blaine Bos, a senior Mercer health and benefits consultant based in Minneapolis. “But this is not an unqualified success story. While some employers are holding down cost growth with innovative methods of improving health care quality and efficiency, more typically, employers struggling with increases they can’t handle resort to the triedand- true method of shifting cost to employees.”

About 19 percent of the responding employers said they will lower their 2009 costs by adding a consumer- directed health plan (CDHP), a high-deductible plan with an employee controlled health savings account (HSA) or health reimbursement arrangement (HRA). These plans are intended to give employees an incentive to consider cost when seeking health care services by allowing them to save for later years—on a tax-advantaged basis— account dollars they don’t spend in a given year.

While it’s too early to make a final assessment of how well this plan model works, Mercer analysts say, among the survey respondents that currently offer CDHPs, the forecast 2009 cost increase averaged 4.5 percent, compared with 6.4 percent for respondents not offering a CDHP.

CDHPs are significantly less expensive than traditional PPOs and health maintenance organizations (HMOs), according to Mercer. In 2007, 12 percent of all employers—and 20 percent of those with 500 or more employees—said they were “very likely” to implement a CDHP by 2009.

“This opportunity for saving is good news for employers committed to offering health coverage,” Bos says. “But even though CDHPs cost about 20 percent less than a typical medical plan, the percentage of very small employers providing employee coverage keeps shrinking. This is one of the leading causes of the increase in the number of uninsured over the past few years, and a troublesome finding for policymakers who were counting on these plans—specifically HSAs—to reverse the trend.”

The Fuel That Powers Wellness Programs: Incentives

Types of Behavior That Wellness Programs Promoted With Incentives in 2008

Among the most prevalent approaches for curtailing health costs, at least in the long run, are wellness programs promoting healthful behavior. To get employees to take part, employers increasingly are turning to incentives.

Large U.S. employers using wellness incentives rose from 62 percent in 2007 to 71 percent in 2008, according to a report released in June 2008, Employee Health & Productivity Management Programs: The Use of Incentives. The report’s information is drawn from a survey conducted by the ERISA Industry Committee (ERIC), the National Association of Manufacturers (NAM) and IncentOne Inc. The report includes fresh data on what programs employers reward, how much they spend and what they expect in return for their investments.

Among the findings:

  • Incentives for weight management programs ranged from $5 to $500, and for smoking cessation programs, from $5 to $600.
  • Incentives per person per year ranged from $100 to $300, with an overall average of $192.
“More than three out of four major employers are using health and wellness programs in an effort to rein in costs that continue to soar year after year,” says John Engler, president and chief executive offi cer of NAM. “But trinkets and T-shirts aren’t enough to motivate employees for the long term.

Employers are keenly interested in innovative ways to lower costs and enhance productivity. Incentives are proving an effective tool to engage employees and keep them interested in these programs.”

Employers are experimenting with incentive offerings, sometimes providing different incentives and amounts for different types of programs. While the previous year’s survey showed employers were mainly offering health premium discounts for participation, the latest survey showed gift cards were the most popular incentive, closely followed by premium discounts and cash incentives.

Furthermore, employers are much more likely to reward program participation and completion than to reward achievement of specific goals, such as smoking cessation or weight loss.

More employers have learned that investment in their employees’ health is smart—“it brings a positive return,” says ERIC President Mark Ugoretz. ERIC represents the nation’s largest employers who provide comprehensive health, retirement and compensation benefits to millions of employees and their families.

“But directing resources toward workers’ health must be balanced with an understanding of how incentives work within these programs,” he says. “This survey shows that employers are serious about understanding the business case for incentives for employee engagement and participation.

“The survey findings reveal that use of incentives among large employers is broad, but the science of incentives management is still evolving,” says Michael Dermer, president and CEO of IncentOne, an incentives provider for employers and health plans. “Success in health and wellness programs will require employee engagement and motivation over time.”

Keeping Wellness Programs Out of Trouble

The growing popularity of employer-sponsored wellness programs is raising questions about how far employers can go in their efforts to change employee behaviors.

In general, the boundaries of wellness programs are defined by employee relations issues and legal concerns.

A major issue is privacy. “There is great sensitivity among employees about how much an employer can intrude upon employees’ private lives and employees’ choices when it comes to their health,” says Sharon Cohen, group and health care benefits counsel with Watson Wyatt in Washington, D.C.

For that reason, it is essential that employers focus on getting employees to buy into the wellness concept so they don’t feel their employer is trying to force something onto them.

Maintaining employee morale and getting buy- in means ensuring the program is not viewed as a way to save money at employees’ expense. “The program needs to meet legal requirements, but it also shouldn’t offend people,” says Tiffani Hiudt, an attorney with the labor and employment law firm of Fisher & Phillips LLP in Atlanta. “Employers start to get into trouble when they try to make wellness programs mandatory. The better approach is to find a way to make employees want to comply and participate.”

Hiudt recommends that employers proceed slowly, carefully communicating the wellness program’s goals and importance. Incentives should be focused on participation, not on performance.

“It is often better for employers to be a cheerleader than to be holding a stick,” Cohen says. “It may take longer to generate participation, but the effort is likely to generate a better result.”

Make sure your wellness programs adhere to all applicable laws and regulations, and decide how your company will respond to legal and ethical issues, such as employees lying about their behavior.

For example, companies that provide a lower health insurance premium to nonsmokers and to smokers enrolled in smoking cessation programs need to think through what will happen if the company discovers employees lied about their smoking status. When employees fill out forms and sign statements about their behaviors and health status, they need to know the repercussions of not answering truthfully.

Beyond that, companies face an array of legal and regulatory issues.

The main legal issue is complying with the wellness program regulations issued by the U.S. Department of Labor as part of HIPAA—the Health Insurance Portability and Accountability Act of 1996.

Among other requirements, employers must offer a reasonable alternative, such as enrollment in a smoking cessation program, that gives employees access to the more favorable premium. Eligible individuals must be able to qualify for available discounts at least once a year, and employers must provide a reasonable alternative standard or waive the standard for individuals with a medical reason for being unable to achieve the goal.

In addition, the Americans with Disabilities Act and other federal employment laws, as well as various state and local laws, can come into play. For example, more than half of the states have some form of smoker protection law, according to the American Lung Association.

Employers should watch for changes in the legal and regulatory environment. As more aggressive wellness programs take hold in companies, the legal issues surrounding such programs are likely to evolve. Says Anne Ciesla Bancroft, a partner with Fox Rothschild in Princeton, N.J.: “We will probably see employees challenging these programs, so it will be important to see what courts do with those lawsuits.”

This article was adapted from an article by Joanne Sammer, a freelance business writer in Brielle, N.J.

To Rein In Drug Costs, Get Employees Involved

Much greater employee involvement appears to be the theme for the future of employer-provided prescription drug benefits.

That’s the implication of a study conducted by Buck Consultants. Employers are re-examining their drug benefits, says Michael Jacobs, a Buck Consultants principal. “Unprecedented availability of inexpensive generics and the emergence of new, very expensive specialty medications are two of the trends driving this strategy review.”

Topping the list of employers’ initiatives for long-term cost management, Jacobs says, are providing employees with tools and information, providing employee education and worksite wellness and health activities.

According to the survey, involving more than 150 organizations of various sizes and in various industries, employers’ most important clinical management steps for controlling pharmacy benefit costs are disease management, care management and smoking cessation programs.

Fifty-one percent of respondents said they use employee cost sharing as a utilization management tool; the most common cost-sharing range is 21 percent to 30 percent.

“While the cost of prescription drug coverage varies widely, more than one-third [37 percent] of respondents say pharmacy benefits represent between 16 percent and 20 percent of total health care costs,” says Jacobs. “Another 29 percent indicate pharmacy benefits are more than 21 percent of total health plan costs.”

Fifty-two percent of survey respondents said they believe specialty medications—complex drugs that are often injected or infused—represent 10 percent or less of their total pharmacy costs. However, a full 28 percent of respondents didn’t know their relative expenditures on these expensive drugs.

Says Jacobs: “Managing these specialty drugs will be key to future cost containment strategies for employers.”

Lessons Learned from 401(k)s Could Improve Health Plan Decisions

Employers who are looking for ways to bolster employees’ participation in consumerdirected health plans (CDHPs) might consider methods similar to those that have improved participation in another type of benefit— the 401(k) plan.

Tactics such as default enrollment, diversification and contribution escalation—commonly used for 401(k)s—might help in CDHPs, according to a study by the not-forprofit Employee Benefit Research Institute (EBRI), in Washington, D.C.

“Defined contribution retirement plans have evolved from the employer making all decisions to workers making most of the decisions through their own initiative,” according to the study, Lessons from the Evolution of 401(k) Retirement Plans for Increased Consumerism in Health Care: An Application of Behavioral Research. “Health plan design is following a similar path as the focus on consumerism grows.”

CDHPs are designed to help control total health care spending through increased consumer engagement, typically by combining a highdeductible plan with tax-preferred savings accounts to help participants pay out-of-pocket medical costs.

According to the EBRI study, efforts to make workers more involved in and responsible for their health benefits and health care have run into the same problems that surrounded the growth of 401(k) plans: Workers tend to delay or be disengaged from retirement and health care decisions, which they view as complex and difficult. The result is often inaction or off-hand decisions that may not be in the employee’s long-term interests.

However, some of the approaches that have been tried with mixed results with 401(k) plans would probably fare no better for health decision- making. Increasing the options, for example, can present too many choices, leading to indecision or to oversimplified decisions.

Financial incentives, too, may not be useful. Despite the tax-favored status of contributions and the existence of employer matching contributions, many eligible workers do not contribute to 401(k) plans. Similarly, about 42 percent of workers covered by high-deductible health plans and eligible to fund health savings accounts (HSAs) with tax-deferred contributions choose not to do so.

Education apparently doesn’t help as much as hoped, as evidenced by the absence of desired results after the heavy investment that many employers have made in retirement education. Many people remain disengaged from matters they do not have to address immediately, and when they do act it can be too late.

For better outcomes, the study suggests, employers could provide:

  • Good default choices. Automatic enrollment and contribution-escalation plans have made retirement-plan savers out of employees previously unmotivated by fi nancial incentives or education.

    Similarly, well-designed health plan default choices could improve employees’ health plan decisions. Consider automatically funding an HSA through payroll deductions for workers automatically enrolled in a CDHP. Workers can also be automatically enrolled in wellness and diseasemanagement programs.
  • Packaged decisions. Many retirement plans bundle savings and investment decisions whereby workers sign a card indicating their acceptance of a default savings rate and investment selection. Health care decisions likewise can be simplifi ed by bundling. If HSA funding were bundled with enrollment in a high-deductible plan, more people would take advantage of it and benefi t from the tax-preferential treatment of HSA contributions. Similarly, selection of a high-deductible plan could be bundled with a wellness program or assignment of a health coach who would conduct a risk assessment and implement a course of action.
  • Simplified communications. Large, complex choices can be packaged to help decision makers focus on a manageable subset of alternatives. Information packets accompanying retirement and health plan choices can be voluminous— and contain ominous disclosures. To simplify matters, when numerous funds are available in a retirement plan, sponsors often categorize them by asset class or label a subset of the funds “core” while segregating the others into “tiers,” suggesting that only the most sophisticated investors would be interested in the highest, most specialized tier. Similar approaches could be taken with communications regarding health care plan choices.
  • Decision-making requirements. Failure to respond would not be permitted. Such requirements have helped raise retirement plan participation rates and might work similarly with health plans—upping participation by those who have good intentions with respect to funding an HSA or participating in a company-sponsored wellness program but just never get around to doing so.

Long-Term Care As An Employee Benefit

An aging population and changing employee demographics continue to have an effect on how employers manage benefit offerings. Whether for themselves or for aging parents, employees have shown a slow but growing interest in long-term care insurance coverage. As a result, a growing number of employers have begun offering long-term care coverage as a voluntary benefit that often provides more advantageous group underwriting and rates than individuals can get on their own.

According to the 2008 National Compensation Survey conducted by the U.S. Department of Labor’s Bureau of Labor Statistics, the percentage of workers in private industry with access to long-term care insurance through their employers has doubled since 1999, from 6 percent to 12 percent. However, this coverage is much more prevalent among companies with 100 or more employees. Currently, 20 percent of workers have access to long-term care insurance.

However, interest in long-term care insurance does not always translate into action. “Employers can’t expect huge enrollment,” says Jack Burke, benefits director at Boston College in Chestnut Hill, Mass. “It will not appeal to everyone. The question is, do you get enough inquiries to justify offering it?” Burke estimates that 11 percent of Boston College’s 2,000 employees purchase the coverage.

There are several reasons why employees fail to follow through. For one thing, this coverage is expensive. Because these benefits are voluntary, employees pay all or most of the premiums. Another barrier: People don’t want to consider the possibility that they or one of their loved ones might require longterm care.

“This is one benefit that you hope you never have to use,” says Jennifer C. Loftus, SPHR, national director at Astron Solutions, an HR consultancy based in New York. Loftus’s firm has been offering long-term care insurance to its 11 employees for two years. “Emphasize that employees have a responsibility to think about this possibility from a financial planning perspective,” she advises.

The current economic environment could make employees more open to this coverage, says Jim Glickman, a member of the board of directors of the Society of Actuaries and president and chief executive officer of LifeCare Assurance Co. in Woodland Hills, Calif.

Selecting a Carrier And Plan

Because many employees will be purchasing coverage when they are young and healthy, it is essential that the chosen carrier have certain attributes.

Judge whether the carrier will be in it for the long haul, not necessarily who is offering the cheapest plan, says Burke.

Glickman recommends focusing on carriers that rely on an underwritingdriven approach to issuing policies rather than a marketing-driven approach that focuses on signing up many people.

“Consider plan design, pricing, quality of operations, financial stability and a demonstrated commitment to offering the coverage,” says Frank J. Fimmano, senior vice president with Aon Consulting in New York. Consider what is being offered relative to the cost. For example, it is important that a plan have some sort of inflation adjustment built in so that benefits keep pace with health care inflation.

Because long-term care insurance is a relatively unfamiliar benefit program, it will be up to HR executives to communicate these plans. And, employers walk a fine line: “We are careful to make sure we do not try to sell it,” says Burke.

From the employer’s point of view, long-term care insurance as a voluntary benefit is a relatively low-cost way to send a powerful message to employees that the organization cares about them and their future security.

—Joanne Sammer

Backup Care Moves Front and Center

By the Numbers: Dependent Care Options

A growing number of companies are adding backup care to their suite of employee benefits in an effort to reduce unscheduled absences, boost productivity and support employees with family care responsibilities, according to a survey by a provider of such services.

Backup care functions as a safety net for employees who care for children, adults or elderly dependents; it provides temporary care so employees can get to work when their regular care-giving arrangements are unavailable, as when schools close temporarily, caregivers go on vacation or dependents need care while recovering from illness or surgery. Research released by Work Options Group, a Colorado-based company that specializes in corporate-sponsored backup care, found that among workers who were provided with access to backup care services:

  • 77 percent ranked it as one of their top employee benefi ts and agreed that it “makes me more loyal to my employer.”
  • 89 percent agreed that “knowing that the backup care benefi t is available reduces my stress level.”
  • 78 percent agreed that “using the backup care benefi t enhanced my productivity at work.”
“Companies run as lean as possible; they are under constant pressure to produce more with less and to retain top talent,” says Cindy Carrillo, founder and chief executive officer of Work Options Group. “At the same time, employees juggle both work commitments and family care responsibilities for children and aging loved ones, especially as the population lives longer and is more dependent on family for assistance.”

A Home Remedy For Ailing HealthCare

Nearly everybody agrees that the U.S. health care delivery system is broken, but there’s no clear consensus on how to fix it.

One emerging possibility, however, is the “patient-centered medical home,” designed to put primary care doctors in charge of coordinating and managing patient care across conditions, providers and settings.

Although the medical home model is increasingly recognized as a promising blueprint for delivering comprehensive care during a patient’s life, even many large physician practices lack the essential elements to create such an arrangement, according to a study published in the September/October 2008 issue of the journal Health Affairs.

When researchers at the University of California at San Francisco, the University of California at Berkeley and the University of Chicago examined U.S. medical groups with at least 20 physicians, they found these physician practices to be lagging in key measures of what it takes to create a “medical home,” according to the Health Affairs study.

A major issue, experts say, is that primary care physicians (PCPs) are, relative to medical specialists, insufficiently compensated for the role they play, leading to a shortage of PCPs. And, significantly, PCPs are not compensated by payers—insurers and plan sponsors—for managing and coordinating patient care, and thus have no incentive to spend their time on these tasks or, alternatively, to compensate nurse practitioners or chronic care assistants within their practice to provide such services.

Dr. Robert Berenson, a senior fellow at The Urban Institute, a not-for-profit organization that conducts economic and social policy research, recommends “case coordination that’s compensated,” but that involves the challenge of “significantly re-engineering the medical payment system, encouraging primary care practices to reorganize themselves and providing them with extra payments for being a medical home.”

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