Two pressing issues have moved front and centre for benefit plan managers — rising costs and the need for greater flexibility. As a result, more employers are considering revamping benefit plans, and when they do, they should think about introducing a health spending account.
“As we’re seeing a greater shortage of workers, employers are dusting off their benefit plans,” says Cindy Arcand, a benefits instructor and senior negotiator in employee relations with the City of Edmonton. And more employers are looking at health spending accounts as the solution for cost-containment challenges, she says. The accounts also give employees more say in how their benefit dollars are spent.
Benefit plans are supposed to address the needs of employees. But while employees’ needs have changed in recent years, most benefit plans have not, says John Vandeweerd, a consultant with Hamilton-based Benefits Interface Inc.
“We have higher expectations than our parents did. We want access to the latest and greatest and there isn’t anything wrong with that, but the individual has to take some responsibility,” says Vandeweerd.
Employers looking for a fundamental change in how employees use their benefits plan should consider the value of a traditional defined benefit plan versus a defined contribution plan, he says. “And with defined contribution plans the ultimate is the health spending account.”
Rather than universal coverage for a narrow list of benefits or drugs, a health spending account allows the employee to decide how to spend the employer’s contribution (see “What goes in a health spending account,” page 9).
“It works absolutely fantastic,” Vandeweerd says. With a definite amount of money but more to options to choose from, most employees end up not using all of their contributions and so the employer typically ends up with a contribution holiday, he says. One of the examples most often cited is drug selection, where employees will be more likely to use generic drugs that are just effective as the name brands but much cheaper.
Diversity of needs
“Benefits back in the ’60s were easy,” Arcand says. “Nowadays you can’t even figure out what a family is any more.”
This isn’t a complaint, just one of the matters of fact that is making it harder to meet the needs of employees.
Add to this a more mobile workforce and younger workers that would rather spend $300 or $400 a year on glasses then on a drug plan, among other things, and it quickly becomes clear a lot of standard plans can’t meet the diversity of needs. Some employers have been moving to flex-plans to solve this problem and health spending accounts are one increasingly popular way to go flex.
Besides, most traditional plans presuppose employer involvement in the appropriateness of medical care. “I don’t like that,” says Vandeweerd. That is a decision that should be left up to the doctor and the patient.
The difficulty is explaining the switch to employees comfortable with the old program, he says, but most of his new accounts are going the DC route and combining the added flexibility with traditional life and long-term disability benefits.
Getting it done
One of the biggest challenges in overhauling benefits plans will be finding the people to do it, says Arcand. HR should be bringing more benefits expertise in house, she says.
There’s nothing wrong with generalists, but HR should be more aware of what they can get out of a benefit plan, in order to give employers “the best bang for the buck.”
In most cases, the plan design is simply handed over to consultants, Arcand says. Instead HR should go in with a clear list of what is needed and what they want to achieve, and work with the consultants to design the plan.
Plan managers or administrators should study how the plan is being used to make more informed decisions about plan design. “You need really good information,” says Arcand. “Take a look at where you are spending your money. What are your 50 most common drugs or most common dental procedures?”
Misuse, intentional or otherwise, can represent a significant drain on a benefit plan, and can be easily stopped through better monitoring of utilization.
She gives an example where a plan had no limit on what dentists could charge for teeth cleaning. Because of that, it wasn’t unusual for an employee to go in for a cleaning that would last more than an hour, when all that is typically needed is 15 minutes. This was costing the employer hundreds of thousands of dollars.
In other cases, it is a matter of encouraging plan members to be better shoppers. Employees don’t shop around when they are spending benefit money. “Ask them how much their last checkup cost and most of them don’t have a clue.” Dispensing fees can range considerably, but most employees don’t even consider that when they go to get a subscription filled. It is a simple thing but encouraging employees to be good consumers could represent considerable benefit savings.
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