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In
This Issue |
- Benefits
Providers Missing
Out On Cross
Selling Opportunities
- Early
Adopters Of
HSAs Report
On Lessons Learned
- States
Threatening
To Compel Employers
To Provide Health
Insurance
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Treasury
Gives Workers More Time To Spend
FSA Funds
The U.S.
Treasury Department and the
Internal Revenue Service (IRS)
have issued Notice 2005-42,
which will allow employers
to extend the deadline for
employees to spend funds held
in Flexible Spending Arrangements
(FSAs) by up to 2½
months after the end of the
calendar year.
Under section
125 of the Internal Revenue
Code (IRC), an employee may
make a commitment at the beginning
of the year to contribute
a set amount to an FSA, and
the employer regularly deducts
money from the employee’s
paycheck to place in the account.
These pre-tax FSA contributions
may be used to pay for child
care or health care expenses
not covered by insurance.
Prior to this announcement,
rules stipulated that employees
forfeited any funds left in
the FSA at the end of the
year.
The
rule change will not, however,
allow employees to roll over
unused FSA funds into the
following year, and companies
that sponsor FSAs will not
be required to change their
deadlines.
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"Workers
shouldn’t have
to lose money just
because they’ve
been lucky enough
not to have a health
crisis. An artificial
deadline doesn’t
make sense."
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"The
new rule will give workers with
FSAs more time to pay for medical
and dependent care expenses
and will ease the year-end spending
rush prompted by the prior rule,"
said Treasury Secretary John
Snow. "Putting people back
in charge of their own care
is one of the most important
things we can do to strengthen
our health care system. That’s
why President Bush has made
it a priority to make it easier
to access and pay for care
through FSAs and to encourage
consumer driven health care initiatives
such as Health Savings
Accounts." Members
of Congress, most pro-minently
Sen. Chuck Grassley (R-IA),
chairman of the Committee
on Finance, had been lobbying
for the change, arguing that
many employees were reluctant
to sign up for the FSAs because
of the "use-or-lose"
provision that forced workers
to spend all the funds in
their accounts by the end
of the year, or forfeit the
money to their employers.
Commenting
on the rule change, Sen. Grassley
said, "This is great
news for Americans struggling
to keep up with rising health
care costs. The so-called
'use it or lose it' rule has
discouraged millions of Americans
from using flexible spending
accounts. It’s caused
millions more to waste or
forfeit precious health care
dollars. Workers shouldn’t
have to lose money just because
they’ve been lucky
enough not to have a health
crisis. An artificial deadline
doesn’t make sense."
Grassley
added, "I appreciate
the Treasury Department’s
response to my request to
take a fresh look at this
decades-old rule and put the
word 'flexible' back into
these plans. Americans need
every possible tool to meet
their families' health care
needs. I’m looking
forward to working with President
Bush and my fellow senators
to make health care more affordable
by further improving flexible
spending accounts, and by
continuing to build on the
success of consumer-directed
health plans such as health
savings accounts."
Benefits
Providers Missing Out On Cross
Selling Opportunities
Just 14%
of 401(k) plan participants
currently own additional products
and services from their retirement
plan provider, but as many
as two-thirds of these employees
are open to the idea of purchasing
other benefits, according
to a study by financial services
consulting firm Spectrem Group.
Based on
more than 400 telephone interviews
with 401(k) plan participants,
the survey showed that many
401(k) plan participants,
particularly those with the
highest balances, would consider
buying additional products
and services from their providers.
The survey found, however,
that a large percentage of
participants are unaware of
additional products and services
available from their provider.
When asked
how they wished to learn more
about other products, respondents
said they would prefer to
get information from mailings
to their homes, statement
supplementals, and website
links.
Results
showed that most respondents
are happy with their 401(k)
plan providers. Some 70% of
surveyed employees who do
not yet own additional products
said they were satisfied with
their provider’s service,
and 63% said they were satisfied
with their plan performance.
George
Walper, Jr., president of
the Spectrem Group, said,
"Cross-selling represents
a tremendous opportunity for
the providers of 401(k) plans,
yet it remains largely untapped
by these firms. Plan participants
tell us they are generally
satisfied with their providers
and overwhelmingly open to
the marketing of new products
by these organizations. At
a time when scandal has tarnished
so many areas of the financial
services industry, positive
relationships like these are
worth their weight in gold.
New sales seem to be there
for the asking."
Early Adopters
Of HSAs Report On Lessons
Learned
The
Health Savings Account (HSA),
a tax-advantaged medical expenses
account that has been available
since January 2004, is becoming
increasingly popular with employers
looking for ways to reduce their
health insurance expenditures.
But because the HSA, which must
be used in conjunction with
a high-deductible health plan
(HDHP), differs from traditional
group health insurance plans,
employers who have added the
accounts to their benefits packages
have found that employees often
need encouragement and education
before they are willing to consider
the HSA option, according to
a report by Fidelity Investments.
Based
on discussions with client
firms that have begun offering
HSAs to their employees, Fidelity
reported there were three
keys to a successful HSA rollout
learned by early adopters.
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"Companies
who saw the most success
in adopting HSAs were
those who designed
their benefits programs
to change employee
behavior."
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First,
early adopter companies with
the strongest HSA enrollment
rates went beyond simply offering
the HSA as an additional option;
they also made changes to their
health care plan design to promote
HSA enrollment. These employers
typically asked employees to
select a plan from a number
of choices during the annual
enrollment period, and used
an HSA coupled with a high-deductible
health plan as the default option
for employees who did not choose.
As a result, the report said,
these companies were able to
move as many as half of their
employees to an HSA plan.
Second,
employers who communicated
health plan changes well in
advance, and at each stage
of implementation, had the
highest rates of HSA enrollment,
according to the report. Providing
information repeatedly, and
in different forms, proved
to be the most effective communication
strategy for early adopters.
Frequent communication gave
employees ample time to consider
the message and decide on
signing up for an HSA.
Finally,
educational tools and materials
were beneficial in helping
employees make their health
plan choices, the report said.
Cost calculators and background
information on consumer-driven
health plans make it easier
for employees to understand
the pros and cons of the HSA
model, compared with other
health plans.
In addition
to these key lessons, Fidelity
said early adopters also found
it useful to develop a strategy
to determine how HSAs might
satisfy their company’s
long-term plans, and to work
closely with their health
plan provider to understand
the administrative details
of HSA implementation. HSA
enrollment rates tended to
rise when companies contributed
to employees’ accounts,
and when employers modeled
different HSA plan designs
to find the one that best
meets the needs of their employees.
"Companies
who saw the most success in
adopting HSAs were those who
designed their benefits programs
to change employee behavior—the
first critical step in reducing
costs," said Marc Hallee,
senior vice president of health
and welfare consulting for
Fidelity Human Resources Services
Company.
"Rolling
out an HSA is a good way for
employers to introduce employees
to the broader concept of
personal accountability for
health benefits decisions,"
Hallee added "It empowers
employees to better control
health care expenses now,
while also encouraging them
to save for long-term health
costs in retirement. This
behavioral shift is critical
when you consider that most
workers are still largely
unaware that an average couple
retiring at age 65 today needs
$190,000 to pay for health
care costs."
States Threatening
To Compel Employers To Provide
Health Insurance
Pressure
on employers is mounting as
30 states consider legislation
that would require businesses
to provide health insurance
to workers, contribute to the
cost of covering the uninsured,
or otherwise penalize companies
employing uninsured workers,
according to a report released
by the HR Policy Association.
As
the number of Americans who
have no health insurance continues
to grow, state public assistance
programs are struggling to
meet the demand for coverage.
In an effort to address this
problem, bills have been introduced
in state legislatures that
would force companies to play
a greater role in providing
insurance for workers who
are not currently covered.
After analyzing
the reform initiatives pending
in legislatures across the
country, the HR Policy Association
reported that the bills generally
fall into three basic categories.
The first approach, known
as the employer mandate, would
compel companies to provide
health insurance to their
employees, or pay the state
for the cost of covering the
uninsured. These initiatives
generally require employers
that do not provide health
care to their workers to pay
an additional tax or contribute
to a fund that would be used
to cover the cost of insuring
workers.
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Instead
of compelling employers
to offer health insurance
to their workers,
these laws would attempt
to "shame"
them into doing so.
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Other
proposed employer mandate laws
would require employers to reimburse
the state for providing Medicaid
or other forms of public assistance
to their employees. Yet another
type of employer mandate would
require businesses that do not
provide insurance to pay a higher
"living wage" to their
workers as compensation. The
report noted, however, that
these laws would not compel
workers to spend their additional
wages on health insurance.
Among the
states considering employer
mandate legislation, according
to the report, are New York,
Massachusetts, Oregon, Arizona,
and Washington.
A second
category of legislation, the
report said, involves conditioning
state benefits and contracts
on health care coverage. Under
these proposals, employers
would have to provide health
insurance to their workers
in order to be eligible to
do business with the state
or gain access to certain
tax breaks.
Some of
the bills in this second category
propose making the provision
of employee health insurance
a precondition for companies
to receive certain types of
loans or to participate in
business development programs.
Other proposals would require
the state to give preference
to, but not exclude completely,
companies offering employee
insurance when selecting the
beneficiaries of these programs.
The states considering these
kinds of bills include Georgia,
New Jersey, Connecticut, Utah,
and Vermont.
The third
category of proposed legislation
is the required reporting
of employees on public assistance.
Instead of compelling employers
to offer health insurance
to their workers, these laws
would attempt to "shame"
them into doing so. Some of
these proposals call for the
publication of a list of the
names of companies employing
uninsured workers, along with
an accounting to the state
of the cost of providing health
benefits to these workers.
Some states
already have these laws in
place, including Massachusetts,
which issued a list in February.
The report listed each employer
employing a Commonwealth resident
in need of public state assistance.
Masaschusetts officials calculated
the total cost to the state
of insuring employees and
their dependents, whose employers
failed to provide such insurance,
at $52 million dollars in
2004. This report, however,
did not exclude those employees
whose employers offered insurance
but who opted against selecting
to participate in their company’s
plan.
Because
legislation like this generally
does not arouse much opposition,
more states have introduced
more "name and shame"
measures than other types
of reform. Already, 20 states
are considered and reviewing
making "name and shame"
legislation part of their
ongoing attempt to insure
their residents. According
to the report, these states
include California, Connecticut,
Florida, Hawaii, Minnesota
and New Mexico, among others.
The report from Massachusetts
did not indicate whether such
methods would prove 100% effective
in the attempt to regulate
the way in which employers
offer insurance options to
their employees. Only time,
and further studies, will
tell.
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