In Part One of our Cadillac Tax series, Unprecedented Changes to Benefits Enrollment and Coverage, we provided a summary of the Cadillac Tax and its implications to employer communication and enrollment. Our second post in the series presents a “how to” guide for HR/Benefit associates. Learn how you can assist with the transition to and preparation for the January 1, 2018 deadline, including the annual incremental steps employers can take to develop an Excise Tax mitigation strategy, while providing their employees the proper tools to make the transition to consumerism successful.
Employee CDHP adoption does not subscribe to the theory “if you build it, they will come.” Numerous employers have CDHPs today and their participation is poor (single digits), primarily due to a non-personalized benefit communication and enrollment strategy. This post will provide insight into how your company or organization can support greater employee CDHP adoption. We’ll explain the significance of having the proper enrollment tools and why you need to develop a thoughtful and consistent communication approach. We’ll also explore the growing need to provide employees with their own medical utilization data to allow them a more personalized approach to assessing the right coverage for themselves and/or their families.
Transitioning from today’s benefits structure to reduce tomorrow’s tax liability
Let’s begin with a visual depicting a common benefits structure today.
Many employers maintain one/multiple PPO plans. HMO plans are typically attributed to geographical networks and/or certain industries – schools, municipalities, and/or unions, and most employers maintain one to zero consumer-directed health plan (CDHP) offerings. The voluntary benefits (VBs) section in the visual above, which can include income protection plans such as Accident and Critical Illness, will be discussed in greater detail in Part Three of our series.
Today’s common benefit structure contributes to the following standard annual cycle of events:
Numerous employers have utilized passive open enrollments (excluding FSA), in which employees simply maintain the previous year’s coverage. Employers use passive enrollment primarily to avoid costly ERP benefit administration module changes and/or to take the path of least resistance, as numerous systems do not offer proper tools to educate and communicate benefit-related changes to their employees. As a result, employees are not required to evaluate new options, compare plans or assess if they were inadvertently over-insured in their medical plan.
Employees, subsequently, are dis-engaged, passive and do not actively participate in the consumerism of healthcare; co-pays disguise true costs of medical and pharmacy while contributing to a non-educated populace. This is bad for all parties for the following reasons:
- Employers are relegated to expressing the value of their medical contributions solely tied to premium and co-pay amounts. This leads to the annual employee judgment/evaluation of his/her employer being dictated solely on the basis of “how much is my co-pay increasing this year” and “why isn’t my employer contributing more.” Employers have run out of co-pay creativity and need to break the mold.
- In the annual passive enrollment cycle, employees don’t obtain the necessary information and education needed to change behavior and evaluate plans. Employees, as a result, are dis-engaged consumers and uneducated users. This begins with numerous employees entering Open Enrollment last year with the logic of “I’ll just stay in last year’s medical plan” and unfortunately concludes with misdiagnosed frustration about our healthcare system. It’s like a person walking into the narrow-network equivalent of an Italian restaurant and frustrated he/she cannot order an enchilada. Better understanding of plans, options, access, previous utilization and recommendations would lead to an educated and informed employee.
- Healthcare providers, in this environment of employee non-engagement, have not been forced to communicate quality of care, pricing, crowd-sourced-related reviews for physicians, and quality metrics which have benefited numerous other industries in becoming more competitive, more innovative, and lead to thoughtful consumers. In its simplest form, can you imagine buying a car today without Consumer Reports, web-based consumer reviews, data concerning quality, reliability, etc.?
As many plan designs associated with HMOs/PPOs may exceed the Excise Tax thresholds, CDHPs coupled with HSAs will become a prominent plan option. The visual below depicts a shift in plan designs that employers will consider, as they look to reduce their Cadillac Tax exposure in advance of January 1, 2018.
Most employees are familiar with only HMOs and PPOs. Therefore, the transition from a co-pay/co-insurance fee-for-service environment to CDHP demands a thoughtful, multi-year approach. It also requires unprecedented changes in communication, decision support, guided shopping, and transparency tools for employees and their families.
Take a phased in approach to CDHP now to reduce the impact on employees and benefits administrators later
Establishing ongoing wellness compliance and rewards is a good initial step in the multi-year process of educating a populace about CDHP. The image below is an example of a multi-year, incremental approach to replace current medical plans with CDHPs.
In this approach, for those employers looking to eliminate Cadillac Tax liability, each year, an employer introduces both plan design(s) and supporting consumer tools supporting a gradual and thoughtful shift to a full-replacement offer. Even for employers that continue to maintain HMO/PPO plans January 1, 2018 and beyond, moving CDHP to the “front seat” is a dramatic change requiring a methodical approach.
In year one, while a majority of employers have some form of wellness program today—lifestyle management, tobacco cessation, health risk assessment, biometric testing, etc.--now is the time to integrate into enrollment. It’s important to assist employees during the enrollment process in understanding the correlation between wellness participation/compliance and medical benefits.
Including wellness-related compliance and/or non-compliance acknowledgements coupled with rewards or penalties within enrollment are a good first step in establishing the connection between consumer responsibility and engagement. And wellness-related communication doesn’t begin or end at Open Enrollment. Consistent monthly communication in an employee’s preferred method—text, email, combination of the two, etc.—is key to a smooth transition.
After inclusion of one year of wellness and preventative exams within enrollment, utilizing guided shopping questions while providing employees access to their claims data is a natural next step. This information will help employees transition from passive healthcare participants to engaged consumer as they become much more involved in the medical selection process.
Consumers expect data when making a substantial purchase such as a home or car. Healthcare is a substantial purchase that should also come with data and guidance necessary to help consumers easily evaluate their options and make informed healthcare choices.
- Give employees a better understanding of how their preferences correlate to healthcare plans. For example, build upon your wellness compliance questions, and incorporate additional queries that assess risk tolerance, shopping preferences and savings.
- Provide access to an employee’s preceding twelve months of medical and pharmacy claims to demonstrate a clear picture of his or her utilization rates and corresponding costs. When Americans pay taxes, we obtain the previous twelve months of state and federal tax contributions from our employers to assist us in filing. However, with healthcare, unless employees and their families take the time to download their last twelve months of medical and pharmacy EOBs (explanation of benefits) during open enrollment, they won’t have a clear understanding of costs. In a consumer plan, budgeting for projected medical costs via an HSA and managing your budget throughout the year is as important as managing your checking account. Further, utilizing a long-term approach in investing and managing one’s HSA is very similar to how one manages their 401K.
- Ensure that employees can view their claims. For new employees, provide access to average national claims data that is applicable to their demographic data. Then allow employees to forecast different scenarios based on low, medium and high utilization rates. This will give employees the opportunity to assess which plan is best for them and their families. With personal claims data, employees can determine if they were over-insured and also if they missed tax advantages associated with an HSA. Without this data, an employee will simply keep the coverage they had last year. Demonstrate within enrollment, via moving to a CDHP, how an employee can apply the previous premium difference between an HMO/PPO and contribute to his/her HSA, perhaps pay off college debt, invest more into your 401k, participate in continuing education or select other benefit plans.
You can’t ask employees to participate in a consumer medical plan and not offer consumer-driven tools to manage their costs. Consumers have been using guided shopping tools from AutoTrader.com, Realtor.com, Zappos and other popular sites to make better-informed purchasing decisions for years. Today’s benefits management technology enables consumers to purchase healthcare using similar shopping tools.
Leading up to the fall of 2017--the last OE period before the January 1, 2018 Excise Tax-- offer a medical transparency platform. These tools are essential in supporting the migration to CDHP in advance of January 1, 2018. Employees have the ability to compare/contrast procedures and evaluate reviews, including the background of physicians performing the procedures. In a CDHP plan, an employee needs access to procedural data to become an informed and engaged participant, while best utilizing his/her HSA dollars on procedures.
Check back for Part Three of our Cadillac Tax series, where we’ll discuss the employee’s role in the new world of CDHPs and medical consumerism. In the interim, please view these videos of examples concerning how other employers have increased their CDHP participation via the Benefitfocus Marketplace.
Learn how Benefitfocus can help you transition and educate your workforce to CDHP smoothly. Additionally, for an in-depth look at how the Cadillac Tax impacts the future of your benefits program, as well as tips for thriving in the post-ACA world, check out the all-new whitepaper, Don’t Get Run Over by The Cadillac Tax.