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Why Employees Need Your Voluntary Plan

With insurance premiums on the rise, most employers are attempting to shift and cut costs, often including employer-paid benefits. As a result, employees need supplemental replacement coverage to protect their personal assets.

Many employees have practically no opportunity to access personal financial services outside of the workplace. An employee’s contact with an insurance agent is typically limited to a property and casualty agent (i.e. auto insurance). Therefore, many employees are looking to their employers to provide Voluntary coverage.

Employer Responses to Rising Health Care Costs

Employers, in general, are continuing to piece together an approach to deal with rising health care costs. They expect to continue to increase employee premiums, co-pays and percentage contributions. According to Watson Wyatt Worldwide, 84% of employers plan to increase employee premium contributions, and 53% plan to increase employee co-pays or coinsurance in 2004.

It is estimated that more than half of the companies will absorb at least a portion of the expected increases. This means that many companies will be forced to either grow their business or reduce overhead.

Consumerism and Cost Shifting Lower Health Costs

Recent Fidelity Investment research shows total health care expenses will average $8,498 per employee this year, compared to $7,713 in 2003. It is averaged that workers will pay for nearly 29% of the total cost in 2004, up from 26% last year.

These alarming numbers are encouraging employers to modify their plan designs and contributions. According to Fidelity reports, these modifications are helping to alleviate up to 5.6% of increased health care costs.

“It’s becoming more apparent that employees are increasingly engaging and taking more responsibility when it comes to their health care benefits,” Brad Kilmer, Senior Vice President of Fidelity Health and Welfare Consulting says. Self service online tools, rising out of pocket costs, and increasing education efforts by employers are among the top factors contributing to the shift toward consumerism.

An Introduction to Health Savings Accounts

The Medicare Reform law, which contains provisions establishing health savings accounts (HSAs), was made effective January 1, 2004. One significant feature of the new HSA is that, unlike a Flexible Spending Account, or FSA, the unused money in the HSA account can rollover from year to year. This provides for a great way to save for qualified health expenses. An eligible individual is any individual who is covered under a high-deductible health plan (HDHP) and is not currently entitled to benefits under Medicare.

The IRS Section 223 defines an HDHP as a health plan with a minimum deductible of $1,000 for individual (or $2,000 for family), and annual out-of-pocket maximums not to exceed $5,000 (or $10,000 for family). According to the IRS, no benefits from the HDHP are to be paid prior to the individual meeting the deductible with the exception of preventative care.

Individuals and families can make tax-deductible contributions to an HSA, and use it to pay for out-of-pocket medical expenses. HSA funds may also be used to pay for qualified medical expenses using pre-tax dollars. This allows employers to offer another vehicle by which they can allow their employees to become more aware and careful of their health care costs. Participants own their HSA and can take it along when they change jobs, like a 401K plan.