Pub. 13 2014-2015 Issue 4

N E W J E R S E Y C O A L I T I O N O F A U T O M O T I V E R E T A I L E R S 17 new jersey auto retailer W W W . N J C A R . O R G Bending the Trend These statistics present a challenging fiscal environment. There is a general sense that the health insurance market is full of unrest, in spite of federal health- care reform, and that premiums will continue to rise while benefit levels fall. The real question is what can employers do to “bend” increasing premium trends, while balancing the benefit needs of val- ued employees? The good news is there are several avail- able strategies that have a proven track record of reducing the trend of rapidly rising premiums. These include “defined employer contributions,” a shift in the health insurance “funding continuum” and a well-executed “wellness strategy.” Defined Contribution Model A defined contribution payroll strategy is executed by setting the employer’s contribution at a fixed dollar amount, regardless of the presence of a choice of plan designs or other benefits be- ing offered. This approach, along with choice, is the cornerstone of an insurance exchange model. The primary premise of an exchange is that when offered a choice of benefits at varying levels of employee expense, an employee will spend “his” allotted defined contribution more frugally than he would spend the employer’s money. The survey results indicate that some dealerships offering a choice of coverage contribute a higher level of funding for more expensive plans. This is often the result of a policy that sets contribution levels as a “percentage of premium,” regardless of the plan selected. The f law here is that a dealership cannot truly control costs because employer cost will vary depending on which plan is selected. There is also less incentive for an employee to choose the less ex- pensive plan because the dealership is contributing more dollars towards the more expensive plan. Does it make sense to have a greater expense solely because an employee chose a richer benefit level? A defined contribution strategy is simple to set up, and does not require the use of an exchange. The dealership determines its overall budget, provides a choice of benefits, and allows employees to select benefits by balancing their own needs against the varying cost share of avail- able products. Health Insurance Funding Continuum There are several ways to pay for the cost of a health insurance program, and it is a valuable exercise to explore the complete funding continuum of health insurance when making final decisions during the annual renewal. Many dealer- ships will consider a traditional insured program and perhaps self-insurance, without considering the many options that fall in between these models on the funding continuum. Examples of such options include High Deductible Health Plans (HDHP) and Level Funded ASO programs. HDHPs are becoming more popular because they allow for premium savings and plan f lexibility, and can be effec- tively used as a base health insurance option. HDHPs have a large deductible, generally applicable to all services except for preventive care. Once the deductible is met by an employee, the plan provides for copays or coinsurance as the means for covering services such as doctor vis- its, hospitalization, and prescriptions. Because a large, front-loaded deductible can be a hardship for employees seeking care, employers will often fund a por- tion of that deductible through a Health Reimbursement Arrangement (HRA). An HRA is provided and paid for by the employer, to offset some of the out- of-pocket costs associated with having to meet the deductible before services are paid for by the insurer. Employers have significant f lexibility in deciding the HRA plan design and funding level of an HRA. Most commonly, an employer will fund the first 50% of the deductible through a debit card HRA model. Here, a single employee selecting a HDHP with a $2500 deductible might have access to $1250 on the card. If the employee spends the full $1250, he is responsible for paying the re- mainder of the deductible out-of-pocket. In an HRA, if the employee does not spend the allotted funds, the funds are retained by the employer. This provides for greater financial control. A Level Funded ASO program is a self- insured program that looks and acts, in many ways, like a traditional insured program. Premiums are billed each month, at the same level throughout the annual contract period, just like an insured program. Additionally, if claims run poorly during the contract period, BENDING  continued on page 18 The survey results indicate that some dealerships offering a choice of coverage contribute a higher level of funding for more expensive plans.