How to Start a Successful Consumer Driven Health Plan
A Step-by-Step Guide for Small Businesses to Using OnlineAdviser Resources
of America's largest employers have already adapted some form of consumer driven
health plans (CDHP), and now small business owners do not need to be left
behind. Any small business
with more than one employee1 will benefit from converting a
traditional health plan to a consumer-driven design. These instructions
assume that your business already has a traditional group health plan in
operation. If this is not the case, please see the article "Starting a
Small Business Health Insurance Plan". Once you have decided to get
help from Freedom Benefits Association for the investigation, planning and
set-up of a CDHP, follow these step-by-step instructions to ensure success of
the new health plan.
with more than one employee1 will benefit from converting a traditional health plan to a consumer-driven design. These instructions assume that your business already has a traditional group health plan in operation. If this is not the case, please see the article "Starting a Small Business Health Insurance Plan". Once you have decided to get help from Freedom Benefits Association for the investigation, planning and set-up of a CDHP, follow these step-by-step instructions to ensure success of the new health plan.
The primary objectives of a consumer driven health plan are to improve the quality of health care received and to lower overall health care costs. If you and your employees are completely satisfied with your current health plan, then it makes no sense to make changes. The adage "Don't try to fix what is not broken" applies here. However, most small businesses express dissatisfaction with the price or quality of benefits. Typically the price increases are greater than the employer can bear and one or more employees has had bad experience with the chosen health plan and wants changes. Attainment of one or both of these goals should be clearly viewed by the change to a consumer-driven health plan as likely results before any change to the current health plan is attempted2. Due to the inefficiencies of most small business health plans, it is usually easy to attain measurable success in each of these. Generally, little effort is required to attain these goal, they are simply the probably result of this type of health plan change. While of course these cannot be guaranteed, OnlineAdviser network is not aware of any businesses, large or small, that have not reported overall favorable results as a result of converting a traditional health plan to a CDHP.
There are also a number of secondary objectives that might be important. These will vary with each business, but a few of the possible secondary objectives are:
maximize tax-deductible expenses not covered by insurance
ensure that all employees have access to guaranteed issue insurance at group rates
cover 100% of all health care expenses
offer more choices for employees
simplify administration for the employer
build a cash reserve for future expenses
share expenses with employees
reward healthy employees
expand the geographical range of coverage
expand eligibility to include part-timers and contractors at their own expense
restrict eligibility to only seasoned full-time employees
provide benefits for owner or management only
allow employee to qualify for state-assisted health plan
benchmark employee benefits to performance
provide an incentive for employee retention
insulate the employer from the rising costs of health care
diminish the role of the insurance company in dictating coverage
insure only the catastrophic risks
Make sure that you can articulate the specific goals of your companies health plan before attempting any changes to the existing health plan. The plan adviser can help refine these in your first consultation.
It is also especially important to work out answers for these three basic questions:
1) What basic format of benefit plan will be used? - There are three basic types3 of CDHPs that are customized for each business. A Health Reimbursement Arrangement (HRA) is used to provide employer-paid benefits to employees. A Flexible Spending Account (FSA) allows employees to contribute their own funds to pay for health benefits on a pre-tax basis. A Section 125 Plan (also known as a Cafeteria Plan) allows the inclusion of other benefits like retirement savings, education reimbursement and dependent care on a mix-and-match basis for each employee. If you are not sure what type of plan will work best for you, discuss this with the plan adviser in your first consultation.
2) Who is eligible? - this might be "all employees", all full time employees", "employees older than 21 with one year of service", "all employees in the home office, excluding sales representatives", etc. The employer has wide range of flexibility in determining eligibility.
3) What is the employer's financial contribution? - this can be defined in dollar terms (for example, "$200 per employee per month") or in relation to another number (for example, 50% of the employee's bonus or 100% of the cost of health insurance, whichever is less").
A worksheet helps to gather the required information in advance and helps the employer better understand some of the options available. Completing the worksheet also helps the employer formulate questions in anticipation of a planning session with the plan adviser. A worksheet is available online at FreedomBenefits.org or can be obtained from the plan adviser.
If your business is adapting an Health Reimbursement Arrangement (HRA) plan (the most popular type of consumer-driven health plan), then you may speed up the process by downloading, completing and returning an HRA plan worksheet prior to the telephone interview. The HRA plan worksheet can be found at http://freedombenefits.org/Health%20Reimbursement%20Arrangement%20Design%20Worksheet.pdf
(Worksheets for cafeteria plans and FSAs will be posted online at FreedomBenefits.org in the near future).
Step 3: Schedule a Telephone Call With the Plan Adviser
The plan adviser will personally collect the information necessary to start your new health plan. Since consumer-driven health plans offer a wide range of flexibility in design, the adviser will walk through the options. It helps if the adviser has received a copy of your completed Worksheet prior to the call.
The easiest way is to get this process started is to submit an online request form at http://www.medsave.com/OnlineAdviser-request.htm . An electronic invoice will be sent by e-mail within one business day and a call can be scheduled anytime after the adviser fee is paid. Currently the adviser fee is a flat $150 for any type of benefit plan. Payment can be made online through a secure service that accepts all major credit cards or electronic check. This service must be pre-paid. Payment must be received before the adviser session.
Alternately, the adviser can be contacted by e-mail (email@example.com).
After the initial planning call, the adviser will forward prototype benefit plan documents. This is usually completed within one business day. The adviser will available to address other planning questions as they arise.
Step 4: Review the Plan Documents
Make sure that the plan documents reflect the specific benefits you wish to provide. While amendments can always be made later, it makes sense to get it right the first time. Some employers may wish to have their attorney review or prepare the document. Most firms elect to use the prototype document without modification. The plan documents are written in "plain English" and intended to be easy to read. If any changes are needed, tell the plan adviser.
Step 5: Communicate Benefits to Employees
Give each eligible employee a copy of the Summary Plan Description along with an introductory note. This can be delivered by paper or e-mail. This easy-to-read document helps to introduce the health plan changes in an employee meeting and be sure that employees have the telephone number of the plan adviser at home so that spouses can ask questions directly.
The crucial points that the employees must understand about the new health plan are:
There is no risk of losing benefits already in force. Any benefit changes are voluntary.
The employer's contribution method is changed from a percentage of insurance cost to a new defined formula. (This is known as a "defined contribution" rather than a "defined benefit" plan. Employees may understand the change more easily if it is compared to the change from a pension plan to a profit-sharing or 401(k) plan).
There is no limitation on health insurance that may be used - the employee may select any health insurance available in the marketplace (including dental, vision, eye care, etc.) but is not required to select or participate in any insurance in order to receive benefits under the new health benefits plan.
The employee may be eligible for an individually managed health savings account
A plan adviser is available to discuss any of the options directly with the employee.
Ongoing education about benefits and up-to-date information about this health plan will be provided through a free e-mail subscription to "OnlineAdviser Topics".
Ongoing employee education and communication is essential for the success of a consumer driven health plan. Make sure that employees have access to the resources available on the Web. Some of the most commonly used sites by OnlineAdviser4 clients to provide unique benefits customization are:
MedSave.com - low cost and short term individual health insurance
COBRAplan.com - a question and answer guide to COBRA plans and alternatives.
Ehealthdiscount.com - inexpensive PPO discount pricing membership without insurance for dental, prescription, medical, eye care, etc.
Healthsavingsaccount-hsa.com - enrollment forms for free and low cost health savings accounts available in all 50 states and DC.
Step 6: Get Out of the Way!
Some employees may elect to keep their health benefits unchanged. Others will change insurance plans or substitute other benefits that makes more sense for their individual situation. When the benefit is elected, some of the employees will use the online claim submission service to request reimbursement for out-of-pocket health expenses or other health insurance costs. All of these discussions and changes take place between the plan adviser, the health plan representative and the individual employee, so the employer does not need to do anything. The health plans generally take care of all billing issues for insurance benefits. The plan adviser prepares claim verification reports for uninsured medical expense reimbursements on either a monthly, quarterly, semi-annual or annual basis.
The only notable potential trouble spot occurs when 1) an employee is receiving 100% employer-paid health insurance, 2) the cost of that insurance is more than the benefit amount allocated under the new health plan, and 3) the employee has declined to authorize a payroll reduction to make up the difference in cost. In these rare cases where all three conditions exist, it makes sense to personally negotiate benefits on a case-by-case basis.
Step 7: Mid-year claims administration
If the plan includes periodic cash reimbursement for uninsured expenses, it makes sense to remind employees to submit claims online on a timely basis. Under HIPAA law, the employer should not be involved in any way with the claims process. The plan adviser will compile an accounting report of verified claims that are eligible for reimbursement under the provisions of the new health plan.
Step 8: Wrap-up at end of year
Most consumer driven health plans require a year-end accounting report and this usually coincides with the calendar year5. This is usually combined with an independent claim verification report where appropriate. The plan adviser prepares this report and, if necessary, the "signature ready" tax return filing for the benefit plan.
1 We assume for purposes of this article that a one person business is a self-employed person subject to different tax laws than the employee benefit plans discussed in this article. This assumption may not be true if the business is organized as a C corporation. Self-employed persons with lower than average health care expenses usually obtain best results by using a Health Savings Account plan without any other form of CDHP.
2 Some individuals, especially those with long term expensive illnesses currently treated in a managed care system, will not benefit from the switch to a consumer driven health plan. The classic example of those in this category are insulin dependant diabetics. In this case, the goal is to leave their benefits undisturbed while allowing options for the healthier employees.
3 The fourth basic type of consumer driven health plan is a Health Savings Account (HSA). A HSA can be included in any of the other three types of health plans but should not be used alone without one of the other three types except for use in one person businesses. Without one of the other types, the benefits of the CDHP are not maximized and the probability of employee dissatisfaction is increased.
4 The plan adviser can also provide support for insurance benefits only if listed as agent of record on the insurance. The plan adviser is a licensed agent in all 50 states and DC. Otherwise member support is provided as specified by the provider.
5 Other plan year-end dates are possible, but it usually makes sense to use a calendar year because most group health insurance policies are based on a calendar year and almost all employees report their taxes on a calendar year basis.