What Happened?
Cumberland, Rhode Island, town employees, rescue personnel, municipal workers and executive staff are being moved from a traditional Blue Cross and Blue Shield benefits plan to a Health Savings Account (HSA) in the hopes of saving $1 million in taxpayer money over the next 3 years. By implementing an HSA plan, the city aims to reduce the cost of healthcare premiums for public workers, while ensuring they are provided adequate coverage as required under the Patient Protection and Affordable Care Act.
The Goal
In January 2014, the public workers will have their HSA plans enacted under a three-year contract agreement. All public workers making the transition to an HSA from a traditional benefits package will receive a 4 percent retroactive raise in 2014. Each of the following three years of the contract will also come with a 2 percent raise.
Between 2014 and 2016, Cumberland officials anticipate saving $976,410 compared to if they stuck with the Blue Cross and Blue Shield plan. If the police officers union agrees to a similar contract, an additional $780,000 could be saved over three years from reduced healthcare premium costs.
How It Saves
Public employees enrolling in the HSA plan will contribute $1,000 annually for single coverage and $2,000 for family coverage. New hires will pay $2,000 a year for single coverage and $4,000 for family. The money is set aside in a bank account for the sole purpose of paying for healthcare costs beyond routine annual checks and testing. These procedures are free for employees under the plan.
Any funds in the HSA not used at the end of the year will be rolled over in the account and accessible the following year. Any healthcare costs that exceed employees’ HSA funds must be paid out of pocket until a predetermined deductible is met. The HSA strategy is able to save employers money by covering the bare necessities for employee healthcare, and allowing individual needs of workers to dictate how much is spent on their care.
HSA Breakdown
According to Sheila McGinley, Cigna president for Government and Education, the company’s public sector clients are beginning to adopt consumer-driven benefits strategies that have been embraced and tested among private sector employers, with three in 10 local municipalities offering either a Health Reimbursement Arrangement (HRA) or Health Savings Account (HSA) plan to employees.
“Public and private sector employers are looking for sustainable solutions to rising benefits costs,” McGinley said. “HSAs offer a near-term cost-saving solution, with lower premiums, and also provide a longer-term solution as a strategy to continue to motivate and encourage employees to become better health care consumers.”
McGinley said that the HSA offers employers and employees a benefit strategy and also a retirement strategy. Funds deposited in a health savings account (up to annual limits each year set by law) are not taxable if used for qualified healthcare expenses and can be rolled over year-to-year. As the future of pensions becomes more an issue among municipalities, McGinley believes HSAs can serve as one part of a solution for long term savings post- retirement.
She said the company’s study of consumer-driven plans over seven years and involving over 2.5 million individuals showed that consumers in these plans lowered their health risks, reduced total medical costs, were more engaged in health improvement, were more likely to compare cost and quality, were more savvy consumers of health care and received the same or higher levels of care than those enrolled in more traditional plans.
She also counsels local municipalities putting consumer-driven strategies in place, saying it is not simply about changing a benefit plan design; nor is it necessary to shift costs to workers. Cigna recommends an innovative approach that combines four key elements critical to achieving better health at a better cost:
- Health, wellness and prevention programs that identify health risks early on and mitigate future health issues such as: smoking cessation, weight management, stress reduction, and preventive care.
- Support programs for those who are at-risk of chronic illness such as personal health coaching, as well as programs for those who are sick that help individuals navigate the health care system and help ensure care is properly coordinated and delivered.
- Quality health networks of in-network doctors and hospitals (as measured by better health outcomes, reduced readmissions and other patient safety measures)
- Cost and quality transparency and incentives for individuals to shop for the best, cost-efficient care and providing the tools to enable smart choices.
The Employee Benefit Research Institute conducted a report on the behaviors surrounding Health Savings Accounts, and how these tendencies may be impacted by household income and wellness. The study showed the amount of money available in an HSA varied by income groups. The average balance was $1,246 for people with less than $50,000 in annual income compared to $1,359 for those earning between $50,000-$99,999 and $1,957 on average for people making more than $100,000 yearly.
Interestingly, health-conscious behaviors showed little influence over HSA balances. The data revealed individuals who smoke and exercise had more money in their HSAs than individuals who do not exercise or smoke. Obese participants reported lower HSA balances than non-obese individuals. There were very small differences found between people who used cost and quality data to choose a healthcare provider or participated in a wellness program, though individuals who participated in a wellness program had a higher average account balance that those who did not participate. Thus, wellness strategies seemed to have less impact on account balances than overall wealth.
Health Matters
Gov1 has monitored recent trends in healthcare spending and regulations, as public employers manage rising healthcare costs and skyrocketing pension liabilities.