Reference no: EM132946391

Managing Employee Benefits: Considering Consumer-Driven Health

Care As Classics Architects recovers from an economic downturn, the multilocation architecture and interior design firm is examining costs in all areas of the business. Nigel Duncan, Director of Human Resources, knows that the company must lower the costs of its health insurance in particular. With a few months to go before the company's annual open-enrollment period for benefits, Nigel is starting to think that giving employees more control in their health decisions may just be the path to lowering health-care insurance costs. As Nigel examines reports on employee claims under the current health insurance plan, he questions whether employees are making the right choices for their health care. For example, there has been a spike in the number of emergency room claims over the last year. This concerns Nigel, as the cost of expensive emergency room visits impact Classics Architects' overall health insurance premium costs. Nigel suspects that these emergency room visits may be made out of convenience instead of necessity. The employees pay only a slightly higher copayment to use the emergency room instead of a doctor's office visit. Thus, employees may be using the emergency room immediately instead of waiting to schedule appointments with their own doctors, even if their illnesses do not require immediate care. This is just one example of employee behavior that is driving up Classic Achitects' health-care costs. Nigel believes that it might be best to take a consumer-driven health-care approach by selecting a health insurance plan with higher deductibles, which will lower the cost of premiums for the company. As employees will bear more of the cost of their own health care, Nigel believes they will make better health-care choices. To make this shift, Nigel is comparing the use of a flexible spending account (FSA) to a health savings account (HSA) to help employees manage the increased costs by setting aside funds on a pretax basis to pay for medical expenses, such as the deductibles. Nigel wants to determine if an FSA or an HSA will help control costs more at Classic Architects.

An FSA would allow employees to set aside pretax earnings to pay for medical expenses not covered by insurance. The FSA would be paired with a health insurance plan that has a higher deductible than the company's current plan. However, Nigel thinks that adding the HSA might have a more significant impact on the company's health-care costs. The HSA would be coupled with a high-deductible health insurance plan, which would cost a significantly less amount to the company than the plan offered with the FSA. The company would allow the employees to set aside pretax earnings to spend on medical expenses, similar to the FSA, but the expenses would be higher for the employees due to the high deductible.

Thus, the HSA would permit the company to contribute to the account as well. With each of these options, employees would be more aware of the costs of their health care and should make better health-care choices. As Nigel reviews the utilization reports and the premiums that the company is paying for health insurance, he thinks that moving to a more consumer-driven approach is likely a good idea for the company. However, he is also concerned with employee acceptance of such a change. Before making his final recommendation, he knows that he needs to thoroughly explore the pros and cons of each option.

What are some overall advantages and disadvantages of pursuing consumer-driven health-care options?

Should Classic Architects select a flexible spending account or a health savings account?1100 words and 5 references