A New Way to Please Employees

Commentary by Pete du Pont

For a decade employers and benefits managers have been aggressively working to lower their health care costs. While they have been largely successful in their efforts - health care costs rose only 2.1 percent in 1995 - the savings came at a price: a lot of employees have been dissatisfied with being transferred into managed care plans.

For example, during 1995 contract negotiations between teachers at the Bucks County Technical School (located in Bucks County, Pennsylvania, a suburb of Philadelphia) and officials of the Bucks County School Board, the issue of the high cost of health care became a point of contract negotiations.

The board's solution to restraining health care spending was to move the teachers out of their fee-for-service policy and into a managed care plan. Unwilling to have their choices limited, union members opposed the school's solution.

Ed Moffit, who teaches air-conditioning and refrigeration technology at the school and is president of the union representing the technical school teachers, publicly asked the school board to release information about the union members' health care costs. For months the school board stalled, only conceding under community pressure.

Similar scenarios where management and labor butt heads over health care costs occur on a daily basis all over the country, straining employer-employee relations.

It doesn't have to happen. There is a way employers can save on their health care expenses and make their employees happy: Medical Savings Accounts (MSAs).

Medical Savings Accounts give people the opportunity to move from a conventional, low-deductible health insurance plan to one with a high deductible (say $2,000 to $3,000) and to put the premium savings in a personal savings account. These accounts are used to pay for routine and preventive medical care. Employees and their families pay all medical bills up to the deductible from their MSAs and out-of-pocket funds. Then catastrophic insurance pays all expenses above the deductible. Money left over in the MSA at the end of the year can be withdrawn or rolled over to grow with interest.

According to Rep. Matt Salmon (R-AZ), some 3,000 businesses have adopted some form of MSA plan. The apparently universal experience is that MSA plans reduce employers' health insurance expenditures over time and permit employees to benefit financially by managing their health care dollars wisely. It's a win-win situation for management and labor.

Mayor Bret Schundler of Jersey City, New Jersey, recently gave city employees an option between their traditional health insurance plan and an MSA plan. Their traditional plan had a $200 deductible and a 20 percent copayment for the next $2,000 in expenses. Under the new MSA option, employees in the family plan received a $1,800 MSA contribution and a $2,000 deductible policy (Blue Cross catastrophic coverage).

The cost of the traditional family policy for city employees is $6,775 per year. The cost of the catastrophic policy and the MSA contribution is $6,500. Thus the city saves $275 for each employee who chooses the MSA option. In addition, the average MSA refund to participating employees was about $1,000 at the end of the first year.

Would it surprise you to discover that the MSA plan in Jersey City is growing in popularity as city employees learn about the benefits from coworkers?

And Jersey City is not alone. A recent study by Professors Michael T. Bond and Brenda S. Marshall of Cleveland State University surveyed 27 businesses in Ohio that had adopted Medical Savings Account plans. They found that companies using an MSA plan were spending about 12 percent less than if they had a traditional policy.

However, those savings are not nearly what they could have been. That's because most companies switching to an MSA plan reduced their employees' out-of-pocket exposure. Had companies wanted to keep the average out-of-pocket exposure the same under the new MSA plan as it had been under the traditional plan (to minimize the risk of adverse selection, where healthy employees choose one plan and employees expecting high medical expenses choose another plan), the MSA plan would have cost the companies 34 percent less. But employees don't see even a 12 percent reduction in company health care spending as a cut in benefits, because their out-of-pocket exposure is down and most will get an end-of-year refund, since unused MSA balances go to the employee rather than the insurance company.

If employers and benefits managers continue to go the route of managed care, they are going to see increasingly dissatisfied employees, who will believe, whether rightly or wrongly, that management is limiting their choices and cutting the quality of their health care - possibly endangering their lives - just to save a buck.

Wouldn't it be better to offer your employees an MSA option, and save a buck, both for them and for the company?