Question

Read Case #2 entitled "Managing Employee Benefits: Considering Consumer-Driven Health Care" on page 165 of your text and answer these 2 case questions. 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 care savings account? Explain your answer.

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 165expenses 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.

Answer 1

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

Advantages of consumer driven a plan are as follows:

• Typically such plans are low cost and higher premium.
• It also raises the number of workers who are needed to access the insurance.
• Encourage workers to use low-cost insurance and reduce their needless costs for health care.
• Thanks to less spending on healthier workers, needless costs on regular medical visits are cut.
• Such plans are regulated by employees only so that they are usually altered only by the employees ' general opinion.

Disadvantages of a consumer driven plan

• Initially, the expense of the consumer-driven healthcare program was only set up on the workers, and eventually it was changed, and certain laws and regulations are established so that the employer can not explicitly put all the pressure on the workers.
• One of the most important drawbacks is weak plant execution.
• Lack of accountability inside the system makes process more complicated.
• There are so many bugs in the system because this system isn't completely configured.

Should Classic Architects select a flexible spending account or a health savings account?

Overall, I think with what Classic Architects is trying to achieve that a healthcare program for HSA will help both workers and the company. For the employee, spending on whatever medical bills or hospital appointments they need will encourage them to put in money to an account. Instead of paying an enormous amount of money the company can provider higher premiums that allow them to lower their cost that they are paying for each employee's benefitsThe drawback is that workers will have to meet higher deductibles for their benefits and potentially higher co-payments, but this is where the employer will voluntarily add a fixed sum of money into the plan each year that can be rollovered over the next year and provide a buffer for the higher deductibles.