Use of Health Savings Accounts up 35 Percent; Critics See Them as Tax Shelter

The number of Americans with insurance plans tied to health savings accounts has passed the 6 million mark, according to America's Health Insurance Plans. HSAs are tax-favored, individually owned savings accounts that can be used to pay for medical expenses in conjunction with a high-deductible insurance plan. About 6.1 million Americans were covered through HSA plans in January 2008, up 35 percent over the same period a year earlier, according to AHIP, a trade association representing insurers. The plans have been in existence since January 2004.

About 30 percent of individuals covered by HSA plans worked for small businesses, 45 percent worked for large employers, and 25 percent bought insurance in the individual market. The small-group market is the fastest-growing segment for HSAs. The AHIP survey found that HSAs are helping more Americans afford health insurance. HSA plans accounted for 31 percent of new coverage in the small-group market over the past year, and 27 percent of new coverage in the individual market.

The average deductible for the best-selling HSA plans in the small-group market was $2,244 for single coverage and $4,356 for family coverage, according to AHIP.

Average annual out-of-pocket limits were $3,462 for single coverage and $6,690 for family coverage.

Premiums averaged $3,189 for single coverage and $8,125 for family coverage.

"The increasing popularity of HSAs is a result of managed care's failure," said John Goodman, president of the National Center for Policy Analysis, a Dallas-based public policy research organization. "The best way to control health care costs is to put patients in control of more of their health care dollars."

Critics of HSAs, however, pointed to another study. The Government Accountability Office found that taxpayers with HSAs in 2005 were, on average, more than twice as wealthy as other taxpayers. Contributions to HSAs were more than twice as high as withdrawals. "HSAs clearly are attractive to higher-income people who are looking for tax shelters," said Rep. Henry Waxman (D-Calif.). "But they aren't the answer for providing adequate health insurance coverage for the average American. This report provides further evidence that we need to re-examine whether this is the right way to use the government's resources to address our health care needs."

The House recently passed legislation that would require HSA trustees to substantiate that withdrawals from the accounts were used for allowable medical expenses. Republicans who opposed this provision said it was designed to undermine HSAs by adding unnecessary administrative burdens. "Democrats should stop trying to dismantle this coverage option," said Rep. Charles Boustany (R-La.). "These accounts help cover the uninsured and lower health costs with preventive care, lower-cost medicines and fewer visits to emergency rooms."

The HSA studies are available at www.ahipresearch.org and www.gao.gov.

The 4 P's of HRO and PEO Evaluation

By Bruce Silver
May 4, 2008

All too often companies spend hours analyzing, assessing, and comparing the cost or savings that one HRO or PEO service provider offers versus another. While a detailed spreadsheet of costs may help to determine "hard dollar" expenditures, it very rarely accounts for the intrinsic value of the competing service models you are trying to compare.

Usually, items such as the co-pays of a health plan, workers compensation rates and administrative fees take precedence over far more important questions. Are you teaming up with a HRO or PEO partner who offers complimentary strengths or merely duplicative expertise and services? Is your corporate philosophy compatible?

Focusing on our 4 P's will help you to make the "right" choice.

People – Meet with the management and team you will be working with in person, by phone or tele-conference. What are their backgrounds, functions, qualifications, and responsibilities? What are the scope of services each will deliver, how, and how often?

Process – What is the plan for a smooth transition? Map steps for employee notification, orientation, and enrollment. Identify the who, what, where, and when of plan implementation. Set goals, time-lines, reviews and evaluations.

Platform – Human Resource Information Systems (HRIS) provide a robust set of tools for employee administration, benefits, compliance, payroll, and risk management. Identify levels of employee and management access, orientation, and training. How will you coordinate IT staff for system integration with automated attendance and Point Of Sale systems, 3rd party software and hardware?

Programs – Employee Benefit programs provide a competitive edge in attracting and retaining a highly motivated and productive workforce. Evaluate the quality, value, and choices of health, life, dental, disability and retirement plans. What employee communication, mediation, recognition, rewards, and relocation services are available?

Bruce Silver is the founder and managing member of Employers Rx LLC.
The author can be reached at 561.843.4333 or bruce@employers-Rx.com.
Your comments are welcome. For additional information visit our websites:
http://employers-Rx.com
http://peo-quote.com

Ask Questions to Avoid Hiring a Shaky PEO

newsobserver.com

David Ranii, Staff Writer

The Castleton Group, which shut down last month, was operating as a professional employer organization -- even accepting new clients -- though it wasn't licensed. The Raleigh company was able to do that because it had operated as a PEO before the enactment of a 2005 law that required PEOs to be licensed. Under that state law, Castleton was permitted to continue operating as long as it was pursuing a license. That pursuit included its legal appeal of the Insurance Department's decision to deny Castleton a license.

Some former Castleton clients insist that the Department of Insurance fell down on the job for failing to notify Castleton clients about the company's problems. The Insurance Department position is that it went public as soon as it could -- when it denied Castleton's license in early December. Insurance Department spokeswoman Chrissy Pearson said no other PEOs are in the situation Castleton was: operating as a PEO in North Carolina without being approved by regulators.

But it's still important to do your homework before hiring one. PEOs provide vital services such as payroll and health insurance to small and midsize businesses, so businesses must make sure the company they hire is financially sound and a good fit for their organization.

Here are some questions to ask and things to check.

* Is the PEO accredited by the Employer Services Assurance Corp.? This nonprofit group, better known as ESAC, has tough financial standards, one reason only 25 of the nation's more than 700 PEOs are accredited. Nine in North Carolina are.

Accredited companies must meet operational and ethical standards and are backed by $6 million in performance bonds. That money is available to reimburse clients, their employees and tax authorities if the PEO defaults on obligations.

* Is it licensed by the state?

Companies can be denied licenses for failing to meeting the state's financial standards.

The Insurance Department's Web site lists the 90 companies licensed to do business in the state. Its "listing of active PEOs" is accessible at www.ncdoi.com/FED/SE/ fed_se_home.asp.

If a company isn't on the list, it can't accept new clients. However, more than 40 companies that don't have an office in North Carolina and aren't on the list are authorized by the state to work with existing clients. If your PEO isn't on the state's list of licensed companies and you want to check whether it falls into this category, you can contact the Insurance Department at (800) 546-5664.

* Ask to see an audit.

To get a state license, a PEO must provide the Insurance Department with an independent audit of its finances. You should be able to get an audit from the company, or you can request it from the Insurance Department.

* Find out whether a PEO's health insurance plan is self-funded or if it's providing insurance underwritten by a licensed insurer. The distinction is important.

Licensed insurance companies are required by the state to pay into a fund that can be used to pay claims if the insurer becomes insolvent; self-insured companies face no such requirement.

The vast majority of PEOs don't have self-funded health insurance plans, said Ron Ennis, an Insurance Department manager.

Strategic Sourcing: From Periphery to the Core

Key ideas from the Harvard Business Review article by Mark Gottfredson, Rudy Puryear, Stephen Phillips.

The Idea in Brief

Almost nothing a company does can't be outsourced anymore--even functions as critical as engineering, marketing, and manufacturing. Yet only 6% of the companies that outsource are satisfied with the practice. Why? Too many managers make outsourcing decisions piecemeal. They focus on incremental cost improvements rather than taking a strategic view of capability sourcing.

With strategic capability sourcing, you don't assume that your company's most vital capabilities must remain in-house. Credit-card giant American Express, for example, outsourced its crucial transaction processing function when it no longer provided proprietary advantage.

To source capabilities strategically, you must also decide which partners can best perform which capabilities. Rather than selecting suppliers based only on cost, for example, Chrysler consolidated component purchases with several suppliers it believed could sustain competitive costs, high quality, and efficient delivery.

And if your company's the best at a particular capability, consider making it an entirely new business--as UPS does by providing logistics management to other companies.

The right capability sourcing strategy can translate into industry dominance: Strategic outsourcer 7-Eleven consistently beats other retailers in same-store merchandise growth, revenue per employee, and inventory turn rate.

The Idea in Practice

To develop your capability sourcing strategy, apply these steps:

Identify your business's "core of the core". These are activities your company does better and cheaper than rivals. For 7-Eleven, they are product ordering and in-store merchandising--the pricing, positioning, and promotion of ready-to-eat food, gasoline, and sundries for car-driving consumers.

Decide what to outsource. Consider two factors:

Proprietary value: A capability has high proprietary value if your company executes it in a way that generates measurably more value than competitors could, and if your company would suffer major strategic damage if rivals imitated the capability.

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Commonality: A capability has high commonality if outside suppliers can achieve scale or other advantages by providing it to many others in your industry.

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Your strongest candidates for outsourcing? Capabilities that have low proprietary value and high commonality.

7-Eleven decided to outsource human resources, finance, IT management, logistics, distribution, product development, and packaging to outside partners with greater expertise and scale in these capabilities.

Decide what to insource. For capabilities your company excels at, consider "insourcing"--turning them into new businesses by performing this function for other companies. FedEx positioned itself at the leading edge of the $225 billion logistics-outsourcing industry by planning and managing inbound transportation for more than 1,500 product suppliers into 26 General Motors power train facilities.

Decide how to outsource. Compare each of your outsource-worthy capabilities' cost and quality to those of top-performing rivals or suppliers. Use these comparisons to define outsourcing relationships:

• Outsource high-cost and unnecessarily high-quality capabilities to low-cost providers--even if that means some reduction in quality.
• Outsource high-cost, low-quality capabilities to partners who can reduce costs and boost quality.
• 
  

Also structure each outsourcing partnership differently, depending on each capability's importance to your company's competitive distinctiveness.

7-Eleven has outsourced all routine capabilities (such as benefits administration and accounts payable) to providers that can consistently fulfill cost and quality requirements. For more strategic capabilities, it makes more complex arrangements. For instance, the firm outsources gasoline distribution to Citgo but maintains proprietary control over gas pricing and promotion--activities that could differentiate its stores if done well.

Workplace Accidents on the Decline

Tougher regulatory enforcement is curbing on-the-job fatalities and injuries, the government says.

Despite a rise in violations, tougher enforcement of workplace regulations has reduced the number of on-the-job accidents in recent years, according to the Occupational Safety and Health Administration.

Last year, the agency conducted 39,324 workplace inspections, citing 88,846 violations of standards and regulations, a six percent increase from 2006, the agency reported. These included 67,176 serious violations, up nine percent from the previous year, and 2,551 repeat violations.

"The significant increase in citations for serious and repeat violations documents OSHA's focus on identifying and eliminating severe hazards in the workplace," Edwin Foulke, the assistant secretary of labor for OSHA, said in a statement.

Despite the increase in citations, fatality and injury rates continued to decline, the agency said. For 2006, the agency reported a record-low workplace fatality rate of 3.9 per 100,000 employees. Injury and illness rates also dropped to an all-time low of 4.4 per 100,000 employees.

Among other factors, the agency credits a "strong, fair and effective enforcement program" on reducing workplace risks.

By Angus Loten

From Inc.com

Employment-based Health Coverage Could be Near "Tipping Point"

The end of employment-based health insurance isn’t in sight yet, but a study released Thursday raised the possibility of a “tipping point” that will cause employers to consider alternatives. The Employee Benefit Research Institute said: “If one larger employer actually did drop its health benefits, others might follow for competitive reasons.”

The report published on www. ebri.org said work-based health insurance benefits, which are held by the majority of Americans who have health insurance, are still a competitive tool to attract employees. But between 2000 and 2007, the cost of providing health benefits has doubled, and the percentage of employers that provide health benefits — especially small businesses with fewer than 200 employees — has declined slightly.

Over that time, in which the Consumer Price Index rose 17 percent, premium costs for employee-only coverage rose 86 percent, and family-coverage premium costs rose 80 percent. Copayments for nonformulary brand-name drugs jumped 124 percent. Also, the percentage of employees with employment-based insurance has fallen slightly since 2000, with 71 percent of workers now covered. Between 1994 and 2000, the percentage of workers holding health benefits through an employer had held steady at between 73 and 75 percent, the report said. “While a 4 percentage point drop in the number of workers with health benefits may be significant, it does not imply that these benefits are vanishing”.

Employers interviewed by the nonpartisan, nonprofit research institute expressed divergent opinions about employment-based health insurance, ranging from “it’s the best system available” to “inefficient” and “not intelligent.” One of the main drawbacks of an employment-based system, the report said, is the lack of insurance portability from job to job. Most workers, unless they have pre-existing conditions as specified by the Health Insurance Portability and Accountability Act, can’t stay in the same health plan if they change jobs. Furthermore, between-job coverage through COBRA, the Consolidated Omnibus Budget Reconciliation Act, is often not affordable for people in job transitions.

The institute’s research indicated that the steady erosion of employer-based health-care benefits for retirees shows that a tipping point has already been reached in regard to that coverage. And “most active workers will never be eligible for health insurance in retirement through a former employer,” the report said. While the majority of employers interviewed for the study said they want to offer health insurance as a work force benefit, they think there should be “greater shared responsibility and accountability on the part of workers and their families.” The report noted the trend toward consumer-driven health benefit plans, with high-deductible plans such as health savings accounts or health reimbursement arrangements.

The study also noted significant concern about what would happen if there was “erosion or elimination of ERISA pre-emption of state insurance regulation (which) could result in the complete elimination of employer support for a voluntary employment-based health benefits system.” ERISA is the federal Employment Retirement Income Security Act, which regulates employee benefit and pension plans. What should reverberate through national health-care discussions was this finding:

“(Employers) all agree that if one major employer were to drop health benefits, others would immediately begin to assess whether or not they should follow, on the one hand, or take advantage of others dropping the benefits to enhance talent acquisition.”

One employer interviewed said it would be “insane” to be the first large employer to drop health-care benefits. But many of those interviewed said they would consider following suit under such circumstances as the elimination of the employer tax deduction, movement to a universal health-care system or the erosion of ERISA in favor of state regulatory authority.

Meet Rebecca. She's Here to Fire You

Inc.com has an interesting article by Max Chafkin on HR Outsourcing and how it is changing the face of business.

Meet Rebecca. She's Here to Fire You