LSG Benefit Insider

inside this issue:

Employees have hunger for financial advice

June 16, 2008

A tax break for funding HSAs via IRAs

Owners of individual retirement accounts that are enrolled in a high-deductible health plan can now shift IRA funds to a HSA, without facing a tax penalty. The Internal Revenue Service recently issued Notice 2008-51, which provides guidance on a qualified HSA funding distribution from an IRA or a Roth IRA.

Under the new rules, individuals covered by a HDHP that also own a traditional or Roth IRA can make a one-time IRA-to-HSA funding transfer without facing federal income taxes or penalties, IRS officials state. The transfer amount, however, cannot exceed the individual's maximum HSA contribution limit.

In the notice, which implements provisions under the Health Opportunity Patient Empowerment Act of 2006, the IRS outlines 10 scenarios on how the rules would apply.

For example, a 57-year-old worker with a maximum annual HSA contribution of $3,800 and an IRA account balance of $13,550 could transfer $3,800 from the IRA to the HSA.

The distribution from the IRA account is not included in the worker's gross income and is not subject to the additional tax, the agency explains. As a general rule, IRA and Roth IRA holders are subjected to a 10% income tax penalty for premature withdrawals before the age 59 ½.

In addition, the money will have to go directly from the IRA trustee to the HSA trustee, IRS officials note. If the individual ceases HDHP coverage within a one-year period of the transfer, then he or she no longer receives the tax break.

"Employers are not responsible for reporting whether an employee remains an eligible individual during the testing period," officials add.

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Ranking health plans on satisfaction

The mammoth study from J.D. Power and Associates can be summed up pretty easily. Health plans do a bad job communicating with members, and they're getting worse at it.

"The biggest single reason that people are dissatisfied with their health plans is that they don't understand the scope of the benefits that are provided, the services that are available and the limitations," says Jim Dougherty, executive director of the health care practice for J.D. Power.

Fully 55% of the patients studied did not understand their health coverage. Considering nearly 40,000 people were surveyed, "that's a lot," Dougherty says.

It's J.D. Power's second year doing the study, and it grew significantly from year one to year two. Regions analyzed, number of plans and participants surveyed all went up significantly. This year, 37,000 participants in about 100 plans were subdivided into 17 different regions.

The survey looks at plans from seven different perspectives: provider choice, approval process, customer service, claims processing, coverage and benefits, statements, and information and communication.

It's the last category that plans score lowest on, averaging 671 out of 1,000 points. Plans averaged a score of 784 for provider choice, their strongest category.

The information and communication score dropped 22 points from the year before. Coverage and benefits fell 18 points, while approval process dropped 12 points, and choice of providers dropped nine points.

While the results do not include costs, Dougherty debunks the myth that all plan decisions are driven by costs.

"We try and find the root cause for shopping [for health plans]," he says. "It may be that the HR administrator really didn't decide to shop just because of price; they decided to shop because they've been getting a lot of calls from individual employees complaining about some aspect of their health insurance. It's a fallacy, and it's certainly widespread, that cost is the only issue here."

Takeaways for employers big and small

Dougherty outlines how the research can be useful for both large and small employers. The regional breakdowns offer large employers with multiple worksites a tool by which to gauge overall satisfaction because it varies by region, even with the same carrier.

"One of the things that was very telling in this study was the variation in satisfaction across the country, even among individual brands," Dougherty says.

A company with employees throughout the country may find a carrier's service is inconsistent across states.

"There is a dramatic difference in areas of satisfaction. In New York, I may be very satisfied with the plan that I have, but the networks that are provided to my employees in California are not nearly as strong," Dougherty says.

What can be done about this disparity is the next question employers may ask.

The research is useful for plans in that regard, as it provides 12 performance indicators. The J.D. Power research looks at items such as:

How often did the plan get the explanation of benefits out to members within 21 days?
How many outbound touches did the plan initiate each year?
What types of communications were offered?
How accurate is the provider directory?
How accurate are individual statements?

Dougherty says these indicators offer plans a roadmap for improving satisfaction and a method by which to hold regional plans accountable to a national minimum standard.

"That's what's missing to a great extent with health insurance," according to Dougherty. "We have some superior performers; we have some poor performers. We need not necessarily bring them all up to the top, but we need to provide a consistent level of service."

Nevertheless, it would be a mistake to equate high customer satisfaction with quality of care. "The patient is not always in a good position to judge what is clinical quality," Dougherty notes.

He says employers must be mindful of the broader impact of changing plans. The research shows that member satisfaction dips for 18 months following a plan change. Members are often busy and frustrated by the process of understanding the new network, coverage limits, prescription programs and copays. If you're trying to save money, then such a productivity hit must be factored into the equation.

"You are going to suffer some productivity issues during that first 18 months that should be calculated into your price decision," he says. "You may lose people if the network changes dramatically."

J.D. Power's analysis of the type and frequency of communications offers lessons to both large and small employers.

Dougherty says the shifting medical insurance market is making individual communications much more important than they have been in recent history. Whereas satisfying the information needs of the HR administrator has always been a paramount concern, individual comprehension of the plan is increasingly important.

Employers that focus on low per-member-per-month charges for overly broad communications pieces may want to consider more focused, and oftentimes more expensive, communications that could have a bigger impact on overall understanding and satisfaction.

"We have a lot of plans that send out relatively high-incidence activities, like a broad newsletter, but they are low impact," Dougherty says. General nutrition articles are an example, he says. Compare those to targeted communications about specific conditions or drug therapy adherence. They may cost more per member, but they may also have a greater impact.

"Squeeze the money out of it; bring that per-member-per-month charge down as low as possibly you can. That's obviously an important element. But don't lose sight. I think that's where the industry is now catching up," he says. "We have to move to those low-incidence, but high-impact, communications that can really, really engage an individual member based on his or her individual needs."

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The specialty pharmacy revolution

Specialty pharmacy has become the fastest growing component of pharmacy health care.

In 2003, the specialty pharmacy industry constituted more than $40 billion in overall drug spending. This staggering figure is expected to rise to $78 billion in 2008, a 95% growth rate in just five years. By 2010, it is predicted that that roughly half of all new drugs will be specialty pharmaceuticals.

Not surprisingly, those involved in managing pharmacy benefits are hearing the words "specialty pharmaceuticals" and "biotechnology" on a daily basis. Yet, these terms remain poorly understood.

Biotech is the beginning phase of what ultimately becomes a consumer-ready specialty drug. It is the science of manipulating living organisms, especially at the molecular genetic level, to produce new agents. The manipulation of various biological materials results in products that have the ability to treat a wide array of illnesses, including chronic diseases, tumors and viruses.

Once biotech drugs hit the market, they become specialty pharmaceuticals that require nonstandard protocols for procurement, prescribing, handling, dispensing, administration and monitoring.

Specialty pharmaceuticals are radically different from the traditional tablets and other oral medications commonly dispensed at pharmacies. Some of these products treat serious conditions like cancer, HIV/AIDS, hemophilia, hepatitis C, multiple sclerosis, infertility, Crohn's disease, rheumatoid arthritis and growth hormone deficiency.

When a patient takes a specialty drug, they are usually receiving a highly complex medication that has undergone multiple steps in the cultivation process and requires careful administration. Most of them require patients to either go to the physicians office to receive an injectable infusion or they are taught to give themselves injections at home.

The biotech/specialty pharmacy revolution has brought us into an unprecedented phase of disease treatment. Many of the illnesses now treated by biotech drugs were once those that totally eluded successful eradication. The most we could do was to merely treat the symptoms of the disease and try to help patients cope while the disease simply took its course.

Specialty pharmaceuticals, however, are designed to stop disease progression altogether. This has been especially true with conditions such as rheumatoid arthritis and certain types of cancer. These specialty medications also mean that overall costs can be minimized by decreasing the recurrence of doctor visits and hospital stays.

Nevertheless, because specialty medications require more careful handling than traditional medicines, specialty pharmacies have arisen, specifically designed to manage these drugs.

Specialty pharmacies are typically comprised of different teams that concentrate on a particular disease state. The teams are usually comprised of pharmacists and nurses who receive specific training in each area. Within a single specialty pharmacy, it is common to find multiple teams, covering arthritis, cancer, gastrointestinal disorders and other conditions.

So far, this team model has helped to create better expertise and continuity of care by giving patients access to professionals who are expertly trained to handle their condition and answer questions unique to their disease.

Similarly, patient compliance with treatment protocols has increased while the added, personal monitoring of their condition helps to minimize adverse effects in the process.

As the specialty pharmacy revolution continues, more amazing advancements in patient care are emerging. Right now, oral medications for multiple sclerosis are being perfected, helping to increase compliance and create an easier treatment plan.

Various biotech companies are also developing personalized medicine, which involves genetic screening.

This allows for better identification of certain patients' predispositions toward various diseases and the ability to target drug therapies that are more effective in addressing each patient's genetic makeup.

This further confirms the importance and rapidly growing nature of the specialty pharmacy revolution.

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Employees have hunger for financial advice

Employees are looking for help on managing their finances, maximizing their benefits and maintaining work-life balance-an alignment of information needs that presents a golden opportunity for employers and advisors.

Nearly half of workers (49%) are interested in receiving financial advice and guidance at the workplace, according to the sixth annual MetLife Study of Employee Benefits Trends, a national survey of 1,380 full-time employees.

This includes assistance with meeting general financial needs to planning retirement and making informed decisions about company benefits.

Furthermore, 47% would like to meet with benefits advisors at the workplace, and 44% are interested in talking with financial planners, the survey shows.

"This increased employee appetite for advice at the workplace is a significant development," says Bill Mullaney, president of MetLife Institutional Business.

"It presents a tremendous opportunity for U.S. employers to optimize the real and perceived value of their benefit plans."

Captains need compasses

Employees are more willing than ever to take responsibility for their financial well-being, including their utilization of benefits, explains Bill Raczko, chief marketing officer of Institutional Business for MetLife.

"The reality is that [employees are] increasingly becoming the captains of their financial ship," he says.

"They're aware of their role in building for and protecting their future, and there's evidence in the survey that they are more ready to act. Seventy-seven percent of Americans are now building their own financial safety net because they know government programs are in jeopardy and employers can't afford unlimited benefits."

Employees are expressing high degrees of concern about a variety of immediate and longer-term financial issues, including having appropriate health insurance, having the resources and time to care for aging parents and relatives and having money in case of sudden income loss.

This is creating a greater appreciation for their benefits as well as a greater willingness to be involved in benefits decision-making.

"Employees are primed for action," concludes Raczko.

"This is where employers can seize the momentum if they understand the needs of the workforce. Employees are looking for education at the workplace that will guide them in their benefit choices. This includes calculators, rules of thumbs and recommendations on benefits that are age- or life-stage appropriate - all the things that can help them optimize their benefits decisions."

Here are some of the ways MetLife says employers can provide decision support and benefits education:

Make communications simple and personal by providing clear roadmaps for action that utilize familiar communications channels.

Explain to employees in simple terms how their benefits help "people like me."

Even customized benefits plans may not see higher levels of participation if targeted messages are not incorporated into high-quality employee communications.

Extend communications beyond the traditional "big envelope" of printed material, and provide value-added communications all year long.

Adopt total compensation statements to fully explain the total rewards an employee receives.

The survey shows that more employers are recognizing the need for decision-making support.

Over half (55%) of the respondents said that providing better decision support tools is a very important benefit stragegy, up from 47% in 2005.

"What we hear from employers is that they aren't abdicating their responsibility for their employees' well-being, it's just that their role has changed," says Raczko.

"That's why we're seeing an increased desire to offer voluntary benefits and provide advice and education at the workplace."

Among employees with young families, 57% say buying voluntary benefits through the workplace saves them time, while 68% say the payroll deduction is convenient, and 63% say the payroll deduction helps to discipline saving. The percentages are similar among pre-retirees and baby boomers.

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