Employee Benefit Programs with John Coleman

eorge grombacher 0:01
warm blood. This is George G. And the time is right. welcome today’s guest strong and powerful John Coleman. John, are you ready to do this?

John Coleman 0:08
Absolutely. Hey George, how’s it going? Congratulations on the birth of your new child. Very exciting stuff. I appreciate

george grombacher 0:14
that. Let’s go. John is a CBS he’s a senior consultant in Mercer’s health practice in New Jersey, he helps HR leaders and chief financial officers make better decisions about their employee benefit programs. Outside of work, he hosts the YouTube channel called friends with your benefits to show providing insider tips and tricks about health care and benefit needs. John, excited to have you on the show. Tell us a bit about your personalized more about your work and why you do what you do.

John Coleman 0:44
Sure, so I’ve been working with, I’ll start with work first. So I’m working with a company out there, as you mentioned, called Mercer for about 15 years, I literally this week just hit my 15 year anniversary. And the way I would describe what I do is if you happen to get your health insurance from your work, it’s likely designed by a guy or gal like me, who really helps HR and finance really figure out the best type of plans while balancing costs that an employer can offer to their employees. And you’re really involved in all aspects of strategy, design, and then really trying to enhance the employee experience for HR and finance out there. From personal perspective, I do have a YouTube channel, as you mentioned, is called Friends your benefits with the purpose of helping individuals as well, as you know, my buyers out there really make informed benefit decisions. Personal life, I’m married, I have a beautiful wife named Janica. And then two children, Alice and Lily. And next year, they’ll be both in elementary school, believe it or not. Crazy? Absolutely. Time flies. Hey.

george grombacher 1:51
So I think you sort of mentioned that kind of casually if you happen to get your insurance through your employer, isn’t that most of us? Yeah, I

John Coleman 2:00
would say if you look at the recent stats, again, I’d say roughly 150 and 160 million Americans. So a lot of people out there definitely do happen to get their health insurance and other forms of benefits through their employer. And a lot of that has to do with the history right? You know, that really picked up starting in the 40s. World War Two, there were some changes to the tax code that really gave some meaningful incentives for employers to offer health insurance. And really, it’s been a mainstay ever since. And virtually all large employers offer health insurance to their full time employees.

george grombacher 2:36
And talk about working with the employer working with the CFO, the HR leader, whoever it is within the organization, how much customization is actually possible?

John Coleman 2:48
That’s a good question. So the way I would answer that question, if you’re a very large employer, you could basically come up with unlimited customization, right, as long as the hospital systems, and the pharmaceutical manufacturers, and the pharmacies out there are willing to accept the plan, and the payments as payments in full, pretty much the other world is your oyster, right? You can design very customized plans in order to meet the needs of the company. And the employees. You know, the one unfortunate thing is if you happen to be a very small employer, you’re really just dealing with fully insured plans that are off the shelf, and largely subject to state mandates. So if you’re a large employer, you’re self insured, those state mandates don’t apply. So you can really come up with customized designs. And that’s just the way things are unfortunately,

george grombacher 3:36
yeah. Well, that’s economies of scale, I assume. Yep. We’ve talked about yeah, definitely part of it. Yep. Employers with 500, or more 1000, or more 10,000 or more.

John Coleman 3:47
So the bigger you are, the more customized you are. So typically, when you’re an employer, and you have 500 or more employees, generally, you’ll see a lot of employers be what is known as self insured, right. So they may have an insurance company, but the insurance company, what they actually do, is they administer and pay the claims on behalf of the employer, but they’re actually going to charge the employer for the underlying claims experience. At the end of the day, it’s going to come out of the employers bank account. And you may say, Hey, why would an employer actually do that take that risk? Well, when you happen to be 500 or more employees, the risk tends to be more predictable. Now there is additional insurance called stop loss, get in the weeds for a second that can protect can protect those employers, I should say, from those high cost claims where there’s really high hospital bills. But you know, for the most part, the risk is fairly predictable. And the bigger you get, again, the more customized you can be. And the more options in the marketplace. Economies of Scale certainly come into play. But again, as you get bigger, the big advantage of being self insured is a lot of the premium taxes and state mandates don’t apply. So big big incentive and healthcare super expensive. So literally every dollar counts.

george grombacher 4:56
Yeah, there’s no doubt about that. How much does it change year over year? I imagine there’s changes to the tax code, but just

John Coleman 5:10
sure, so I would say, George, so the biggest thing that faces every employer is inflation is here, right. And typically, if you look at historic health care costs, historically, health care premium costs have increased at a higher rate compared to overall inflation. So if historically, we say just again, picking number on average, inflation has been 3%. Typically, before an employer makes changes, you’d expect the overall health care costs to increase anywhere between six to 8% per year. And then generally, what employers do is they’ll either put in some plant design changes, I’ll be, you know, raise deductibles co pays what have you, or maybe they’ll put in some programs to have to perhaps incentivize employees to have alternative behaviors in the future, right. But generally, what you see is that overall healthcare cost outpaced inflation. Now, that actually changed in 2021. So the reason health care costs go up at a multitude is because of underlying increases in the provider contracts. And then expected utilization. So as the older we get as a country, the more healthcare services we happen to use. But going back to my previous statement, because the big health care, insurance companies negotiate with the hospital systems on a multi year basis, many of the health care providers out there did not expect that inflation was going to hit, you know, roughly 8% in 2021 22. So in 2022, for the first time ever, we saw that inflation actually outpaced healthcare growth. And the reason is, is because the providers were locked into in general, multi year pricing arrangements that didn’t factor in health care costs, keeping pace with where actual inflation ended up being for 2020. Joe.

george grombacher 7:01
Got it? Thank you, I appreciate that. So I am an employer, I’ve got 1000 employees. In a perfect world, my employees would all be really well educated consumers of health care and be taking their health care, spend and, and overall wellness into their own hands. And so you worked to incentivize them to do so.

John Coleman 7:28
Yeah, so that’s certainly what the ultimate objective is, right? I mean, you know, to be candid, you are really trying to change behaviors at the fringe, right? I mean, unfortunately, people are going to get diagnoses for cancer, you might not necessarily be able to impact that. But where you can really impact behaviors around those elective surgeries, right? So there are some vendors, you know, hitting the marketplace that will say, hey, instead of necessarily going through the Big Four health insurance companies that are out there, perhaps you look at carving out some of those services to us. And then the pitch to employees is you get steered to perhaps the best and the brightest providers out there. And some of these boutique vendors out there will say, Hey, if you happen to get your elective surgery through us, you’re not going to have any charge in terms of your out of pocket costs, right? Or there’ll be a very minimal charge. So as an employee, you may look at this and say, if perhaps this benefit is offered to me, I’ll go to perhaps a better surgeon, and my out of pocket cost would be lower. So there in that example, the employer wins and the employee wins as well. So double win is certainly good for everyone.

george grombacher 8:35
Yes, we want those double wins for sure. So in terms of, of helping people to maybe keep their own costs down, things like High Deductible Health Plans, HSA plans, how do those fit in, if at all?

John Coleman 8:50
Sure. So back in 2003, HSA plans for the first time ever became legal, right? So historically, employers would offer HMO plans, which everyone’s familiar with, which is kind of like a narrow network where you have a limited choice of providers. And then the other option out there was your PPO plan where you had a broader network, and you also have out of network coverage available. So when 2010 came and ACA under former President Obama came out, there was this thing called the excise tax, right. And it was basically going to charge employers 40% of the excess healthcare spend. And the purpose was and the federal government thought at that point is, hey, we really got to do everything we can to drive health care costs down. So even though HSAs had been around for a few years at that point, not many employers had offered them some had some had looked at them, very few have offered them as the only option to their employees. When the excise tax came out. Virtually all employers looked at this and said, Hey, we got to do something to really control our health care costs. So they started putting in place these High Deductible Health Plans, and they put in place these things as you alluded to George called the Health Savings Account. Now for the health savings account, in my personal opinion, and I’ll be candid here, I’m not a financial advisor, I’m strategic advisor for employers, but in my own personal opinion, the HSA is one of the strongest financial vehicles out there that’s available to the general American public. So just to take a step back, just in terms of how an HSA works, so any money that goes into an HSA goes in tax free, so it’s free from any federal taxes and most state taxes, sorry, California, New Jersey, unfortunately, those states will tax the money that goes in there. Any money in the HSA earns interest tax free. And as long as it comes out for a qualified health care expense, such as a doctor’s visit, maybe going to a dentist, maybe getting a pair of prescription glasses, that money comes out tax free. And if you don’t use it, you can certainly save it. And it is portable. So let’s say you’re at one employer, you move to another employer, that money follows you. It’s yours, it’s fully vested. And you can definitely stock away a lot of money and help save for your future medical or perhaps retirement expenses.

george grombacher 11:15
Limit, how much can you put into these accounts.

John Coleman 11:19
So the IRS just released the 2024 HSA limit, so it’s a little wonky. But if you’re a single individual, for 2024, and you’re under 55, you could put $4,150. And if you happen to have family coverage, and the way the IRS defines family coverage, is you’re covering yourself, plus one or more dependents, so could be your spouse could be a child could be combination. And in that example, it’d be a total of 8300. So that’s the maximum amount that you and your employer in totality can put in. And we do see, among my clients that many employers do put some money into HSAs to help employees pay for some of their medical expenses, and then perhaps save for the future as well.

george grombacher 12:06
And an HSA is commonly paired with does it have to be paired with some kind of a high deductible plan? Or is that not? Is that not necessary?

John Coleman 12:15
Yes, as of right now, if you want to take advantage of those HSA limits, again, the 4150 and the 300. For family coverage, you do have to have what’s known as a minimum High Deductible Health Plan, and it’s defined by the IRS. So for 2024, the minimum deductible is going to be $1,600, for single, and then two times that or $3,200. For family coverage. There are some limits on on the out of pocket maximum. But you know, the good news is from an employee’s perspective, if your employer is offering you one of these plans, you can rest assure that your employer is going to do everything they can to make sure the plan is HSA compliant. Now, one thing I will take a step back, many employees and some employers out there, we’ll be raising deductibles next year. And it’s not because they’re they’re mean, or they’re looking to shift costs to their employees. But many employers today have deductibles that are $1,500, for single $3,000 per family that’s compliant from the IRS perspective for 2023. But for 2024, it’s not. So it’s likely if you have one of these plans, your deductible, unfortunately, will be going up next year. But on the flip side, you could put more money into your health savings account in 2024.

george grombacher 13:28
Nice. So that’s super compelling that you get the tax deduction on the contribution as it goes in. Unless you’re living in California or New Jersey, it grows on a tax deferred basis. And when you’re pulling the money out for qualified medical expenses tax free, and at a certain age, you can use it for retirement as well.

John Coleman 13:51
Yes, so the HSA rules can be a little tricky. So basically, you can continue continue to contribute to an HSA until you’re entitled to Medicare, right. So you can continue to contribute until you actually enroll in Medicare Part A. So for most people out there, including those who are working because Medicare Part A is free, for the most part, you know, contributions have to stop at age 65. So that’s typically when the contribution stop. And then at that point, you know, if you there’s a few tricks out there, right, so some people out there who are very, very financially savvy, will save all their receipts right from maybe the time, let’s say they’re 30 all the way up 65 And they’ll say, Okay, here’s the receipts, I’m now going to take this money out now that I’m 65 or older, because I have the receipts to prove it, I can actually take that money out at any point in the future. Right. So that’s a little complicated, not everyone’s going to do that. But you know, at that point, you could certainly use that money and again, if you take it out for non medical things, you would be taxed as as income right? But you can use that for your future health care expenses, you know, post 65 And there are some various rules around it. But you know, the, the big picture is most employees If they happen to be enrolled in these plans, they typically save until they’re 65. And then they get cut off.

george grombacher 15:05
Appreciate that. Is it knowable? I forget what the year was. Was it 2006 That ACA went into effect? And then HSAs become popular? Or what was the year? Yeah, so

John Coleman 15:17
2010 I mean, there was talk about health care reform a little before that, but 2010 was the year where, you know, ACA, also known as Obamacare really came into effect. And you know, if you look at enrollment for High Deductible Health Plans, you know, before that, you’re talking about single digit enrollment, who’s starting to creep up. But as time marched on, and again, I’m gonna use a broad brush statement here. But depending on the size of the employer, you’re looking now, anywhere between 40 and 45% of all employees, across the US happen to be enrolled in some form of a high deductible health plan. And then the latest stat I saw is, you know, roughly 30 to 33 million Americans do have a health savings account in place.

george grombacher 15:58
You read my mind, that was what I was curious about, what’s the trend on on actual uptake?

John Coleman 16:05
Right. And I would say that the one thing that has changed over time is when employers started rolling out High Deductible Health Plans. Because of the excise tax, the ultimate goal was to only offer the High Deductible Health Plans with the HSA as the only option to employees, employers have backed off that over the last few years. So part of it was COVID. And the labor market, the demand for labor is really, really tight. So what employers have really learned is one size fits all really doesn’t work as relates to benefits anymore. You know, the old motto was, hey, let’s design benefits, to meet the needs of the average employee. And now the motto is, let’s kind of design benefits to meet all of our employees needs, and that that certainly get complicated. So typically, what you’ll see from a large employer is they’ll offer three plans. So generally, one or two of those plans will be HSA plans, and the other might be an HMO plan, or some form of a copay based plan just to give employees choice, when they figure out what plans meet the needs of them, and their families.

george grombacher 17:06
Nice. I have to imagine that within some of the larger organizations that you’re working with, if not all of them, there must be a if not one person that dedicated a team of folks that are just working on benefits.

John Coleman 17:20
Yeah, absolutely. So again, with the bigger the organization, you know, the more people to attend to be on the HR side. So within HR, they’ll generally be a director of benefits whose job is to kind of oversee what is known as the health and the welfare plans that includes medical, dental, vision, pharmacy, life and disability that kind of falls under that gamut. And then there’s typically a benefits manager and benefits analyst and depending, again, how big the organization is, what the needs of their employees are, there might be some additional people supporting them. And generally, they report up to either a VP of HR, and then ultimately the CHRO.

george grombacher 17:58
Nice. And is there a mean, I don’t know if you’re ever going to get away from the issue of an employee on the last possible minute and rolling and benefits and not really giving it a lot of thought, but it educating and then getting people to actually take action. I imagine you’re constantly working on that.

John Coleman 18:22
Yeah. And that’s, that’s very challenging, right. And I’ll be honest with you, I mean, there isn’t like the secret formula out there, that’s going to work 100% of the time, there’s either going to be people that stuff’s going on through life, they forget about it. And one thing I would say that some employers do is every few years employers like to have what is known as active open enrollment. So typically, an employer out there will say, okay, whatever benefits election that John had, let’s say in 2023, if he takes no action, we’re going to automatically roll it over to 2024. So one way to engage employees is to have an active open enrollment and to actually make them make meaningful choices. The other way is education. Right. But I will say like, some of the stuff out there, and health insurance is crazy complicated, right? Like, it’s just incredible. So when you talk to employees, if there’s an employer out there who’s happened to listen to the lifeblood podcast is really important to us, the employees own language as best you can to communicate with them, and use multiple modes of communication, and email, you know, an Open Enrollment Guide. Sure, that’s great, but also gives them tools. You know, some employers may say, Hey, if you had claims in the last year, perhaps you could use that claims, and then kind of use that as a bogey to see what your healthcare costs would be under different medical option perhaps. And then the other big portion of it that I always tell employees to look at is take a look at not only what you think the out of pocket cost is, but the premium that’s actually going to come out of your paycheck, add them together, and then use that information to make an informed decision about what’s best for you and your family for the future.

george grombacher 19:54
Love it. Well, John, thank you so much for coming on. Where can people learn more about you? How can they engage Tell us about the YouTube channel as well. Sure, so

John Coleman 20:03
you can always follow me on LinkedIn. I’m John Coleman. And then if you’re interested in particular topic whether or not as HSAs lifestyle spending counselors are very, very trendy among employers right now, or perhaps some of the point solutions in the market, feel free to check out my YouTube channel, its friends with your benefits.

george grombacher 20:22
If you enjoyed as much as I did show genuine appreciation and share today’s show with a friend who also appreciates good ideas, find John on LinkedIn, I’ll put that notes in the show, as well as his YouTube channel friends with your benefits and I’ll link that in the notes as well. Thanks again, John.

John Coleman 20:40
Thanks so much, really appreciate it.

george grombacher 20:41
And until next time, remember, do your part by doing your best

Transcribed by https://otter.ai