AMR Case Study #3

Flexible Spending Account Implementation Reduces Out-Of-Pocket Cost Burden On Employees

Situation: A current client with a “young and healthy” population received a 17% increase on their group medical plan renewal. This employer offered an HMO with low co-pays since employees were hesitant to shift to a plan with greater out-of-pocket costs. It was also the employer’s feeling that utilization of the medical plan was very low.

Action: AMR marketed the group medical plan to several healthcare providers and conducted a full analysis of the plan options. After a careful assessment of the data, AMR priced and advocated the concept of implementing a medical Flexible Spending Account (FSA) program. Employees would be able to contribute pre-tax dollars to a spending account to pay for such items as co-pays and deductibles. By adopting the FSA, the employer could change the HMO plan design and increase the co-pays slightly without drastically changing employee “net” out-of-pocket costs.

Result: Through the implementation of the FSA, employees were able to contribute pre-tax earnings to a spending account to pay for such items as co-pays and deductibles. Due to the tax benefit, the FSA made the increase in co-pays manageable. The administration cost of the FSA plan was paid for by the payroll tax savings on the funds run through the FSA. This change allowed the employer to renew the medical plan with a 7% increase.

Summary:

• Employer saves 10% on rate hike
• Flexible Spending Plan helps offset rate hike for employees

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