August 27, 2015 1 Political and Economic Trends in Consumer Driven Healthcare Financing Daniel B. Perrin President, HSA Coalition, Washington, D.C. Gilbert’s

1April 19, 2023

Political and Economic Trends in Consumer DrivenPolitical and Economic Trends in Consumer DrivenHealthcare FinancingHealthcare Financing

Daniel B. PerrinPresident, HSA Coalition, Washington, D.C.

Gilbert’s Insurance & ConsultingHermitage, PA

October 2, 2007

2Copyright © 2005 HSA Coalition. All Rights Reserved.

Pressures that Kept Health Care Off the National Agenda 9/11, the War on Terror, Afghanistan and

Iraq Republican control of the U.S. House

and U.S. Senate and the White House Polls showing the Public trusts the

Democrats more on Health Care Republicans felt “burned” by Medicare

Rx program (feel they got huge amount of grief, no political benefits)


Pressures that Kept Health Care off the Political Agenda The failure of the Hillary Clinton Health Care

effort, and the result: Democrats lost control of the U.S. House and 56 seats in 1994

Democrats feel power of employers and insurers is too great for real reform

Democrats and Republicans wary of the issue

Republicans would rather talk about something else

Lack of consensus on way to reform


Relevant Political Facts Republicans lose 30 Seats in the U.S.

House in 2006 Republicans lose 6 seats in the U.S.

Senate in 2006 Republicans lose control of both the U.S.

Senate and House, are now the minority party

Republicans have 21 seats in the Senate up in 2008, Democrats have 11 seats up


The Great Health Care Battle of 2009 and 2010 All Democratic candidates for President

have pledged to make “universal health care” their number one priority

Democrats retain control the U.S. House and U.S. Senate

Republicans lose more seats in the U.S. Senate and U.S. House in 2008

Democrats win the White House in 2008


What does “universal health care” mean? (Good Question)

It could mean Medicare for everyone It could money to buy health

insurance (like food stamps) It could mean a Canadian style

system where it is illegal to pay a doctor for his services and there is no private insurance or clinics (uh, mostly)


The Employers – where will they be? GM and Ford blame high health care

costs for their competitive position vs. Japan and other car makers

Some large companies want government to take the cost off their books

Believe any tax increase to pay for it will be less than they are paying now for health care


60 Votes in the U.S. Senate – Enough to Stop a Filibuster The checks and balances of the American

legislative system, with the President being able to veto, and the filibuster in the Senate to protect the rights of the minority, could be eliminated in 2008.

If the Democrats can get to 60+ votes on health care reform in the Senate, while they control the White House and U.S. House, what ever they decide “universal health care” is will be law.


Odds are Nothing will Change, much

It took 14 years to pass the law creating HSAs: 7 years to create the pilot as MSAs, and another 7 years to end the pilot and pass HSAs

It took three years with the Republicans in control of the U.S. House, the U.S. Senate and the White House to pass the Medicare Rx program


What about HSAs?

A popular tax break, like any government program, is tough to stop.

Just because you have government run health care does not mean HSAs will not be part of it.


The Politics of Health Care

Questions?


Recent HSA Trends HSAs now serve over a million

more covered lives than HRAs, but both are accelerating Top 40 largest Firms (actual reported

covered lives) HSA -- 4,672,156 (58.9%) HRA -- 3,428,310 (43.2%)

HSAs will easily reach 10 million covered lives by the end of 2008


Blues vs. United

Blues plans as a group have overtaken United in total national CDH Plan enrollment Blues -- 3,073,365 (38.7%) United -- 2,238,000 (28.2%) Other -- 1,794,645 (22.6%)

HSAs are offered as a "third option" to PPOs and HMOs by all major carriers


Enrollment Estimates By Consumer Driven Market Report New Industrywide

Jan '06 July '07 Jan '08

HSAs 3.2 M 5.8 M 7.2 M

HRAs 2.9 M 4.3 M 5.0 M

TOTAL 6.1 M 10.1 M 12.2 M


United Benefits Advisors Survey Enrollment Growth

Recent survey of over 10,000 employers The number of employers offering CDH

plans has grown 51% in the last year The number of covered workers grew even

faster (76%), from 3.4% of all workers in 2006 to 6% in 2007

A greater percentage of small employers (25 - 100 workers) offer CDH Plans than do employers with 1,000+ workers

CDH plan premiums grew 2.7% in 2006, compared to 7.2% for all plans


Hewitt & Associates Study

> 20% of companies offer, or plan to offer, a HDHP/HSA HSA by end of 2007

> 50% of companies are considering offering an HDHP/HSA at a future date

Employee enrollment expected to grow to 20% in five years (3% now)


Aon Consulting Worldwide

37% of employers offer CDH plans to employees in 2007 (28% in 2006)

42% offering HRA plans 48% offering HSA plans 10% offering both

60% of employers have > 10% employee participation in CDH plans in 2007 (53% in 2006)

83% of employers offer CDH plans in addition to other plans (17% offer in lieu of)


Trends in General Virtually every carrier offering HSA-

qualified plans Most people don’t have to change

carriers to switch to an HSA plan Kaiser Permanente offering HSAs in all

markets Plans refining plan designs and

consumer tools Good discounts not available in all

markets


AHIP Study – Insurers HSA Book of Business


Employer Trends

Small businesses and self-employed quickly converted to HSAs

Many were already using high deductible plans

Fastest growth coming from mid- and large-sized companies

2004: < 10% of mid-size and large firms offered high deductible plan option

2007: > 60% of mid-size and large firms will offer a high deductible plan option


HSA Enrollment by Market Segment


By the Numbers: HSA Market Segments


Of Lives Covered by HSAs, Percentage by Market Type


Adoption of HSAs by Firm Size


Single and Family HSA Deductibles in Large Group


Small Group Deductible Averages


Financial Institutions At least $3.2 billion in HSA accounts as of

December, 2006 (ICDC) Financial Research Corp. projects $15 Billion in

HSA Assets by end of 2010 (conservative estimate)

Most large national and regional banks offering HSAs

Many have partnered with insurance carriers Niche banks (HSA Bank, FirstHSA) doing well Community banks and credit unions slow to

respond Fidelity started offering HSAs last Fall


Congresswoman Julia Carson (D-IN) Explaining MSAs to my Wife! Taking my kids to the amusement

park United Benefit Advisors: 3.4%

annual premium increase Deloitte: 2.8% annual premium

increase

It’s About the Money


Mis-Alignment of Incentives


Assurant reports 43% of its HSAs sold were purchased by the previously uninsured.

ehealthinsurance reports 32.8% of its HSAs sold were purchased by the previously uninsured.

AHIP reports 31% of its HSA health plans sold were purchased by the previously uninsured.

If HSAs are for the wealthy, why are the uninsured buying them at such a high rate?

Are the uninsured wealthy?

Push-Backs: HSAs are for the Wealthy


Push-Back: HSAs Are Only for the Healthy

Why the less healthy will benefit from an HSA: Choice and Control: the non-financial incentive Saving Money: the financial incentive For a Traditional Low Deductible, High Premium

Family Plan, the less healthy will spend:$11,480 for the premium ($957/monthly)

+ $ 500 deductible, + $ 1,000 (for 20% co-insurance up to $5,000)

______________

= $12,980 for 100% coverage which is what the less healthy want


HSA Results: Fewer doctor visits, fewer emergency room visits, higher compliance with treatment regime, Rx and care of self.

“We must also note that most of the CDHP participants in our study were not covered under HSAs, but under a similar, though less tax-advantageous, type of account called a Health Reimbursement Account (HRA). Because savings balances in HRAs are only notional, and not portable should an employee move on, we suspect that the behavior changes we observed would become more accentuated with HSAs (these accounts, like 401k plans, truly belong to the consumer). [Emphasis supplied.]”

McKinsey & Co. on Behavior of the Less Healthy


Where HSAs are in Early ‘07 More than 500 banks now offer HSAs More than 325 credit unions now offer HSAs Nine of the top 10 U.S. mutual fund companies

(like Vanguard and Fidelity) have funds that accept cash from Health Savings Accounts

200 different mutual funds accept funds from HSAs

Milliman, USA: More than 95% of all health insurers sell HSA qualified health plans


How many HSAs are there now? How many HSAs will there be?

U.S. Treasury: In four years (2010): 14 million HSAs, with changes to current law, there will be 21 million

Some estimates predict 30 million HSAs by 2010 AHIP: as of January, 2007, there were 4.5 million

HSA qualified health plans sold; in 2005, there were 1 million HSA qualified health plans sold

HSA sales growth rates exceed those of 401(k)s, IRAs and 529s in their early years


HSA Family Plan, Low Premium High Deductible:

$4,000 deductible, 100% coverage thereafter, a $525/month premium

$6,300 for the premium + $4,000 in the HSA = $10,300

This does not count the $1,000 in tax savings at the 25% tax bracket ($4,000 x .25)

Average family health plan premium in the U.S. in 2006 cost $11,480 (not counting deductibles, co-insurance, co-pays)

The Insurance Part of an HSA: Low Premium, High Deductible


Decrease Your Rate of Increase

The money in their HSA is their money

You are paying employees not to get into their deductible and therefore, not to increase your premiums in the out-years.

A 3% increase on a $525 a month premium is $189 a year. A 12% increase on a $957 a month premium, is $1,378 a year.

If your employees do not want to make their own decisions for their own health care, then who do they want to make the decisions for them? -- Senator Sam Brownback (R-KS)


The Brezhnev Doctrine said: once you are a Communist country in the Soviet orbit, you can never leave, or we will use force to keep you in the Soviet orbit.

If you move from a high premium low deductible health plan, to a low premium high deductible health plan, how likely is it that you will switch back? Not likely.

A Vermont Business Association had 700 businesses switch to an HSA, and not a single one switched out of their HSA the next year.

Here is something to ponder: What will moving from a $957 a month premium for a family to $525 a month premium do to an insurers’ top line revenue?

The Brezhnev Doctrine Applied to HSAs


The 7 Steps for Employers

First, in general:

KISS is the operative word when adopting HSAs HSAs refinance your health care and Move you to a defined contribution plan, not a

defined benefit plan Employees will focus on their risk



Step of1 7

1. Aggregate the funds spent on health insurance (including dental, vision and prescription benefits) by both employer and employee. For a family plan, that number is likely between $9,500 and $11,500 a year.

2. Do not add any more funds the for the 2006 plan year. The additional 10% to 15% per year cost increases you have likely been subjected to will be immediately cauterized.

So, step one is not to spend whatever next year’s increase would have been, and begin to think in terms of a per family

pile of cash and a per individual pile of cash.


2 7

2. With the $10,500, pick a family deductible of say $4,000.

Then, fund the employees HSA to 100% of the deductible. The remaining $6,500 -- in most cases -- will be enough to fully fund the premium. FUND the ACCOUNT FIRST NOT the PREMIUM.

You are giving your employees money that used to go to the insurer. It is going in their pocket instead.


Step of


3 7

3. Once you have fully funded the account, select an insurance plan that covers 100% of costs above the deductible.

Employees understand, quickly, what it means if they have $4,000 in the account, with a deductible of $4,000 with 100% coverage above the deductible, all their costs are covered. In insurance speak, this rule means: the deductible equals the maximum out-of-pocket costs of the policy.

Do not talk about the deductible level first when talking to employees. Talk about the money in the account first. Remember my wife.


Step of


4 7


You have now created a fully funded account, with zero risk to your employees.

They have skin in the game, in fact, they have $4,000 – which is their money – and which they will spend a whole lot more carefully than they will spend your money or the insurer’s money. You are paying them not to get into their deductible.

Further, vision, dental (like braces for your kids) and over-the-counter drugs, and prescriptions are tax-free qualified HSA expenditures. So is LASIK surgery.

Step of


5 7


5. You should be prepared for an ear ache from your employees if the account is loaded down with monthly and other fees.

You need to tell your employees that an their Health Savings Account is like having an IRA account that you can keep cash in to pay your medical bills. Once the balance is close to their health plan deductible, they can invest the surplus in stocks, bonds and mutual funds. You can invest HSA dollars the same investments you can hold with an IRA.

Step of


6 7


6. IF during the first part of the first year of an HSA, an employee incurs significant health care expenses, without having time to build up the funds month by month in their account, what do you do? (You start your HSA Jan. 1, you have a car accident Jan. 2 and are in the ICU – but you have only one month’s deposit in your HSA.)

The employer can advance the funds to cover the deductible (and deduct the same from the employee’s pay check over the course of the year) or a hospitalization rider or accident rider can effectively do the same thing. HSA rules allow any type of insurance rider that pays a specific dollar amount if x happens. For example, a rider that says, we will pay you $5,000 if you an emergency room visit.

Step of


$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

Month 1 Month 4 Month 7 Month 10 Month 13 Month 16

Rider PaysHSA Deposits

Hospital Indemnity Rider One Time Charge - $85


7 7


7. Do not allow one type of health insurance choice, say a PPO, to be get more funding than another type of option, like the HSA.

Part of moving to a defined contribution is that each type of plan receive the same dollar amount towards it by the employer.

The employees then can make their own choice of which plan they want to pay towards, or not – and again, the employee bears the variable cost increases. (This is why an annual 3% increase on a $475 premium is important, as opposed to an annual 10% increase on a $957 premium.)

Step of


Refinancing your Health Care Benefits - Recap

$956.67: Average monthly premium for average 2006 Family Health Insurance

$11,480: Annual 2006 Cost of Family Health Insurance in the U.S.

(Source: Kaiser Foundation)


Premium + HSA Deposit $6,300: Annual Premium for $4,000

Deductible Family Health Insurance Policy ($525 a

month) $4,000: Annual Family Deductible________ $10,300: Annual Premium plus HSA

funded at 100% of Deductible


Comparison to Traditional Health Insurance

$11,480: Annual Cost of Family Health Insurance in

U.S. $9,700: Total cost of Premium

and 100% Funded HAS_______$1,780 Savings with a Fully Funded

HSA


Employers HSA Plan Design

Questions?


Questions and Answers

[email protected]

Discussion

Documents

August 27, 2015 1 Political and Economic Trends in Consumer Driven Healthcare Financing Daniel B. Perrin President, HSA Coalition, Washington, D.C. Gilbert’s