Consumer DrivenHealth Plan Discussion

Need vs. Wanto Filet mignon or hamburgero Vioxx or aspirin

Employee noise and understanding Provider resistance Funds for accounts

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Common Objections to Consumer Directed Plans

Has created a generation of consumers unaware of the true cost of healthcare

Provided little incentive to be a prudent healthcare consumer

Result - the return of runaway medical inflation

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Managed Care

Cost of the benefit dollar exceeds cost of real dollar $1000 in insurance benefits costs more

than $1000 in cash Result – Account-based health plans

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What has happened?

A healthcare program: Through plan options or Funding of claims The employee has a significantly larger

stake in financial decision-making for healthcare provided under the plan

If done right – THIS IS NOT A COST SHIFT – It is a responsibility SHIFT

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What Makes a Consumer-Directed Health

Plan?

Stabilize employer premium

Facilitate employee behavior change

Educate employeesEngage employees with financial

incentivePromote better healthcare spending

decisions and utilization habits6

Objectives of a Consumer- Directed Health Plan

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Consumer-Directed Health Plan Wheelhouse

Common 1st step

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Dual / Triple Option Medical Plans

Two or more health benefit plans offered to employees, with a differentiation in the employee’s cost of healthcare coverage depending upon their plan selection.

One of the health plans offered usually is a high deductible health plan.

Example – Dual Choice Employee chooses between:

Plan A – Low deductible plan that cost $$$ per month or

Plan B – Higher out of pocket exposure that cost $$ per month

Typically – “Seasoned” employees and those with chronic conditions will select the low deductible plan. Younger and /or lower utilizers of care will select the high deductible plan

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High Deductible Plan

Employer sponsored healthcare plan with an annual deductible of $1000 or more

May or may not have copays, Rx etc..

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Example – High deductible

One plan with high potential out-of-pocket exposure

Typically, employees do not view this as coverage that “is worth anything”

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Employer Reimbursement Program

Employer offers a high deductible health plan and self-funds a portion of the deductible for reimbursement to the employees.

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Supplemental Coverage Voluntary Offerings

Employer offers a high deductible health plan to the employees

Sponsors a menu of supplemental options

Employees share in the total cost of the supplemental programs.

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Example - Supplemental Any type of plan that also offers:

Flexible Spending Accounts

Specific disease coverage Cancer Accident Critical Illness “Gap” Plan

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Healthcare Reimbursement Arrangements

Federally approved program, which allows an employer to create an arrangement or plan for reimbursing employees for a portion of their medical expenses.

Most flexible account-based plan

Created by the market, not the government

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HRAs Plan design/flexibility/can be coupled with FSA

Employer can fund reimbursements using savings from switching to a high deductible plan

The employer determines the funding mechanism and amount

Employer owns the funds until used

Reimbursements are tax deductible for the employer

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HRAs HRAs are available to any size group

Employer determines how much of funds can be carried over

Employee can use only for applicable medical expenses defined by the employer

Employee contributions not allowed

Employee does not own account

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HRA’s

HRAs can be portable

Funds available on day 1

Example - HRA

Typically no additional EE out of pocket exposure

Typically savings in year one for the employer

Smaller groups total replacement, larger groups option plan

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Health Savings Account

Tax exempt trust or custodial account established exclusively for the purpose of paying qualified medical expenses

Created by the government with assistance of specific groups

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Who is Eligible for an HSA?

Anyone enrolled in a “qualified health plan” with an annual deductible of $1,150 for self coverage and $2,300 for family.

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Key Components High deductible plan with limited 1st dollar

coverage, no Rx after 2005 Account to reimburse qualified medical

expenses – 213(d) Both employee & employer may contribute to

the account Tax advantages for both employee &

employer Carryover provision

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HSAs

Lower premium costs for qualified plan Employer contributions are tax deductible

Individual contributions are tax deductible

Interest and earnings on assets are tax free, money grows tax deferred

Money saved can be used for qualified medical expenses tax free for life

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HSAs Account is portable Money remaining in account rolls over Employee sees advantage of building funds…

Better healthcare consumer Catch-up provision for those 55 and older Can be used to pay COBRA and other

medical insurance premiums No substantiation requirements Age 65 and over - no penalty for non-medical

use of money

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HSAs

Flexibility up to maximum contribution into accounts

Medicare eligible individual loses ability to deposit into HSA the month they are entitled to benefits

Must be held by a bank or other qualified trustee

Total contributions limited annually - all sources

Potential asset accumulation = ???

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Example HSA $2500 deductible, 100% plan

Employer or Employee funds up to statutory max

Physician Office Visits and Prescriptions subject to deductible

Contributions Tax Free, growth Tax Free, medical “IRA”

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HSA Best Fit Scenarios

High income

Tax shelter

Employer contribution strategies

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High Income

Not ERISA

Can discriminate

Good for company where “executive benefits” are a must

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High Deductible Hurdles

January start date

HDHP limitations – No 1st dollar benefits or copays except for Wellness

Prescriptions subject to deductible

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Tax Shelter

“Above The Line” tax deduction at all income levels

Use HSA to invest Pay for all other services out-of-

pocket

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HSA Limitations

Can’t be covered by other plans Except

◦ Limited or Specified Benefit Plans

◦ Can’t combine HSA with HRA or FSA unless designed as a specific use plan

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Employer Contribution Strategies

Does employer limit his contributions to 50% of single rate across all tiers?

Is single rate >$225 for high deductible health plan?

How much are the employees currently paying?

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Employer Contribution Strategies

If yes and yes….

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Employer Contribution Strategies

Take existing employee contribution and place in HSA

Employee contribution + employer contribution remaining apply to high deductible health plan

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Employer Contribution Example

$500 deductible, 80% plan

Office visit $25, Rx $10/$30/$50

$300 single rate

$900 family rate

Employer pays $200 of single, employee pays balance

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Employer Contribution Example

Qualified HDHP

$2500 Single, $5000 Family deductible, 100% plan

No office visit, Rx roll up under deductible

$200 single premium, $600 family premium

Employer pays $200 per employee

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Employer Contribution Example

Single employee

Premium $0

HSA $1200 or more

Family employee

Premium $400

HSA $3600 or more

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Employer Contribution Example - Impact

Employer impact Less insurance company exposure = less

rate increase Same cost

Employee impact Keep $$$ Earn interest Better retirement Same cost Funds available

ENGAGES THE EMPLOYEE!!!!38

Integrated Carrier-Based Products

Questions to ask

Who owns the $$ Auto adjudication

◦ All the time for everyone?

Portability for employee Termination for employer Experience

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HRA vs. HSA

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Employer perspective

HRA HSA

Cash Flow Can vary, employer has total control

100% gone

Income Statement

Expenses taken as claims paid. No deduction or account contribution

Expense taken as contribution made

Balance Sheet

Asset can accumulate and off set any potential liability

No impact. NO assets

HRA vs. HSA Employee perspective

HRA HSA

Funds Availability

Full amount available on day 1

Available as contributed unless tied to credit

Office Visit Can have copay or come from account

Must come directly from account

Pharmacy Drug card can run outside or be integrated in the program

Has to be taken from the account

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For additional questions or to schedule an

appointment, contact Jeff McGuire or Matt

Robertson.

Call Daines Insurance & Financial Services, LLP.

877-793-3034