October 27, 2009Dave Spalding, VP Medical Banking
Blue Cross and Blue Shield of Minnesota
© 2008 Blue Cross and Blue Shield of Minnesota
Do-it-Yourself Health Care –The Health Savings Account
Change and Reform in the American Health Care System
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Agenda for today
> Introduction
> Brief History of HSAs
> The Basics– Break
> Market Adoption
> Extra Credit
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Brief History of HSAs
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1995 2010
8 million peoplecovered by HSAs
HSA Timeline
Archer Medical Savings Accounts (MSA)
HSAs take off following key changes
Medicare Modernization Act creates Health Savings
Accounts
1996
2003 2009
Dec.2006
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HSA enrollment growth
>Rapid market adoption
>Midwest and South
>Multiple market segments
–individual, small business, national employers
>Enrollee Demographics–mirrors commercial insured–higher education level
National HSA Enrollment
0
5,000,000
10,000,000
15,000,000
Source: AHIP
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Minnesota leads the nation in adoption
Relatively vibrant commercial market place:
–Healthy market segments–Innovative employers–Relatively educated workforce
–Strong local health plans
2008 HSA Penetration AHIP
0.1%
1.1%
3.1%
3.4%
5.0%
5.6%
6.4%
9.0%
9.2%
0% 5% 10%
HI
NY
CA
US
IA
WI
NE
LA
MN
As a percent of commercially insured
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Something is happening in Minnesota
8.8%
12.1%
16.0%
12.2%
9.8%
8.3%
10.7%
3.4%
5.9%
8.4%
15.4%
10.2%
4.3%
7.4%
6.1%6.8%
9.4%10.6%
8.9%7.9%
0%
5%
10%
15%
20%
Source: MN Dept of Health
Perc
enta
ge c
hange p
er enro
llee
Premium
Health Expense
> In 2007, growth in health expense per enrollee was the lowest in a decade
> In 2007, growth in health expense per enrollee was lower than growth in wages/income for first time in a decade
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The Basics
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1. The HSA belongs to an individual
Medical “401 (k)”
Encourage individuals to save for their own medical expenses
Employer and Employee contributions permitted
Portable
Inheritable Asset
“Rolls-over” annually
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2. The HSA is a tax-advantaged account
TRIPLE TAX BENEFITS
Individual account contributions lower your taxable income
Savings can be accessed at anytime, tax-free to pay for qualified medical expenses
Savings can be invested free of capital gains
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3. Tax-favored HSAs have a lot of rules
BIG RULES
I. Rule-maker is the IRS
II. Must have qualified high deductible health insurance
III. Annual contributions limits
IV. Penalty for non-qualified withdrawal
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Big Rules: What is qualified insurance?
> Health insurance meeting all statutory requirements for minimum deductibles and maximum out-of-pocket costs
> All services, other than preventive care, are subject to the deductible, including prescription drug purchases
$5,900 maximum out of pocket
$1,200 minimum deductible
Self-only coverage
Family coverage(self + two or more)
$11,900 maximumout of pocket
$2,400 minimum deductible
2010 Statutory requirements
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Big Rules: Annual contribution limits
> COLA Index
> Maximum contribution in 2010– $3,050 (single coverage) – $6,150 (family coverage)
> Catch-up contributions– Individuals 55 and older may make additional
contributions up to $1,000
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Big Rules: Non-Qualified withdrawals
> Withdrawals for non-qualified medical expenses– Withdrawal amount is counted as income– 10% excise tax applies
> Non-qualified withdrawals for those 65+– Withdrawal amount is counted as income– No excise tax applies
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Small Rules
> Eligibility details– Married couples, tax dependents, seniors, domestic partners
> Contribution details– Mid-year enrollment, IRA roll-overs, Comparability (employer
contributions), FSAs
> Withdrawals– Qualified medical expenses, maintaining records, no-time
limit
> Type of insurance– Medical, vision, dental, LTC, etc.
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Health Savings Account Basics in Review
1. Individual medical savings account
2. Triple tax benefits
3. Lot’s of IRS driven rules
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HSA Math Example
HSA PPODIFFERENTIAL
TOTAL EMPLOYEE CASH OUTLAY
HEALTHCARE EXPENSES
OUT-OF-POCKET MAXIMUM
EMPLOYER CONTRIBUTIONS
EMPOLYEE PREMIUMS
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Income Tax Savings Example
No HSA Yes HSA
TAXABLE INCOME $100,000 $100,000
TAX DEDUCTION
ADJ TAXABLE INCOME
TAX RATE 33% 33%
TAX LIABILITY
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Market Acceptance
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The 30,000 foot view
Kaiser Family Foundation Survey– HSA enrollment exceeded HMO enrollment
nationally in 2009– Annual insurance premiums for HSAs are 20-
30% lower than traditional products
American Academy of Actuaries– After first year, HSA plan premium increases
are 3 to 5% lower than traditional insurance
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Are higher deductibles “working”? The Finance Department says YES
3.6%
5.0%
5.3%
6.5%
7.0%
0% 2% 4% 6% 8%
No CDH
less than 10% CDH
10-20% CDH
20-50% CDH
+50% CDH
Source: Watson Wyatt 2008 Purchasing Value in Healthcare employer survey
Forecasted premium increase
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Employer Contributors and Amounts
37%42%
45%
38%
0%
10%
20%
30%
40%
50%
60%
2005 2006 2007 2008
% Employers Contributing
Source: Blue Cross Blue Shield Association CDH survey 2008
$1,125
$815
$0
$200
$400
$600
$800
$1,000
$1,200
small firms large firms
Avg Employer Contribution
Source: Kaiser Family Foundation / HRET 2009 Annual Benefits Survey
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Become a high performing employer
Towers Perrin research has identified four cornerstones for success for employers:– Build a new mind set around health– Help employees gain confidence in their ability to manage
financial risk– Must have an organizational climate of trust and employee
well-being– Thoughtful change management, communication and visible
leadership 88% of enrollees at high performing employers reported a good experience with an HSA or HRA based-plan vs. 29% at low performing employers
71% of enrollees at high performing employers believe it is appropriate for them to share medical expenses with their employer
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Risk Adjusted Utilization: HSA vs Traditional
Blue Cross 4 year study covering over 1 million enrollees on a risk adjusted basis:– Decreases in x-rays, lab tests and ER visits– Higher levels of preventive care– Same number of people using insurance– One less script per year and higher generic
adoption
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Changing Consumer Behavior
72%
38% 38%40%
22%27%
0%
10%
20%
30%
40%
50%
60%
70%
80%
Formally TrackedMonthly Expenses
Estimated FutureExpenses
Discussed expenseswith a doctor
HSA Users All Insured
Source: Blue Cross Blue Shield Association CDH survey 2008
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More Data
36%
52%
43%
21%23%
33%30%
15%
0%
10%
20%
30%
40%
50%
60%
Choose lowercost treatments
Ask Dr aboutcost
Mail order Rx Search internetfor lower cost
Rx
HSA Users Non-HDHP
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Source: Blue Cross Blue Shield Association CDH survey 2008
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Healthier Behavior
43%
25%21%
13%
30%
14% 15%
7%
0%
10%
20%
30%
40%
50%
HealthScreening
Exercise Diet/Nutrition HealthCoaching
HSA Users Non-HSA
Source: Blue Cross Blue Shield Association CDH survey 2008
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Global Competition
0%
20%
40%
60%
80%
100%
20% 40% 60% 80% 100%
Private Expenditures as % total health exp
Out
-of-
pock
et e
xpen
ditu
res
as %
of t
otal
hea
lth e
xp
US 55%, 24%
GLOBAL 44%, 52%
CHINA 62%, 87%
FRANCE 22%, 35%
INDIA 83%, 94%
MEXICO 54%, 94%
SOUTH AFRICA 60%, 17%
1. Private Sector Share of Health
2. Out-of-Pocket % of Private sector
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Extra Credit
According to the New England Journal of Medicine, what is the number one determinant of early death in the US:
A. Genetics
B. Healthcare
C. Behavior
D. Environment
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Extra Credit
What is the annual out-of-pocket maximum for Medicare?
A. $5,000
B. $25,000
C. There is no maximum
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Extra Credit
How will Healthcare Reform impact HSAs:
A. Eliminate them
B. Expand them
C. Don’t know, don’t care – ready to go get a drink!
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Extra Credit
Based upon average life expectancy, the Employee Benefits Research Institute estimates the lifetime, out-of-pocket expenses for a couple, aged 65, retiring in 2009 to be:
A. $15,000 to $20,000
B. $55,000 to $104,500
C. $168,000 to $415,000
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