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-
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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