Transcript Venture Capital Asset Protection (VCAP)

Benefit Trends: Evaluating
Consumer-Based Models
Presented By:
Christopher J. DeLorey
President
Telamon Insurance & Financial Network
[email protected]
617-614-1215
Key Points
Factors driving trends
Employer options
Employee perspective
Consumer Driven Health Plans (CDHP)
What’s next?
Factors Driving Trends
Rising Health Insurance Costs
The national average for medical plan rate increases
is 15% to 20%
These increases are driving employers to look for
solutions
Fueling interest in consumer models
Factors Driving Trends
Health Care Cost Drivers:
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Skyrocketing Rx costs
Rising hospital and physician costs
Advances in technology
Increase in chronic conditions
Increased utilization
Aging population
Lack of consumer involvement in purchase
Factors Driving Trends
In 1960, consumers paid for 50% of health care costs
In 2003, they pay for only 15%
Consumers don’t know the true costs of health care
Factors Driving Trends
Entitlement Perspective in America
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Corporations are bottomless pits
Unrestrained desires
Employees are unaware of the actual costs
“Want it All” for a $10 co-pay
Employer Options
Medical Cost Outlook
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Impossible for employer to pay for all the future drug/medical
technology and services desired by employees
Employers have a few options:
• Drop coverage
• Absorb the cost
• Pass on the premium increase to employees
• Reduce coverage
• Offer a consumer-based model
Employer Options
Moving Toward Consumer Models
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Determine level of medical benefits needed to recruit/retain
employees
Provide a menu of group medical options
Set employer subsidies based on efficient plans or base year
subsidy level
Encourage employees to select efficient medical plans
Motivate employees to “own” their personal health status
Facilitate employee use of pre-tax flexible spending accounts
Employee Perspective
Educate them on health care costs
Educate them on products
Provide them tools
Employee Perspective
Are Your Employees Ready for Consumerism?
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87% of employees confident in choosing a health plan
70% of employees understand how to navigate the health care
delivery system
87% willing to take on more responsibility for researching,
choosing, and maintaining their health coverage
49% want full responsibility for purchasing their own health care
coverage
Consumer Driven Health Plans (CDHPs)
A concept, not a product
Often referred to as “consumerism”
Engages the consumer in making health care
decisions and purchases
Encourages better health
Many variations
History of CDHPs
MERPS (Medical Expense Reimbursement Account)
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Allowed tax-free reimbursement to employees
100% employer-funded
Sometimes called 105(h) plan or direct reimbursement plan
Uncertainty as to ability to rollover unused funds or spend downs
Typically did not include any health tools or health assessments
History of CDHPs
Health Flexible Spending Accounts
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Allowed for tax-free reimbursement to employees
Typically funded via employee salary deduction or flex credits
No rollover allowed
Individual insurance premium ineligible
Web-Based Resources & CDHPs
Carrier Resources
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Current balances
Claims activity
Medical Libraries
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Johns Hopkins
First Data Bank
Reuters News
The Natural Pharmacist
Personal Health Tools
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Health risk assessments
Health calculators
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Personal health records
Drug interaction
information
Provider Search
Healthcare Prices
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Diseases/conditions
Procedures and providers
Visits
Prescription drugs
Marketplace
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Online shopping
Types of Consumer Driven Health Plans
Popular emerging options:
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Defined Contribution Plans
Health Reimbursement Accounts (HRAs)
Health Flexible Spending Accounts (FSAs)
Defined Contribution Plans
Defining the contribution employers will spend and
passing the rest of the cost onto the participant
An employer gives employees a fixed sum of money to
purchase one of several healthcare plans; if an
employee chooses a plan that costs more than the
amount provided by the employer, the employee pays
the difference
Defined Contribution Plans
Establish a high deductible plan which is partially funded
by the employer; any employer monies not spent by the
end of the year may be rolled over to the next year
Employer defines the amounts of reimbursement to
providers, thus encouraging the participant to negotiate
directly with provider to accept the plan’s reimbursement
as payment in full
Defined Contribution Plans
Add additional co-pays for care at more expensive
facilities
Providers are grouped into mini-networks based on
cost/quality; employee pays a higher contribution in
order to access higher cost providers (Patient Choice
Model)
Defined Contribution Plans
Cons
Pro
Employees
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May have choice of plans
Become better
consumers
Employers
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Predictable cost
Employees
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Member responsibility
May be more involved in
negotiating with providers
Employers
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Potentially complex
enrollment
Employee education
Health Reimbursement Arrangements
(HRAs)
IRS Sec. 105 Plans
Allows employer to reimburse employees tax free for
medical expenses
HRAs - Financing
HRAs must be paid by employers
HRAs may be unfunded or funded
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Typically, employers use unfunded “credits”
HRAs may accept some after-tax employee contributions
(e.g., COBRA premiums)
HRAs may not accept pre-tax employee contributions,
either directly or indirectly
Use of debit cards when employer pays first
HRAs - Reimbursement
HRAs can reimburse deductible “medical expenses”
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Health expenses not reimbursed by other plans
Health insurance premiums (including LTC, unless HRA is a
health FSA)
HRAs can’t reimburse non-health expenses
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Can’t pay bonus, severance, or death benefits
Can’t reimburse premiums paid with pre-tax dollars
How Does a High Deductible Plan Work?
Either member or HRA
pays first
100% for preventive
Health
Coverage
Deductible
Member
Responsibility
Preventive 100%
HRA
Rollover of account is an
option
HRAs and COBRA
HRAs are subject to COBRA rules
Issues to consider:
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Notices
Elections
Reimbursement amounts
Duration of coverage
Premiums
Non-Discrimination rules apply
Coordinating HRAs with High-Deductible
Plans
An HRA may be offered as a stand-alone option
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Employees can be required to elect high-deductible coverage to
receive an HRA
Employees can pay for the high-deductible coverage with pre-tax
contributions (but can’t subsidize HRA coverage with pre-tax
dollars)
HRAs may be coordinated with high-deductible health
plans
No fixed coordination rules; typically, HRA pays first and
covers same expenses as high-deductible plan
HRAs and the Rollover Feature
Provides incentive to save for future needs
If an employee knows they are leaving they may spend
quicker
Previous rollovers may encourage higher dollar claim
submission
Be aware of “look back loophole” (HRAs can cover
expenses from previous years)
How do you have a COBRA premium “actuarially
determined?”
How do employees get health care cost information?
Can create a future liability for plan (plan can cap the
rollover)
Education
Personal Health Management Toolkit
Online provider information
Online prescription drug cost information
Health Risk Appraisals
24-hour nurselinee
Wellness program
Education
Preventive care is
carved out of the
program and is
provided at 100%
The employer funds this
portion
The employee funds this
portion
Employer and
employee share
the premium cost
of this traditional
PPO plan
Communication
Preventive Care
Covered 100%
Prescription & OTC
Alternative Drugs
Covered 70%
Personal Care Account
$1,000 Employee only
$1,500 Employee + 1 dependent
$2,000 Employee + 2 or more dependents
Bridge – Employee Deductible
$2,000 Employee only
$3,000 Employee + 1 dependent
$4,000 Employee + 2 or more dependents
Catastrophic Health Coverage
90/70 PPO Plan
Designed to encourage network utilization
Education
Prescription
drugs carved
out and
provided on a
coinsurance
basis
Education
Employee uses this first
to cover healthcare
expenses. Unused
portions are carried over
to next plan year.
Once the PCA is
exhausted, employee is
responsible for 100% of
healthcare expenses
until the maximum is
reached.
PPO plan covers
employee after
bridge deductible
is met.
Communication
HRA Pros and Cons
Cons
Pro
Employees
◦ Rollover of unspent funds
◦ Employee directs own care
◦ Preventive coverage
◦ Decision support tools
Employers
◦ Less involved in coverage
◦ Cost control
◦ Shares risk of cost/utilization
w/employee
Employees
◦ Member responsibility
◦ Cost, if chronic disease
Employers
◦ Adverse selection
◦ Actual cost savings
◦ Accuracy of actuarial
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assumptions
High HRA administrative
cost
Health Flexible Spending Accounts
(FSAs)
Allowed for tax-free reimbursement to employees
Typically funded via employee salary reduction
No rollover allowed
Individual insurance premiums ineligible for
reimbursement
HRA Coordination with Health FSAs
HRAs may be offered in lieu of FSAs
HRAs may be offered in addition to FSAs
Coordination rules
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Health FSA may reimburse expenses before the HRA is
exhausted if written into both plan documents
FSA can also pay first if expenses are different expenses than
HRA
HRA – FSA Rules Ignored
HRAs are not subject to “use-it-or-lose-it” rule
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Permits carry forward of unused amounts
Accumulations may be capped
Terminated employees may spend down accumulations
HRAs are not subject to “uniform coverage” rule
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Permits HRA credits/contributions to accrue by payroll period, or
less frequently (e.g., monthly, quarterly, semi-annually)
Health Savings Accounts (HSAs)
Tax deduction for amounts contributed
Employer and employee contributions
Must offer with high deductible health plan
May not be covered by any other health plan
Self employed individuals are eligible
May include in cafeteria plan
HSA Pros and Cons
Pros
Employees
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Rollover of unspent funds
Own account
Can reimburse some
insurance premiums
Can save tax free for later
use
Employers
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Limits liability
Employees may put cost
pressure on health care
providers
Employer contribution may
be used as employee
incentive
Employer contributions not
subject to FICA
Cons
Employees
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More cost sharing
New information to learn
Must take more
responsibility
Employers
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Requires a high deductible
plan
Trustee requirement can
add cost and complexity
HDHPs may cause
employee resentment
Can’t control employer
contributions
HSAs – Open Issues
Claims adjudication & substantiation
ERISA
DOL claims rules
COBRA
HIPAA
Comparison of HSA, HRA, FSA:
Account Overview
High Deductible
Health Plan? (HDHP)
Who can fund the
account? High
Deductible Health
Plan?
Are there any
contribution limits?
Who owns account?
HSA
(Health Saving Account)
HRA
(Health Reimbursement
Arrangement)
Tax Exempt trust or custodial
account created to pay for
the qualified medical
expenses of the account
holder and his/her spouse or
dependents.
An employer funded account
used to reimburse employees for
qualified medical care expenses.
Required
Customary
Not Required
Employee and/or Employer
Employer Only
Typically only the Employee.
However, Employer can also
contribute
$2,900 | $5,800 F **
Catch-up contributions:
$900/yr – age 55 by end of
tax year. Reduced by MSA
contributions in same year
Participant
There are no limits to the amount
an employer can contribute.
Employer
FSA
(Health Flexible Spending
Account)
A cafeteria plan authorized
under Section 125 of the
IRC. FSAs can be created
to reimburse for qualified
medical expenses, health
insurance premiums for
Premium-only account, or
dependent care expenses.
There are no limits to
contributions for a health
care FSA. However,
employers typically set a
limit.
Employer
Comparison of Tax-Advantaged Accounts:
HSA
Can unused funds be
rolled over from year to
year?
FSA
Yes, subject to COBRA
No, but in some cases employee
may elect COBRA through end of
plan year.
Section 213 (d) medical
expenses
Section 213 (d) medical
expenses
Section 213 (d) medical expenses
-COBRA premiums
-QLTC premiums
-Health premiums while receiving
unemployment benefits
-If Medicare eligible due to age,
health insurance premiums
except medical supplement
policies.
Health Insurance premiums
for current employees,
retirees, and qualified
beneficiaries, and QLTC
premiums. Employer can
define “eligible medical
expenses”
Must claims submitted for
reimbursement be
substantiated?
No
Yes
Yes
May account reimburse
non-medical expenses?
Yes, but taxed as income
and 10% penalty (no
penalty if distributed after
death, disability, or eligible
for Medicare)
No
No
What expenses are
eligible for
reimbursement?
Is interest earned on taxadvantaged account?
Yes
HRA
Yes, accrues tax-free
Yes, paid to the employer
Expenses for Insurance premiums
are not reimbursable
Employer can define “eligible medical
expenses”
No
Comparison of HSA, HRA, FSA
Continued…
HSA
(Health Savings
Account)
HRA
(Health Reimbursement
Arrangement)
FSA
(Flexible Spending Account)
Is plan Year Carry
Over Allowed?
Yes
Employer Choice
Employer
Is fund portable?
Yes
Employer Choice
No
Substantiate claims
to withdraw money?
No
No
No
How are Allowable
Medical Expenses
Determined?
Medical IRC 213 (d),
Some premiums, non
medical
Medical IRC 213 (d),
Some Premiums, non
medical
Medical IRC 213 )d)
Uniform Coverage
No
Employer Choice
Required
Applicable IRC
Section 223
Section 105
Section 125
Comparison of FSA, HRA and HSA
FSA
HRA
HSA
Eligibility
All Employees
All Employees
Anyone not eligible for Medicare
Contributions
Employer and/or employee
Employer
Employer and/or employee
Contribution Limits
None
None
Generally the less of annual
deductible or $2,650 single/$5,250
family for 2005
Tax Status of
Contribution
Excluded for employee
Excluded for employee
Deductible for employee and
employer
Roll-over
No
Yes, but not required
Yes
Portability
None
Depends on Plan
Full
Withdrawals allowed
Qualified medical
Qualified medical and premium
Qualified medical, limited premiums;
penalty for other
Where Are We?
93% of US companies offer some type of health
promotion program (Hewitt Associates 7/02)
First view of 2002 CDHP customers cut cost increases
by 60% with greater consumer incentives and choice
(Humana SmartSuite)
PricewaterhouseCoopers' touts:
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Reductions in number of Rx & office visits by 5% - 25%
Overall utilization dropped 10%
First year health care trend was in the range of 5% to 10%
58% of HMOs either have or plan to have a CDHP within
1 year (Milliman 2003 Intercompany Rate Survey)
What’s Next?
We need to start somewhere…
Develop a strategy
Educate employees on healthcare costs
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Will help eliminate the “entitlement” perception
It’s “our” money being spent
Explore CDHP plans in our market
Create/evaluate contribution strategy
What’s Next?
Employer creates consumerism incentives
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Encourage employee self-care
Utilize community wellness resources
Tie financial incentives to participation in programs
Maximize disease management programs
Promote Web tools by carriers/TPAs
Review
Factors driving trends
Employer options, status quo won’t work
Employee perspective, ready
Consumer Driven Health Plans (CDHP)
What’s next?