Transcript Health and Wellness Programs

3rd Annual Health Care Symposium
Sponsored by:
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available for download:
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Year In Review
Large Increases
Additional cost shifting to employees
Employers and Employees can not handle
much more
Greg Shields
Vice President
Today’s health insurance market is in an
Affordability Crisis!
The #1 concern for most business owners
today is the high cost of medical insurance.
The same could be said for employees!
Next to payroll, health insurance is the single
largest expense for most companies.
The Healthcare Market
Double-digit cost increases are crippling employers
 Premiums have been experiencing double-digit increases over
the past 3-5 years
 Premiums are predicted to continue these double-digit
increases in the coming years
 No end in sight
Employees are vulnerable to huge cost increases that
they already have trouble affording
Reasons
Technology
Prescription Drugs
Aging Population
Malpractice
Uninsured Public
“Rich” Health Insurance Plans
Current Rich Insurance Plan Designs
The consumer has been insulated from the true cost of
their healthcare because of low copays and/or no (or
low) deductibles.
This Is Starting to Change
To this point, employers have had to react…
 Shifting more of the cost over to the employee
 Making changes to the plan designs
 Higher deductibles
 Higher office visit copays
 Prescription copays
Is This Enough???
Unfortunately – NO!
Consumer Driven Health Plans
(CDHPs)
Today’s movement to consumerism is the most
significant change in health benefits since the
mid 1970’s.
What are CDHP’s?
Combines a high deductible health insurance plan with
a funding program to help employees pay for their
medical expenses
Addresses affordability and over-insuring by providing
significant health insurance premium savings
Allows consumers to become more actively involved in
the entire healthcare process
KEY
The consumer must have a greater financial
responsibility for healthcare purchases to serve
as an incentive to make prudent decisions!
Consumer Out-of-Pocket Expenditures
40
35
Consumer
Out-of-Pocket
Expenditures %
30
25
20
15
10
5
0
1970
1975
1980
1985
1990
1995
34% in 1970 to 14% in 2000
2000
Aetna 2003
Less OOP expenses leads to less consumerism!
Skin in the game
Consumers spend their own money more
carefully than they do their health carriers’
money.
New Opportunity
Consumer-Driven Health Plan Market Size
The market potential of CDHPs is sizable. The current $2.5B market is
projected to grow 142% annually to reach $88B by 2007.
CDHP Premiums
(US$ billions)
$500
Consumer-directed health plans
will account for $88 billion in 2007,
a sixfold increase over 2005.
$400
$300
$200
$100
$0
2000
2002
2004
2006
2008
2010
How do we move employees to the
new high deductible plan designs?
Align consumer expectations with the true purpose of
health insurance
 To protect people from financial hardship due to illness and
injury
Align consumer habits with a more realistic
understanding of the costs of healthcare
Reverse the trend to over-insure
Insured Claims Experience
55% of insureds
have claims < $1,000
70% of insureds
have claims < $2,000
80% of insureds
have claims < $3,000
Milliman USA (2002)
How to Get Started
Employers will need to be more creative
Employees role will have to change
Examples of CDHPs
HRA
HSA
HRAs
Health Reimbursement Arrangement
Legislation passed June 26, 2002
Combination of a high deductible health
insurance plan (at usually a lower cost) with
an employer funded spending account.
HRA Plan Designs
KEEP IT SIMPLE
 Employee pays first
 Employer pays first
 Split deductible
Employee Pays First
Employer saves the most money AND employee responsibility
increases
$2,000 Deductible
Employer Pays First
First-dollar benefits, high deductible transition,
nice way to introduce the concept in a positive manner
$2,000 Deductible
Split Deductible
50/50 sharing of expenses
$2,000 Deductible
What is an HRA?
Side funding arrangement to coincide with a high
deductible health insurance plan
Funds are used to help pay for services not covered by
the deductible
Health insurance plan continues to maintain copays for
office visits and Rx
Funds are provided with employer dollars only
Employer retains ownership if employee leaves the
company
Employer has complete control of the funds
Employer is not required to set up separate accounts
for each employee
Employer can fully fund the arrangement in the first
year or spread the contributions throughout the year
(control of cash flow)
Employer determines where the dollars can be spent
Employees can rollover any unspent dollars to the
following year
Employer can set caps on accumulation amount
Available to any size company (with some limitations)
HRA Administration
Two moving parts!
Insurance company administers
Third Party Administrator of your choosing
 Debit card
 Checkbook
Self administer
HSA
Health Savings Account
 “The IRA of Health Insurance”
Legislation passed December 8, 2003
The White House estimates 3 to 5 million
accounts being created in 2004 alone and up
to 40 million in the next decade
What is an HSA?
Side funding arrangement to coincide with a high
deductible health insurance plan
Contributions can be made by the employees and/or
employer tax deductible
A tax favored savings account designed to pay for
qualified healthcare expenses
 Contributions are pre-tax (through a cafeteria plan)
 Funds grow tax deferred
 Withdrawals are tax free if used for qualified medical
expenses
Funds can be invested in a number of investment
options (low risk to high risk)
 Money market funds, mutual funds, stocks, bonds
Maximum contributions for 2004 are $2,600 (singles)
and $5,150 (families)
 Contributions can not exceed the plan deductible
 Additional contributions of up to $500/year are allowed for
people 55 and older in 2004
 Limits are indexed for inflation
Funds belong to the employee (regardless of who
contributes these funds)
Funds are portable
Unused funds rollover from year to year with no limits
or caps - there is no “use it or lose it” provision
Health insurance plan does not have copays for office
visits or Rx
Comparability rules apply (if employer funded)
 Equal dollar or equal percentage
Available to any size company
Qualified Withdrawals
Medical expenses as defined under Section 213d
 Medically necessary services
 Deductibles and co-insurance
 Vision
 Dental
Qualified long-term care insurance and expenses
COBRA premiums
Medicare health insurance premiums (parts A&B)
 Not medicare supplement premiums
Non-Qualified Withdrawals
Under age 65
 Ordinary income tax plus a 10% penalty
65 or older
 Subject to income tax, but likely at a lower rate
 No penalty
Health Insurance Plan
High deductible plan
 Minimum individual deductible of at least $1,000 and
maximum out-of-pocket expenses not exceeding $5,000
 Minimum family deductibles of at least $2,000 and a maximum
out-of-pocket expenses not exceeding $10,000
No office visit copays or Rx copays
 Discount Rx card
HSA/HRA Comparison
HSA
HRA
Availability
Individuals and any size
group
Any size group
with limitations
Maximum
Contributions
Lesser of deductible or
$2,600 or $5,150
Maximum reimbursement
determined by employer
Additional
Contributions
Allowance
Allowed for age 55 and
older
Not applicable
Individuals, Employers
and or Employees
Employers Only
Eligible Contributors
HSA
HRA
Tax Deductibility –
Employer
Contributions are tax
deductible
Reimbursements are tax
deductible
Tax Deductibility –
Employee
Contributions are pre-tax
if offered through a
cafeteria plan
Not Applicable
Employee
Employer
Portable
Yes
No
Rollover of Funds
Yes
Employer determines if
allowed and can set caps
Funding Required
Yes
No
Fund or Account
Ownership
HSA
HRA
High deductible plan with
no copays
No plan restrictions
Deductibles Singles –
2004
$1,000 Minimum
No limits
Deductibles Families –
2004
$2,000 Minimum
No limits
Singles – up to $5,000
Families – up to $10,000
No limits
Plan Types
Out-of-pocket
Maximum
Ultimate Goal
Provide employees with dependable coverage at
lower premium costs
Give incentive to employees to become better
consumers when dealing with healthcare costs
Improve utilization of health plan
Provide employees with a savings vehicle to put
away money for healthcare tax-free (HSAs)
Keys to Making CDHPs Work
High deductible health plans must save employers
money
Instill “consumerism”
Should have a positive impact on utilization
Employees must be well informed
Summary
Why have HRA’s not taken off?
 Companies have not had to react (yet)
 Pricing not competitive enough
 Awareness level
Why is the excitement level so high for HSA’s?
 White House support
 Tax advantages to employees
 True consumer type health plan design
Summary (cont.)
Challenges…
 Insurance companies (products & pricing)
 Education of employees
 Claims process
Additional Concepts
Fill exposure to high deductible plans
 Supplemental medical expense insurance plans
 Medical reimbursement plans
Supplemental Medical Expense Plans
“Gap Plans”
Provides coverage for costs related to high deductibles,
coinsurance, and copays
Stand alone policies sold on a group platform
Policies can be employer paid, employee paid, or some combination
Benefits help pay for expenses as a result of:
 Inpatient hospital expenses
 Outpatient covered hospital expenses
 Emergency room treatment
 Ambulance transportation
All benefits are paid directly to the insured
Pre-existing condition clause may apply
Executive Medical Reimbursement
Plans
Excess medical policy that reimburses costly
exclusions and limitations found in health insurance
plans on a tax favored basis







Deductibles
Coinsurance payments
Out-of-pocket expenses
Rx drugs
Psychiatric expenses
Infertility procedures
Dental and vision expenses
Executive Medical Reimbursement
Plans
Can be done on a discriminatory basis
 Officers/Managers – key employees
Saves dollars for the company AND provide benefits
for key employees
Premiums paid are deductible by the business
Benefits received by the insured are exempt from
taxable income
Todd Hons
Vice President
Capital BlueCross
PPO 123 – Available to companies with over 100
employees
Health Savings Account – currently being developed
Wellness Programs – customized to each employer
Keystone Health Plan Central – wholly owned
subsidiary
HealthAmerica and HealthAssurance
New PPO & POS plans for small and large companies
Enhanced HMO product to include out of area
students
New HMO plans with deductibles and coinsurance
HRA plans available to groups 2 or more
Health Savings Account (HSA) available in January
2005
Wellness programs
HealthAmerica and HealthAssurance
Lehigh Valley
Lehigh County
 3 hospitals
 178 primary care doctors
 549 specialists
Northampton County
 2 hospitals
 73 primary care doctors
 259 specialists
Highmark Blue Shield
New Products: Blue Account, BlueChoice, PPOBlue 90/70,
PPOBlue 80/60, DirectBlue 90/70,
DirectBlue 80/60
Health Savings Accounts – currently being developed
Wellness programs – “HealthPlace@Work”
HealthGuard – wholly owned subsidiary
 Current licensed in 10 countries: Adams, Berks,
Cumberland, Dauphin, Lancaster, Lebanon,
Lehigh, Northampton, Perry, York
Other Carriers
Aetna
Cigna
Geisinger Health Plan
Inter County
John Alden (HRA, HSA)
Oxford
Starmark
Third Party Administrator
United Healthcare
Networks
Berkshire Health Plan
Central Susquehanna
Healthcare
Eastern PA Health Network
Preferred Healthcare
Preferred Healthcare Systems
Valley Preferred
PrimeSource Health Network
South Central Preferred
Vantage Healthcare Network
Alliance
Devon
Susquehanna Healthcare
Pennsylvania’s Preferred
Health Network (PPHN)
(combines 8 of the above
networks into one
Alpha Benefits’ Survey
Alpha is often asked what plans and contributions
are most common. We surveyed our clients to get
a representation of:
 Employer/Employee Contributions
 Average plan designs
Here are the results
Single Employee Premium:
Employer Contribution
% of Companies
35
30
25
20
15
10
5
0
100
90
85
80
75
70
60
55
50
Percentage of Employer Contribution to Cost
0
Dependent Premium:
Employer Contribution
% of companies
30
25
20
15
10
5
0
100 90
70
50
45
40
30
25
20
15
10
Percentage of Employer Contribution to Cost
0
What Does This Mean?
86% of companies surveyed pay 75% or more of the
single contribution
43% of companies surveyed pay 20-25% of
dependent costs
22% pay nothing toward dependent cost
Almost 100% said they envision increasing the
employees cost next year
Additional Comments
Grandfathering
Based upon salary
Defined contribution vs defined benefit
Buy-up Option
Spousal Rule
% of Companies
Typical Office Visit Copays
40%
35%
30%
25%
20%
15%
10%
5%
0%
$10
$15
$20
$25
Plan Copay Amount
> $25
Plan Deductibles
45%
% of Companies
40%
35%
30%
25%
20%
15%
10%
5%
0%
$0
$1 - $249
$250
$251 $499
$500
> $500
Plan Type
Traditional Indemnity
5%
PPO
66%
POS
14%
HMO
15%
Prescription Drug Coverage
70% have a 3-tiered formulary plan
15% have deductibles then coinsurance
12% have a 2-tiered copay (usually 10/20)
3% have straight coinsurance
Future Healthcare Costs
Next 2 to 3 years: Double digit increases
Hopefully better than what we have
experienced over the last two years
10 Years From Now:
Concerns
Aging population
The fastest growing segment of our population…
people 85 years of age or older.
Over the next 16 years… the number of people over
50 will grow by 74%, while the people under 50 will
grow by only 1%!
In the US, we have more seniors than Canada has
people.
10 Years From Now:
Concerns
Direct to consumer advertising of the pharmaceutical
companies
Pepsico spent $125 million on Pepsi
Anheiser Busch spent $146 millon on Budweiser
Dell Computer spent $160 million on their top brands
Pharmaceutical companies spent $2.5 billion!
(Campaign for VIOXX alone equaled Dell’s total annual
advertising expenditures)
10 Years From Now:
Concerns
Technology
Does it increase or lower costs?
Thank you for attending!
This presentation is available for download at:
www.alphabenefits.com/seminar