Consumer Driven Health Plan Discussion

1. Consumer DrivenHealth Plan Discussion

2. Common Objections to Consumer Directed Plans • Need vs. Want • Filet mignon or hamburger • Vioxx or aspirin • Employee noise and understanding • Provider resistance • Funds for accounts

3. Managed Care • 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

4. What has happened? • 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

5. What Makes a Consumer-Directed Health Plan? A healthcare program: • Through plan options or • Funding of claims • The employee has a significantly larger stake in financialdecision-making for healthcare provided under the plan If done right – THIS IS NOT A COST SHIFT – It is a responsibility SHIFT

6. Objectives of a Consumer- Directed Health Plan • Stabilize employer premium • Facilitate employee behavior change • Educate employees • Engage employees with financial incentive • Promote better healthcare spending decisions and utilization habits

7. Consumer-Directed Health Plan Wheelhouse Common 1st step

8. 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.

9. 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

10. High Deductible Plan • Employer sponsored healthcare plan with an annual deductible of $1000 or more • May or may not have copays, Rx etc..

11. Example – High deductible • One plan with high potential out-of-pocket exposure • Typically, employees do not view this as coverage that “is worth anything”

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

13. 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.

14. Example - Supplemental • Any type of plan that also offers: • Flexible Spending Accounts • Specific disease coverage • Cancer • Accident • Critical Illness • “Gap” Plan

15. 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

16. 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

17. 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

18. HRA’s • HRAs can be portable • Funds available on day 1

19. 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

20. 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

21. 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.

22. 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

23. 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

24. 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

25. 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 = ???

26. 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”

27. HSA Best Fit Scenarios • High income • Tax shelter • Employer contribution strategies

28. High Income • Not ERISA • Can discriminate • Good for company where “executive benefits” are a must

29. High Deductible Hurdles • January start date • HDHP limitations – No 1st dollar benefits or copays except for Wellness • Prescriptions subject to deductible

30. Tax Shelter • “Above The Line” tax deduction at all income levels • Use HSA to invest • Pay for all other services out-of-pocket

31. 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

32. 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?

33. Employer Contribution Strategies If yes and yes….

34. Employer Contribution Strategies • Take existing employee contribution and place in HSA • Employee contribution + employer contribution remaining apply to high deductible health plan

35. 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

36. 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

37. Employer Contribution Example • Single employee • Premium $0 • HSA $1200 or more • Family employee • Premium $400 • HSA $3600 or more

38. 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!!!!

39. Integrated Carrier-Based Products Questions to ask • Who owns the $$ • Auto adjudication • All the time for everyone? • Portability for employee • Termination for employer • Experience

40. Employer perspective HRA vs. HSA

41. HRA vs. HSA • Employee perspective

42. For additional questions or to schedule an appointment, contact Jeff McGuire or Matt Robertson. Call Daines Insurance & Financial Services, LLP. 877-793-3034