Venture Capital Asset Protection VCAP

1
(No Transcript)
2
Benefit Trends Evaluating Consumer-Based Models

• Presented By
• Christopher J. DeLorey
• President
• Telamon Insurance Financial Network
• cdelorey_at_telamonins.com
• 617-614-1215

3
Key Points

• Factors driving trends
• Employer options
• Employee perspective
• Consumer Driven Health Plans (CDHP)
• Whats next?

4
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

5
Factors Driving Trends

• Health Care Cost Drivers
• 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

6
Factors Driving Trends

• In 1960, consumers paid for 50 of health care
  costs
• In 2003, they pay for only 15
• Consumers dont know the true costs of health
  care

7
Factors Driving Trends

• Entitlement Perspective in America
• Corporations are bottomless pits
• Unrestrained desires
• Employees are unaware of the actual costs
• Want it All for a 10 co-pay

8
Employer Options

• Medical Cost Outlook
• 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

9
Employer Options

• Moving Toward Consumer Models
• 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

10
Employee Perspective

• Educate them on health care costs
• Educate them on products
• Provide them tools

11
Employee Perspective

• Are Your Employees Ready for Consumerism?
• 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

12
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

13
History of CDHPs

• MERPS (Medical Expense Reimbursement Account)
• 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

14
History of CDHPs

• Health Flexible Spending Accounts
• Allowed for tax-free reimbursement to employees
• Typically funded via employee salary deduction or
  flex credits
• No rollover allowed
• Individual insurance premium ineligible

15
Web-Based Resources CDHPs

• Carrier Resources
• Current balances
• Claims activity
• Medical Libraries
• Johns Hopkins
• First Data Bank
• Reuters News
• The Natural Pharmacist
• Personal Health Tools
• Health risk assessments
• Health calculators

• Personal health records
• Drug interaction information
• Provider Search
• Healthcare Prices
• Diseases/conditions
• Procedures and providers
• Visits
• Prescription drugs
• Marketplace
• Online shopping

16
Types of Consumer Driven Health Plans

• Popular emerging options
• Defined Contribution Plans
• Health Reimbursement Accounts (HRAs)
• Health Flexible Spending Accounts (FSAs)

17
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

18
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
  plans reimbursement as payment in full

19
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)

20
Defined Contribution Plans

• Cons
• Employees
• Member responsibility
• May be more involved in negotiating with
  providers
• Employers
• Potentially complex enrollment
• Employee education

• Pro
• Employees
• May have choice of plans
• Become better consumers
• Employers
• Predictable cost

21
Health Reimbursement Arrangements (HRAs)

• IRS Sec. 105 Plans
• Allows employer to reimburse employees tax free
  for medical expenses

22
HRAs - Financing

• HRAs must be paid by employers
• HRAs may be unfunded or funded
• 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

23
HRAs - Reimbursement

• HRAs can reimburse deductible medical expenses
• Health expenses not reimbursed by other plans
• Health insurance premiums (including LTC, unless
  HRA is a health FSA)
• HRAs cant reimburse non-health expenses
• Cant pay bonus, severance, or death benefits
• Cant reimburse premiums paid with pre-tax
  dollars

24
How Does a High Deductible Plan Work?

• Either member or HRA pays first
• 100 for preventive
• Rollover of account is an option

25
HRAs and COBRA

• HRAs are subject to COBRA rules
• Issues to consider
• Notices
• Elections
• Reimbursement amounts
• Duration of coverage
• Premiums
• Non-Discrimination rules apply

26
Coordinating HRAs with High-Deductible Plans

• An HRA may be offered as a stand-alone option
• 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 cant
  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

27
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)

28
Education

• Personal Health Management Toolkit
• Online provider information
• Online prescription drug cost information
• Health Risk Appraisals
• 24-hour nurselinee
• Wellness program

Education
Prescription drugs carved out and provided on a
coinsurance basis
Education
Education
Preventive Care Covered 100
Prescription OTC Alternative Drugs Covered 70
Preventive care is carved out of the program and
is provided at 100
Employee uses this first to cover healthcare
expenses. Unused portions are carried over to
next plan year.
Personal Care Account 1,000 Employee only 1,500
Employee 1 dependent 2,000 Employee 2 or
more dependents
The employer funds this portion
Once the PCA is exhausted, employee is
responsible for 100 of healthcare expenses until
the maximum is reached.
The employee funds this portion
Bridge Employee Deductible 2,000 Employee
only 3,000 Employee 1 dependent 4,000
Employee 2 or more dependents
Employer and employee share the premium cost of
this traditional PPO plan
PPO plan covers employee after bridge deductible
is met.
Catastrophic Health Coverage 90/70 PPO
Plan Designed to encourage network utilization
Communication
Communication
Communication
29
HRA Pros and Cons

• Cons
• Employees
• Member responsibility
• Cost, if chronic disease
• Employers
• Adverse selection
• Actual cost savings
• Accuracy of actuarial assumptions
• High HRA administrative cost

• 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

30
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

31
HRA Coordination with Health FSAs

• HRAs may be offered in lieu of FSAs
• HRAs may be offered in addition to FSAs
• Coordination rules
• 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

32
HRA FSA Rules Ignored

• HRAs are not subject to use-it-or-lose-it rule
• Permits carry forward of unused amounts
• Accumulations may be capped
• Terminated employees may spend down accumulations
• HRAs are not subject to uniform coverage rule
• Permits HRA credits/contributions to accrue by
  payroll period, or less frequently (e.g.,
  monthly, quarterly, semi-annually)

33
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

34
HSA Pros and Cons

• Cons
• Employees
• More cost sharing
• New information to learn
• Must take more responsibility
• Employers
• Requires a high deductible plan
• Trustee requirement can add cost and complexity
• HDHPs may cause employee resentment
• Cant control employer contributions

• Pros
• Employees
• Rollover of unspent funds
• Own account
• Can reimburse some insurance premiums
• Can save tax free for later use
• Employers
• 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

35
HSAs Open Issues

• Claims adjudication substantiation
• ERISA
• DOL claims rules
• COBRA
• HIPAA

36
Comparison of HSA, HRA, FSA
37
Comparison of Tax-Advantaged Accounts
38
Comparison of HSA, HRA, FSA Continued
39
Comparison of FSA, HRA and HSA
40
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
• 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)

41
Whats Next?

• We need to start somewhere
• Develop a strategy
• Educate employees on healthcare costs
• Will help eliminate the entitlement perception
• Its our money being spent
• Explore CDHP plans in our market
• Create/evaluate contribution strategy

42
Whats Next?

• Employer creates consumerism incentives
• 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

43
Review

• Factors driving trends
• Employer options, status quo wont work
• Employee perspective, ready
• Consumer Driven Health Plans (CDHP)
• Whats next?

44
(No Transcript)