Track III

1

• -Track III-
• Product/Network Innovation Changing the
  Landscape to Meet Customers Demands

2
Health Savings AccountsPresent and Future
Opportunities

• Roy Ramthun, President
• HSA Consulting Services, LLC
• January 30, 2007

3
Success to Date

• Rapid growth now 3 million Americans in HSAs,
  as of January, 2006 (AHIP)
  
• At least 1.5 billion in HSA accounts (ICDC)
• Employers experiencing lower cost trends
  (Deloitte)
  
• People changing behavior (McKinsey)
• Fidelity now offering HSAs
• WellPoint to expand offerings in 2007
• Kaiser Permanente offering HSAs

4
HSAs Are Making a Difference

• HSAs make health insurance more affordable for
  low- and moderate-income Americans, many of whom
  dont have access to health insurance through
  their employer
• One-third previously uninsured
• Firms more likely to continue offering insurance
  if cost growth contained
  
• Policies more affordable than typical PPOs
• Higher deductibles largely offset by lower
  premiums
  
• Average employer contribution to HSA is around
  550/1,200
  
• Affordability is increasing insurance coverage
• More than a third of individual purchasers had
  income under 50,000

5
How HSAs Save Companies Money

• Example 1
• The Rains Group (Bingham Farms, Michigan)
• Nearly all the firms 30 employees are now
  enrolled in the HDHP
  
• On Aug. 1, the firm began its second year with
  the plan
  
• The net cost of the two plans (EE contribution
  ER-paid premium) is about the same
  
• BUT, the company pays about 28 less in premiums
  and is able to pass that savings on to employees

6
HSAs Can Help Sick People

• Family of 4 in Stamford, CT earning 50,000 gets
  quotes for 2 family policies from same insurer
  
• Traditional PPO plan 9,900 annual premium
• 1,000 deductible 10 copay up to 4,000
  out-of-pocket max
  
• HSA 5,150 annual premium
• 5,500 deductible 20 copay up to 10,000
  out-of-pocket max
  
• How much family would save by choosing the HSA?
• If they had 1,000 in medical bills
• save 4,000 under current law
• If they had 10,000 in medical bills (families)
  
• still save 1,000 under current law

7
CIGNA Study

• Analyzed 42,200 first-time users of CDHC plans
  (previously enrolled in HMO or PPO)
  
• Key Findings
• Medical costs (not including Rx costs) for new
  CDHC users declined 8 compared to prior period
  utilization
  
• Inpatient costs declined 5 even though the
  number of admissions increased
  
• Outpatient costs declined 12
• Cost savings observed across all categories of
  patients
  
• Biggest cost savings come from medium (non-Rx
  claims of 1K - 8K) and heavy (non-Rx claims
  8K) users of care
  
• Costs for enrollees remaining in traditional
  plans (HMO or PPO) increased 4

8
CIGNA Study

• Key Findings (cont.)
• Increased medication compliance
• Diabetes medications 18
• Asthma medications 8
• Cholesterol medications 23
• Heart attack medications 18
• Switched to OTCs when available
• Migraine medications 4
• Anti-ulcer drugs 7
• Total days supply of Rx drugs increased during
  period but cost/day for medications decreased
  
• Total per member costs 5 less for members in
  CDHC plans vs. traditional plans

9
United Healthcare Study

• Three-year analysis of 50,000 members of CDHC
  plans (HSA or HRA)
  
• Key Findings
• Per member costs decreased 3-5 for members in
  CDHC plans while increasing 8-10 for members in
  traditional plans
  
• CDHC members used 5 more preventive care
  services than traditional plan members in each of
  the 3 years

10
United Healthcare Study

• Key Findings (cont.)
• CDHC members had 22 fewer hospital admissions
  and 14 fewer ER visits, while relative use of
  these services increased for PPO members
  
• CDHC members with chronic illnesses had 8 fewer
  hospital admissions and 12 fewer ER visits but
  same number of PCP visits

11
Aetna Study

• Four-year analysis compared 1.6 million members
  of CDHC plans (HSA or HRA) to PPO members
  
• Key Findings
• Full replacement HRA plans experience 1 average
  medical cost trend annually for 3 straight years
  
• Employers offering HRA option experienced average
  6.7 medical cost trend annually for 3 straight
  years
  
• Standard PPO trend average 9 per year

12
Aetna Study

• Key Findings (cont.)
• CDHC members with chronic conditions maintained
  or improved the level of care they received prior
  to joining the plan
  
• Similar levels of care for cardiac patients and
  diabetics
  
• 6 higher use of inhaled steroids among
  asthmatics
  
• CDHC members seek preventive care 15-25 more
  often
  
• 13.8 higher rate of cervical cancer screenings
  for HSA members than PPO members
  
• Generic drug utilization for HRA members was 4.5
  higher than PPO members

13
Projections of Future HSA Growth

• Projections (Financial Research Corp.)
• 11.7 million in HDHPs by 2010
• 8.2 million HSA accounts by 2010
• 48 Billion in HSA Assets in 2010
• Employers moving to higher deductible plans
• 2004 high deductible plan option
  
• 2007 60 of mid-size and large firms will
  offer a high deductible plan option

14
CDHC Growth Projections
Source Information Strategies, 2006
15
HSA Improvements (P.L. 109-432)

• HSA Funding from FSAs and HRAs
• Allows an employee to begin funding of their HSA
  with unused FSA and HRA dollars through a
  one-time tax-free transfer
  
• Transfers from Retirement Accounts to Health
  Savings Accounts
  
• Allows taxpayers to make a one-time distribution
  from an IRA to an HSA so HSA funds are
  immediately available to meet family health
  needs
• Additional Flexibility for Employer
  Contributions
  
• Allows an exception to the comparability rules so
  employers can fund the accounts of lower-paid
  workers

16
HSA Improvements (P.L. 109-432)

• Increase in HSA Contribution Limits
• Allows individuals to contribute up to the
  statutory maximum annual contribution limits
  (2,850 for single coverage and 5,650 for family
  coverage for 2007), regardless of the
  individuals deductible (as long as it is an
  HSA-qualified plan)
• Expanded Contribution Limit for Part-Year
  Coverage
  
• Allows people who begin their HSA-qualified
  coverage part way through the year and are
  subject to the entire calendar-year deductible to
  make a full annual HSA contribution, rather than
  pro-rating the contribution for the number of
  months of HSA-qualified coverage
• Earlier Notification of Cost of Living
  Adjustment
  
• Requires the Secretary of the Treasury to
  announce inflation adjustments for HSA amounts by
  June 1st of each year

17
President Bushs New Proposals

• New standard deduction for health insurance
• 7,500 singles
• 15,000 families
• Amounts indexed annually for inflation (CPI)
• Must have health insurance coverage that, at
  minimum, covers catastrophic expenses
  
• Does not have to be HSA-qualified insurance
• New standard deduction replaces
• Current exclusion from income and payroll taxes
  for health insurance purchased through an
  employer
  
• Medical expense deduction for health care
  expenses above 7.5 of adjusted gross income
  
• Exception -- Medicare beneficiaries

18
President Bushs Budget Proposals

• Implications for Employer-Sponsored Insurance
• Health insurance provided by employers would be
  considered taxable income to the employee.
  
• But families with health insurance will not pay
  income or payroll taxes on the first 15,000 in
  compensation and singles will not pay income or
  payroll taxes on the first 7,500.
• Approximately 80 percent of people getting health
  insurance through their employer would not be
  affected.
  
• The 20 percent with more generous policies can
  choose lower cost policies to avoid paying
  additional taxes.

19
President Bushs Budget Proposals

• Implications for Individually-Purchased Insurance
  and Uninsured
  
• Families that purchase at least catastrophic
  coverage can reduce their taxable income by
  15,000 (or 7,500 if single) dont have to
  itemize
• Levels the playing field for Americans who
  purchase health insurance individually rather
  than through their employers, providing a
  substantial tax benefit for all those who
  currently have health insurance purchased on the
  individual market.
• Lowers taxes for all currently uninsured
  Americans who decide to purchase
  
• Changes will complement state health reforms
• Secretary of HHS will work with governors to
  increase private insurance coverage

20
Medicare Medical Savings Accounts (MSAs)

• Similarities Between HSAs MSAs
• Unused funds roll over annually
• Funds can be invested like an IRA
• Funds can be used for any IRS-approved qualified
  medical expense
  
• MSA funds not limited to Medicare benefits
• Account owned by the individual
• Completely portable
• Can transfer funds to another institution
• Available to individuals with employer group
  coverage

21
Medicare Medical Savings Accounts (MSAs)

• Key Differences Between HSAs MSAs
• Contributions
• Government only
• Lump sum deposit at start of year
• Plans approved by Medicare (Medicare Advantage)
• Must cover Medicare benefits
• No premium for Medicare benefits
• Can charge premium for additional benefits
• Higher deductibles (up to 9,500)

22
Medicare Medical Savings Accounts (MSAs)

• Key Differences Between HSAs MSAs
• MSA Plans (regular plans)
• Deductible applies to preventive care
• Plan must pay 100 after deductible met
• Rx drugs covered under separate plan (with
  separate premium)
  
• Only available in 39 states
• Only a few plan choices in 2007

23
Prospects for 110th Congress

• New Congressional leadership
• Diminished chances for further legislation
  without true bipartisanship or horse trading
  
• Could
• Propose federal reforms
• Encourage state reforms
• Will
• Talk about the issues
• Hold oversight hearings

24
Prospects for 110th Congress

• Wild Cards
• Anyone running for President, especially
  Senators
  
• Success of state reforms
• Organized labor
• Scandals (real or imagined)
• World events

25
Increasing Consumerism Pitfalls and Opportunities

• Virginia F. Gurley, MD, MPH
• Healthways

26
Agenda

• Potential pitfalls of cost-sharing
• Potential opportunities to drive value
• The role that providers can play
• The role that health plans can play

27
Shifting Cost and Liability?

• Selection for healthier, wealthier members
• Medical complexity
• Self-rationing
• Balancing other risks
• Pain
• Time/Inconvenience
• Invasiveness
• Side effects
• Lifestyle impacts
• Quality of life

28
Shifting Cost and Liability?
National Survey of Enrollees in Consumer Directed
Health Plans Kaiser Family Foundation, November 2
006
29
Shifting Cost and Liability?
National Survey of Enrollees in Consumer Directed
Health Plans Kaiser Family Foundation, November 2
006

30
Shifting Cost and Liability?
National Survey of Enrollees in Consumer Directed
Health Plans Kaiser Family Foundation, November 2
006

31
Agenda

• Potential pitfalls of cost-sharing
• Potential opportunities to drive value
• The role that providers can play
• The role that health plans can play

32
Driving Value - Consumers

• Personal Risk
• Financial Skin in the Game
• Provider-Specific Information on Price and
  Outcomes
  
• Decision Support Advice
• Provider Choice

33
Driving Value - Consumers

• Value is measured by like-provider comparisons of
  outcomes per of healthcare cost
  
• Consumers should choose providers that can
  demonstrate excellent value in addressing the
  care they need
  
• M.E. Porter, E.O. Teisberg Redefining Health
  Care p. 155
  

34
National Survey of Enrollees in Consumer Directed
Health Plans Kaiser Family Foundation, November 2
006

35
National Survey of Enrollees in Consumer Directed
Health Plans Kaiser Family Foundation, November 2
006

36
Driving Value - Consumers

• Will financial risk personal risk treatment
  decision support better value?
  
• Consumer ReportsTM
• The power and challenges of provider performance
  information
  

37
Agenda

• Potential pitfalls of cost-sharing
• Potential opportunities to drive value
• The role that providers can play
• The role that health plans can play

38
Driving Value - Providers
39
Driving Value - Providers
40
Driving Value - Providers
41
Driving Value Providers Plans
42
Agenda

• Potential pitfalls of cost-sharing
• Potential opportunities to drive value
• The role that providers can play
• The role that health plans can play

43
Driving Value Health Plans
44
Driving Value Health Plans
45
Driving Value Health Plan Role

• Support risk identification, prevention and
  decision support
  
• Comparative information on treatments and
  providers
  
• Access to providers that demonstrate excellent
  results
  
• Collaborate with providers to assure best
  outcomes and care coordination
  
• Integrate medical records

46

• Virginia F. Gurley, MD, MPH
• Healthways
• 3841 Green Hills Village Drive
• Nashville, TN 37215
• 615-695-5136
• virginia.gurley_at_healthways.com

47
Consumer Health Care Movement Progress
Pitfalls

• Katie Strong
• U.S. Chamber of Commerce
• January 30, 2007

48
Real World Examples of Success

• Joe Knight, Setpoint Systems, Ogden, Utah
• Testified before the Senate Finance Committee
  September 26, 2006
  
• The HSA plan would have slightly lower
  premiums than our PPO plan before the 49
  increase for 2006 and would cover 100 of
  preventive medicine. I am a finance guy so I
  went to work comparing our options using a
  spreadsheet. After modeling single and family
  medical needs and considering several different
  scenarios, I was surprised to find that the HSA
  option was far better financially for all my
  people, even for my employees with medical
  situations.
• EVERY EMPLOYEE IS BETTER OFF UNDER THE HSA PLAN

49
Real World Examples of Success

• Harold Jackson, Buffalo Supply, Lafayette, CO
• Testified before House Ways Means Committee
  June 28, 2006
  
• Faced with a 21 premium increase for my PPO, I
  looked at an HSA option for 13 employees and
  found an astounding 29 premium reduction with
  the HSA. With the cost savings I was able to fund
  the savings account at 2,000 per employee.
• At renewal time I polled my employees and they
  all overwhelmingly considered the HSA plan a
  success and urged me to continue with it.
  
• EVERY EMPLOYEE IS BETTER OFF UNDER THE HSA PLAN

50
Employer Survey Results

• The HSA Working Group conduced a web-based survey
  of employers in August/September 2005, with 764
  respondents.
  
• The survey was to gauge relative importance to
  employers of possible changes Congress could make
  to HSA law.
  
• 53 of respondents offered an HSA in 2005, 47
  did not.
  
• 53 of respondents were small businesses (50 or
  fewer employees).
  
• 24 had between 51-999 employees.
• 23 had over 1000 employees.
• In each group between 45-55 offered HSAs in
  2005.
  

51
Employer Survey Results

• The top 3 priorities across ALL employers,
  regardless of size, were the same
  
• Permit prescription drug coverage to be offered
  without a high deductible.
  
• Permit an individual family member to satisfy the
  individual deductible rather than the family
  deductible (also known as embedded
  deductible).
• Increase HSA Contribution Limits (to the out of
  pocket max) to encourage savings for health
  related expenses.
  

52
Employer Survey Results

• Other priority changes that ranked highly
• Prorate deductible/mid-year enrollment
• FSA/HRA/HSA Flexibility
• Permit early retirees to use HSA funds for
  premiums
  
• Permit HSA contributions if spouse has FSA
• Allow employees age 65 to contribute to HSA
• Allow HSA funds to be used for Medigap

53
Positive Indicators

• In the State of the Union (Jan. 23) President
  Bush noted
  
• In all we do, we must remember that the best
  healthcare decisions are made not by government
  and insurance companies, but by patients and
  their doctors.
• HSA-compatible plans are more patient-focused
  allowing for more decisions to be made between
  patient and doctor, not anyone else.
  
• HSA enrollees are more likely to seek preventive
  care (Over 80 of HSA plans offer preventive care
  first dollar)
  
• HDHPs are leading employers to provide more
  integrated health care management (wellness,
  prevention, chronic disease management).
  
• Shift focus to Health Care from Sick Care.

54
Positive Indicators (cont.)

• The seven changes recently made to HSA law
  largely address a major concern and criticism of
  high deductible health plans
  
• The fear of the financial exposure accompanying
  a major medical event prior to accumulation of
  HSA funds. HRA, FSA and IRA rollover and higher
  contribution limits allow for upfront funds to be
  available.

55
Still Room for Improvement

• Better education of employers and employees is
  still needed along with better tools and
  information that are patient-friendly.
  
• Steps to be taken for greater transparency of
  quality and price data.
  
• HQA, AQA, Insurance Co.s and some hospitals are
  beginning to provide data, but this needs to be
  more widespread and in greater volume.
  
• Implementation of HHSs Four Cornerstones of
  Transparency.
  
• Greater emphasis on Value Purchasing.
• Rollout of an Employer Guide will be coming
  shortly.
  
• Government can lead the way in linking payments
  to outcomes performance.
  
• Greater adoption of health information
  technology.
  

56
Potential Improvements to HSA Law

• Allow for coordination of HSA/FSA/HRA Accounts.
• Increase contribution limits to OOP max.
• Allow for prescription coverage under
  deductible.
  
• Embedded deductible.
• Permit early retirees to pay for coverage out of
  HSA funds.
  
• Allow employees over 65 to continue contributing
  to an HSA.
  
• Permit an employee to contribute to an HSA even
  if his spouse has an FSA.
  
• Permit individuals to purchase Medigap coverage
  with HSA funds.

57

• -Track III-
• Product/Network Innovation Changing the
  Landscape to Meet Customers Demands