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Maintaining an Affordable Health Plan

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20% Rx coinsurance after deductible ... Tax free savings accounts used to pay for medical expenses ... Drug cards are not permitted. Out of pocket maximums ... – PowerPoint PPT presentation

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Title: Maintaining an Affordable Health Plan


1
Maintaining an Affordable Health Plan
Deborah Tompkins, CLU
Tompkins Benefit Group, Inc. 1800 SW First Ave.,
Suite 220 Portland, OR 97201
2
Introduction
  • Update on health plan cost increases
  • Employers responses to increasing costs
  • What matters most to employees morale impact of
    cost shifting
  • New concepts to control costs Consumer Driven
    Healthcare
  • Defined Contribution Strategies
  • Health Reimbursement Arrangements
  • Health Savings Accounts

3
Top Ranked Financial Concerns
Source 2003 MetLife Study of Employee Benefit
Trends
4
Health Plan Cost Increase Factoids
  • National average cost of healthcare increased 15
    in 2003
  • Nationally, employers expect health plan costs to
    go up by 14.7 for 2004
  • Locally, insurers are projecting healthcare
    trends of 14.5 for 2004

Source 2004 Segal Health Trend Survey
5
2002 Healthcare Cost Drivers
Source Pacificsource Benchmark Analysis 2002
6
If Food Were Health Care
The cost of various food products had they risen
at medical inflation rates since the 1930s
  • 1 dozen eggs 45.83
  • 1 pound apples 6.99
  • 1 pound sugar 7.83
  • 1 roll toilet tissue 13.83
  • 1 dozen oranges 61.66
  • 1 pound butter 58.33
  • 1 pound bananas 9.17
  • 1 pound bacon 69.99
  • 1 pound coffee 36.67

Source Employee Benefits Journal, March 2002 How
to achieve an ROI on your health care dollars
7
Prescription Drugs and Medical Advancements as
Cost Drivers
  • Outpatient prescription drugs increased in 1998
    2002 by 13.6, 17, 17.4, 19.5 and 21.0
  • Radiology and screening has had a 9 increase
    between 2000 and 2001 in the number of images
    performed
  • Advanced screening procedures like colonoscopy
    (1,376) are rapidly outpacing sigmoidoscopy
    (161) as a preferred technique

Source Pacificsource Benchmark Analysis 2002
8
2002 Top 10 Filled Prescriptions
SourcePacificsource Benchmark Analysis 2002
9
At the same time prescription drug costs are
increasing and new more expensive drugs are
coming on the market, the average co-pay for a 30
day supply of medication has remained steady at
20.
10
Average Costs for Common Diagnostic Procedures
Source Pacificsource Benchmark Analysis 2002
11
Although average salary, minimum wage, and the
price of almost everything has increased over the
years, health insurance co-payments have, until
recently, remained just about the same. This
lack of co-payment adjustment has shielded
healthcare consumers from the true and rising
cost of healthcare.
12
Annual Cost Trend Averages
  • Indemnity Medical 17.0
  • PPO Medical 14.8
  • POS Medical 14.6
  • HMO Medical 13.8
  • Prescription Drug 20.6
  • Indemnity Dental 7.8
  • Scheduled Dental 3.7
  • Indemnity Vision 3 .2

Source Buck Consultants, National Health Care
Trend Survey, second half, 2002
13
2004 Projected Increase in Provider Reimbursement
Rates
Source 2004 Segal Health Plan Cost Trend Survey
14
The Nations Health Dollar
Where It Came From
Where It Went
Source CMS - 2002
15
Cost Sharing of Premiums
SourceBureau of Labor and Industries Data Center
16
What are Employers Doing?
  • 59 are changing plan designs
  • 48 are introducing a 3 tier co-pays
    (prescription and hospital charges)
  • 31 are consolidating their health plans
  • 25 are replacing HMO plans with open access PPO
    plans
  • 1 are going to consumer driven health plans

Source Towers Perrin Health Care Cost Survey
Report of Key Findings, 2002
17
What Plan Changes Are Employers Making?
  • 37 are increasing co-pays
  • 17 are increasing deductibles
  • 15 are increasing out-of-pocket maximums
  • 3 are decreasing eligible reimbursable expenses

Source Towers Perrin Health Care Cost Survey
Report of Key Findings, 2002
18
Short Term vs. Long Term Views
  • If you keep shifting costs to keep the employer
    costs manageable, youre very soon going to reach
    a point where its unaffordable for the
    employees. Then its as bad or worse than having
    no plan at all.
  • Shifting of these costs also does not help
    employees become better consumers of healthcare.

19
Involving Employees is Good Medicine
  • According to a Watson Wyatt 2002 survey,
    employers who involved their employees in the
    decision-making process to modify plan design,
    incurred a lower plan utilization rate than did
    those employers who arbitrarily told the
    employees what the changes would be.

20
What Matters Most to Employees
  • Stability of coverage
  • Comprehensive benefits in event of catastrophic
    claims
  • Benefits are affordable
  • Employees are not forced into changing providers
    when plan changes occur
  • Employees are given choice and decision-making
    capability in their own health care

21
Modest Change is the Key
  • Introducing modest cost sharing can have the
    same effect as cutting out entire aspects of a
    benefit plan.

22
Cuts vs. Co-pays
  • Eliminate pharmacy, prevention, hearing and
    vision, durable medical equipment and substance
    abuse/mental health benefits along with capping
    benefits at 100,000/yr
  • 21.5 decrease in premium
  • Increasing co-payments from 15 in-network, to a
    250 deductible with 20 coinsurance
  • 22.1 decrease in premiums

Source Actuarial study published by Jason Lee
and Laura Tollen, June issue, Health Affairs
23
Another Modest Change that Works
  • Increase co-payments for prescription drugs and
    office visits but offset the added cost to the
    employee by seeding employee flexible spending
    accounts
  • According to a study in the October, 2002 issue
    of Employee Benefit News, an employer saved 14
    on premium by increasing co-payments. After
    seeding 200 into each employees FSA, to offset
    these higher employee costs, they still saved 8
    in premium.

24
Consumer Driven Health Plans
  • Defined Contribution Plans
  • __________
  • Health Reimbursement
  • Arrangements
  • __________
  • Health Savings Accounts

25
Key Features
26
How Do Employees Research Healthcare?
  • Personal Doctor or Nurse 68
  • The Internet 64
  • Reference books 37
  • Family and friends 30
  • Newspaper/Television 30
  • Health magazines 22
  • Employer provided information 14
  • Insurer provided information 10
  • Self-care guide 4
  • Hospital/nurse advice line 2

Source Kaiser Family Foundation 2002 Healthcare
Survey
27
Goals for Consumer-Driven Healthcare Models
  • Increase consumer involvement
  • Conscious choice of provider based on outcomes
    data and fees
  • Shift in expectations
  • Employee control over health care spending
  • Decrease medical expenses
  • The concept of wise use of health care dollars

28
Defined Contribution Plans
  • Economic incentives designed to reduce overall
    costs..

29
Defined Contribution Plans
  • Defined contribution plans allow an employee to
    choose the plan that best suits them from a
    variety of 2-4 plans.
  • The DC plans differ in benefits and/or providers.
  • The employer sets a dollar amount the they will
    pay for each of the plans and the employee is
    free to choose which plan best suits their
    healthcare needs and budget.

30
Sample Defined Contribution Plan
  • HMO Plan
  • 10 OV co-pay
  • 50/day hospital
  • 700 max OOP
  • 10 Rx co-pay
  • Premiums are 250/employee, 500/employee and
    spouse and 750/family
  • PPO Plan
  • 250 deductible
  • 90/70 coinsurance
  • 1,500 max OOP
  • 20 Rx coinsurance after deductible
  • Premiums are 175/employee, 350/employee and
    spouse and, 525/family

31
Premium Cost Sharing
32
Health Reimbursement Arrangements
  • Nobody spends somebody elses money as carefully
    as they spend their own.
  • --- Milton Friedman, Nobel
    prize-winning economist

33
Health Reimbursement Arrangements
Health Reimbursement Arrangements allow an
employer to put money into an account that can
be rolled over year to year if it is not used
to help employees pay for health care expenses.
These accounts are in addition to a health plan,
generally set up with a higher than normal
deductible.
34
How it Works
  • Employer provides seed money for HRA
  • Employees use seed money to cover medical
    expenses first-dollar, if they choose
  • If the entire account is used, employee will be
    responsible to satisfy the plan deductible.
  • If the entire account isnt used, the funds are
    rolled over into the next plan year
  • If the plan deductible is satisfied, the health
    plan then starts to pay the medical bills.

35
Graphic Demonstration
Health Plan Deductible
36
Perceived Advantages to Employers
  • A means to help employees make informed
    healthcare decisions
  • A tool to address rising healthcare costs
  • A benefit that will give employees the greater
    choices they want flexibility and information
    to help in choosing providers and treatment
    options

37
Perceived Advantages for Employees
  • First dollar coverage for expenses up to the
    amount contributed by the employer
  • A broad range of providers and services (may
    cover services not covered by the health plan
    like lasik surgery, acupuncture, contacts, etc.)
  • Tools to help make informed healthcare decisions
  • Lower premiums and more predictable out-of-pocket
    maximums
  • Roll-over feature if the funds arent used in a
    year

38
Specifics of HRAs
  • HRAs must hold only employer dollars
  • It may be used to reimburse employees, former
    employees, retirees, and/or their tax dependents
    for medical care expenses defined under Code
    Section 213.
  • HRAs may be offered in conjunction with FSAs,
    but no part of the HRA can be funded with pre-tax
    dollars.
  • HRAs may not be cashed-out, but retirees may
    use them for post-retirement medical expenses.

39
What if an Employee Leaves?
  • If employees leave the company, plan design may
    require the funds are forfeited, or may allow
    continuing reimbursements.
  • If an employee opts for COBRA, the employer must
    maintain that employees HRA throughout the COBRA
    coverage period.
  • COBRA premiums may be paid for out of the HRA,
    but this would virtually guarantee 100 COBRA
    elections.

40
HRAs and FSAs together
  • An employer can offer both an HRA and an FSA.
    The HRA is funded solely by the employer and the
    FSA is funded solely by the employee.
  • The plan must designate if HRA funds are paid out
    first, or FSA funds. One account must be
    exhausted before the other is tapped.

41
Dealing with the Use It or Lose It Rule
  • Given that FSAs continue to have the use it or
    lose it rule, it may be wise to require that FSA
    funds be utilized first, then HRA funds. This
    will allow for carry-forward of funds from year
    to year that can be used for future expenses, or
    taken out at retirement.

42
Health Savings Accounts
  • Similar to HRAs but with a new twist..

43
Health Savings Accounts (HSAs)
Out-of-Network Benefit 70
In-Network Benefit 90
Annual Insurance Deductible 1,000
Optional Preventive Care Rider
Employee Contributions
Employer Contributions
44
HSA Highlights
  • Effective 1/1/04
  • Tax free savings accounts used to pay for medical
    expenses
  • HSAs must be coupled with a high deductible
    health plan
  • Annual deductible must be at least 1,000 per
    individual or 2,000 per family
  • Out of pocket maximums cant exceed 5,000 for
    individuals and 10,000 for families
  • Can be employer-sponsored or individual coverage

45
HSA Highlights
  • Individuals, employers or both can contribute up
    to deductible amount or 2,600 for individuals
    and 5,150 for families
  • Can be used for deductibles, co-payments
    prescriptions, and/or any eligible health expense
    that would be deemed deductible by IRS
  • Unused money at the end of the year can be rolled
    into the next year tax-free
  • HSAs are portable and can be used in retirement

46
HSA Highlights
  • Double coverage is not allowed with an HSA
  • Specified disease, vision, dental, accident and
    disability coverage do not count as other
    coverage
  • Flexible Spending Plans are not allowed with an
    HSA
  • Guidance expected June, 2004
  • If the deductible is 1,000 for an individual, it
    will be 2,000 for a family (possibly incurred by
    all one person)

47
HSA Highlights
  • Office visit copays are not permitted
  • Drug cards are not permitted
  • Out of pocket maximums include deductibles and
    coinsurance
  • Eligible person must not be entitled to Medicare

48
HSA Contributions
  • Contributions by an employer are not taxable
    income to employee and not subject to FICA taxes
  • Contributions by an employee are pre-tax
  • Individuals cannot take a deduction on their tax
    return for medical expenses paid through an HAS
  • Interest and earnings on contributions are not
    taxable while in HSA

49
HSA Contributions
  • Contributions may be made at any time of year not
    to exceed April 15 of the following year
  • The contribution limit is calculated on a monthly
    basis partial years will have partial
    contributions
  • An employee opens an HSA account in January but
    buys a high deductible policy in June with a
    2,000 deductible, the maximum he can contribute
    to the policy is 1/12th of 2,000 for 7 months,
    or 1,166.69.

50
HSA Distributions
  • Balances remaining at the end of the year roll
    over tax-free
  • Distributions can be made via debit card
  • If a person becomes ineligible for an HSA, they
    can still use the funds for qualified medical
    expenses.
  • Including COBRA, LTC and Medicare premiums
  • Amounts spent for non-qualified medical expenses
    will be taxed along with an additional 10 excise
    tax.

51
Challenges to Consumer-Driven Healthcare Models
  • Dependence upon employees having ready access to
    sources of health care to make informed health
    care decisions. Currently, there is limited
    outcome and financial information available to
    employees.
  • No proven track record that these types of models
    will save money for employers and employees.

52
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