Title: Maintaining an Affordable Health Plan
1Maintaining an Affordable Health Plan
Deborah Tompkins, CLU
Tompkins Benefit Group, Inc. 1800 SW First Ave.,
Suite 220 Portland, OR 97201
2Introduction
- 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
3Top Ranked Financial Concerns
Source 2003 MetLife Study of Employee Benefit
Trends
4Health 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
52002 Healthcare Cost Drivers
Source Pacificsource Benchmark Analysis 2002
6If 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
7Prescription 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
82002 Top 10 Filled Prescriptions
SourcePacificsource Benchmark Analysis 2002
9At 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.
10Average Costs for Common Diagnostic Procedures
Source Pacificsource Benchmark Analysis 2002
11Although 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.
12Annual 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
132004 Projected Increase in Provider Reimbursement
Rates
Source 2004 Segal Health Plan Cost Trend Survey
14The Nations Health Dollar
Where It Came From
Where It Went
Source CMS - 2002
15Cost Sharing of Premiums
SourceBureau of Labor and Industries Data Center
16What 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
17What 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
18Short 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.
19Involving 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.
20What 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
21Modest Change is the Key
- Introducing modest cost sharing can have the
same effect as cutting out entire aspects of a
benefit plan.
22Cuts 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
23Another 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.
24Consumer Driven Health Plans
-
- Defined Contribution Plans
- __________
- Health Reimbursement
- Arrangements
- __________
- Health Savings Accounts
25Key Features
26How 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
27Goals 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
28Defined Contribution Plans
- Economic incentives designed to reduce overall
costs..
29Defined 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.
30Sample 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
31Premium Cost Sharing
32Health Reimbursement Arrangements
- Nobody spends somebody elses money as carefully
as they spend their own. - --- Milton Friedman, Nobel
prize-winning economist
33Health 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.
34How 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.
35Graphic Demonstration
Health Plan Deductible
36Perceived 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
37Perceived 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
38Specifics 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.
39What 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.
40HRAs 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.
41Dealing 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.
42Health Savings Accounts
- Similar to HRAs but with a new twist..
43Health 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
44HSA 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
45HSA 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
46HSA 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)
47HSA 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
48HSA 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
49HSA 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.
50HSA 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.
51Challenges 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.
52Questions???