1940-1970 Virtually no cost control

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History of Cost Controls
1940-1970 Virtually no cost control 1970-1980
Introduction of UC limits, deductibles
and coinsurance 1980-1990 Hospital
Pre-admission authorization, surgical
authorizations, utilization review  1990s
Managed care  
Present Consumer Driven Health Care CDHC
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Health Care Costs of change
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Drivers of Health Care Costs

• Prescription Drugs
• Hospital Costs
• Lifestyle choices
• Third party payer system

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Drivers of Health Care Costs

• Prescription Drugs
• Increased Utilization
• Price Inflation
• Higher Cost Drugs
• Rx costs are projected to increased over 12 each
  year until 2010.
• Marketing directly to consumer. Patients are
  asking for name-brand drugs

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Drivers of Health Care Costs

• Rising cost of hospital visits
• Outpatient costs are the fasting growing
  component of healthcare costs.
• Inpatient costs are being driven primarily by
  increasing hospital expenses per inpatient stay
• Rising costs per admission are driven in part by
• Greater use of expensive technology
• Higher labor costs
• Hospital consolidations

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Drivers of Health Care Costs
Lifestyle choices Centers for Disease Control
(CDC) estimates that U.S. obesity-attributable
medical expenditures reached 75 billion in 2003
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Drivers of Health Care Costs
Third Party Payer
People are not price sensitive in the market for
health care as they are in the market for other
goods and services because some third-party
(Medicare or a private insurer) pays most of the
cost of health services. Consumers do not know
the true cost of health care.
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How Employees View Health Care Costs
A recent Hewitt Study shows employees dont
understand health care costs.
63 underestimate health insurance costs 69
overestimate how much they contribute to health
insurance 57 are unsatisfied with their coverage
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Consumer Driven Health Care
Consumer Driven Health Care (CDHC) refers to
health plans in which employees have a personal
health accounts such as a Health Savings Account
or a Health Reimbursement Arrangement from which
they pay medical expenses directly
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Types of Consumer Driven Health Care
HRAHealth Reimbursement Account HSAHealth Savings Account FSAFlexible Spending Account
Who is eligible Employees and Retirees Employees and Retirees Employees
Max Annual Contribution (2007) No maximum 2,850 Individual 5,650 Family No maximum
Who owns Employer Employee Employer
Who contributes Employer Only Employer or Employee Employee Only
Can employee earn interest on money No Yes No
Can money roll over Yes Yes No
Is an HDHP required No Yes No
Is it portable No Yes No
Eligible for Cafeteria No Yes Yes
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Health Savings Accounts (HSA)
What is an HSA? An HSA is a savings account
where consumers invest money and then withdraw
it, tax free, for eligible medical expenses.
HSAs combine with high-deductible health
insurance plans to give consumers more control --
and more responsibility -- over their health
spending.
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Health Savings Accounts (HSA)
Who is EligibleTo be eligible, an individual
must be covered by an HSA-qualified High
Deductible Health Plan (HDHP) and must not be
covered by other insurance that is not HDHP. An
individual may not be claimed as a dependent on
another persons tax return. In other words,
dependent children cannot establish their own
HSAs.
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Health Savings Accounts (HSA)

• Other Insurance

Certain types of insurance are permitted with an
HSA

• Specific disease or illnessAccidentDisabilityD
  entalVisionLong Term CareEmployee Assistance
  ProgramsWellness Programs

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Health Savings Accounts (HSA)

• Can employees have both an HSA and FSA?

You can have both types of accounts, but only
under certain circumstances.If you offer a
limited purpose (limited to dental, vision or
preventive care) FSA, then your employees can
still be eligible for an HSA.
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Health Savings Accounts (HSA)
What's a High Deductible Health PlanSometimes
called "catastrophic" coverage, high-deductible
insurance plans offer low premiums in exchange
for a high deductible. For 2007, the minimum
deductible is 1,100 for individuals and 2,200
for families.   
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Health Savings Accounts (HSA)
What's a High Deductible Health Plan With the
exception of preventive care, you must meet the
annual deductible before the plan pays benefits.
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Health Savings Accounts (HSA)
How much can you contribute to an HSA?
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HSA Contribution Limits - 2007
HDHP Deductible Maximum HSA Contribution Maximum HSA Contribution
HDHP Deductible
SingleCoverage Minimum 1,110 2,850 2,850
SingleCoverage 1,500 2,850 2,850
SingleCoverage 2,000 2,850 2,850
SingleCoverage 2,500 2,850 2,850
SingleCoverage 3,000 2,850 2,850
FamilyCoverage Minimum 2,200 5,650 5,650
FamilyCoverage 3,000 5,650 5,650
FamilyCoverage 4,000 5,650 5,650
FamilyCoverage 5,000 5,650 5,650
FamilyCoverage 6,000 5,650 5,650
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HSA Out of Pocket Limits - 2007
Maximum out-of-pocket limits for HDHP Maximum out-of-pocket limits for HDHP
SingleCoverage 5,500
FamilyCoverage 11,000
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Health Savings Accounts (HSA)
Eligible ExpensesIn general, funds from an HSA
can be used for a wider range of expenses than
covered by comprehensive insurance plans. HSAs
cover routine doctors' appointments and
prescriptions, and cash can be withdrawn to cover
over-the-counter medicines, such as aspirin and
antihistamines. A partial list of eligible
expenses is available in IRS publication 502.
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Health Savings Accounts (HSA)
These are not considered eligible expenses

• Health insurance premiums (Exceptions LTC,
  COBRA, and for individuals over age 65 certain
  Medicare premiums)
• Expenses incurred BEFORE the HSA coverage is
  established.
• Expenses that are covered by your health care
  plan.

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How are claims processed?

• Individuals typically receive a checkbook or
  debit card
• Individuals are responsible for paying providers
  as they are billed
• There is no gatekeeper to insure the charges
  are for qualified expenses
• During an IRS audit, it is the individuals
  responsibility to prove that deductions for the
  account were for qualified medical expenses

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Health Savings Accounts (HSA)
Advantage to the School District

• Reduced Premiums
• Provide Incentives to employees to get Involved
  with healthcare decisions
• Encourage healthier staff

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Health Savings Accounts (HSA)
Advantages to the employee

• Money (including any employer contributions)
  belongs exclusively to the employee.
• Money can be invested and income earned grows
  tax-deferred.
• Unused balances carry over each year without
  limitations.
• Portable Employees can take with them when they
  change jobs or retire.

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How to add an HSA

• Review plan design specifics and determine level
  of employer involvement
• Limit medical offerings to one vendor to avoid
  adverse selection
• Outline eligibility
• Select a vendor and or HSA administrator
• Draw a clear line between the HSA and the health
  coverage to make it clear that there are two
  components

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How to add an HSA

• Communicate clearly to staff before, during and
  after implementation
• Share the savings from switching to a high
  deductible plan with the employees
• Make a one time contribution to the account.
  Ongoing contributions can be paid by the employee
• When you educate the employees, talk about the
  savings account first the deductible second.
• During the first year, only a small percentage of
  employees will participate even if it is designed
  correctly. The second year through word of
  mouth generates greater participation.

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How to add an HSA
The two most predictive aspects of an employers
success in offering an HSA are 1. Whether or
not they fund the account 2. How much the
employer funds it.
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Results and forecast

• A recent Pricewaterhouse Coopers survey of large
  employers who implemented an HSA
• Reductions in prescriptions by 5-25
• Reductions in office visits by 5-20
• First year rate increases in the range of 5
  to 8 as opposed to 14 to 16 nationally
• In the first year alone, over 60 of CDHP
  enrollees had average HSA balances of 400 to
  roll over to the next year.
• According to Forrester projections, the number
  of HSAs will grow to more than 6 million in 2008.
  That number could triple to more than 18 million
  by 2012.

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Results and forecast
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Results and forecast
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Interested in a quote for your district?
Call Bill Baker417-882-2992 Or e-mail
moeducators_at_ftj.com
Forrest T. Jones Company has worked with
Missouri School Districts since 1953. Wed be
happy to work with your School District to see
how much you can save by introducing an HSA.
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Resources

• U.S Treasury Department for HSAs
• http//www.ustreas.gov/offices/public-affairs/hsa/
  pdf/HSA-Tri-fold-english-07.pdf

FSAFEDS www.fsafeds.com 1-877-FSAFEDS(372-3337)
or TTY 1-800-952-0450 OPM Web address for HSAs
www.opm.gov/hsa U.S Treasury Department for HSAs
www.ustreas.gov/offices/public-affairs/hsaFor a
list of qualified medical expenses that can be
reimbursed through an HSA or HRA
www.irs.gov/pub/irs-pdf/p502.pdfHSA Insider
http//www.hsainsider.com