Consumer Driven
Health Plans
1
Health Plans Premiums Experiencing Double
Digit Increases!
Increasing
Premiums
AND
Decreasing
Benefits
Who Consumes Health Care?
“Nobody spends someone else’s
money as carefully as they spend
their own.”
Milton Freidman
Nobel Prize Economist
 Who are the consumers of health care?
•
•
•
Individuals
NOT Employers (Plan Sponsors)
NOT Health Insurance Carriers
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Acting as a Consumer : Car Insurance
 Option 1
 Option 2
 Fixed Costs
 Fixed Costs
 Pay $750 in Car
Insurance Premiums
 Potential Liability
 $250 Deductible if
Crash Car
 Pay $450 in Car
Insurance Premiums
 Savings of $300
Annually
 Potential Liability
 $500 Deductible if
Most Consumers choose to lower their
premiums
and
Crash
Car
take on more responsibility if they crash their car.
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Consumer Driven Health Plan Alternative
Employees:
• More aware of costs
• Make informed decisions
• Incentive to use tools to
make price and quality
conscious decisions
• Wellness Initiatives
Decrease
Premiums
Increase
Employee
Responsibility
“Deductible”
Employer:
• Cost effective health plan
• Provide a long term
solution
• Continue to offer great
benefits with savings
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Consumer Driven Health Plan Alternative
BUT, I don’t want
to increase my
employees’ out of
pocket responsibility!
You don’t have to!
• Preventative Procedures
are covered in full
“Oil Changes”
• Consider what
employees are already
liable for in copays
• And you can add an
HRA and FSA for the
deductible
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CDHP at Work
Premiums
Employer
Premiums
Savings
Employee
Premium
Savings
Employee
Risk
HRA
Employer
Risk
Potential Out
of Pocket
“Deductible”
Employers and
Employees can
share the
savings and the
risk, by adding a
Health
Reimbursement
Arrangement
(HRA)
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What is an HRA?
A tax advantaged plan that employers can use
to help pay for employee medical expenses.
 Tax Deductible to Employer
 Tax Free to Employee (Doesn’t count as income)
 Pay as you go (No prefunding requirement)
 Flexible Funding Mechanism
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Savings Example #1
 Traditional Co-Pay Plan
 CDHP with $2000/$4000
Deductible
 Renewal Premium
Increase of 14%
 Premium Savings of 26%
 Preventative Visits
covered at 100%
 Preventative Visits
covered at 100%
 $100 Hospital Copay
 $2000/$4000 Deductible
for all other services
(Hospital, Lab, Diagnostic
Doctor and Specialist
Visits)
 $300/$600 Deductible
 No Copays
 80% Coinsurance Up to
$2000/$4000
 No Coinsurance
 $10 Office Visit Copay
 $ 25 Specialist Copay
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Savings Example #1 Small Group
Traditional
Plan
Proposed
CDHP Plan
Monthly
Premium
Savings
Annual
Premium
Savings
(monthly
premiums)
(monthly
premiums)
(per tier)
(aggregate)
(per tier)
(aggregate)
HRA
HRA
Contributions Contributions
Single
8
$592.31
$424.92
$167.39
$16,069.44
$1,500.00
$12,000.00
EE + Spouse
2
$1,232.00
$883.83
$348.17
$8,356.08
$3,000.00
$6,000.00
EE + Child
3
$1,273.46
$913.57
$359.89
$12,956.04
$3,000.00
$9,000.00
Family
9
$1,693.99
$1,215.26
$478.73
$51,702.84
$3,000.00
$27,000.00
Total
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$89,084.40
$50,000.00
SAVINGS SUMMARY
HRA Utilization
100%
80%
65%
50%
35%
20%
Annual Premium Savings
$89,084.40
$89,084.40
$89,084.40
$89,084.40
$89,084.40
$89,084.40
Less: HRA Utilization
$50,000.00
$40,000.00
$32,500.00
$25,000.00
$17,500.00
$10,000.00
Less: HRA Administration
Fees
$2,604.00
$2,604.00
$2,604.00
$2,604.00
$2,604.00
$2,604.00
Estimated Annual Savings
$36,480.40
$46,480.40
$53,980.40
$61,480.40
$68,980.40
$76,480.40
Savings Example #3 Large Group
Traditional CDHP $3000/
Copay Plan
$6000
Monthly
Premium
Savings
Annual
Premium
Savings
HRA
HRA
Contributions Contributions
(monthly
premiums)
(monthly
premiums)
(per tier)
(aggregate)
(per tier)
(aggregate)
Single
52
$670.04
$475.06
$194.98
$121,667.52
$2,000.00
$104,000.00
EE + Spouse
24
$1,440.58
$988.11
$452.47
$130,311.36
$4,000.00
$96,000.00
EE + Child
14
$1,393.68
$1,021.37
$372.31
$62,548.08
$4,000.00
$56,000.00
Family
38
$1,916.31
$1,358.65
$557.66
$254,292.96
$4,000.00
$152,000.00
Total
128
$568,819.92
$408,000.00
SAVINGS SUMMARY
HRA Utilization
Annual Premium Savings
100%
80%
65%
$568,819.92 $568,819.92 $568,819.92
50%
$568,819.92
35%
$568,819.92
20%
$568,819.92
Less: HRA Utilization
$408,000.00 $326,400.00 $265,200.00
$204,000.00
$142,800.00
$81,600.00
$9,332.00
$9,332.00
$9,332.00
$355,487.92
$416,687.92
$477,887.92
Less: HRA Administration
Fees
$9,332.00
$9,332.00
$9,332.00
Estimated Annual Savings $151,487.92 $233,087.92 $294,287.92
HRA Flexibility – Employer Choice
 Eligible Expenses (IRS 213(d)





Deductible only
Co-pays and Coinsurance
Rx
Dental and Orthodontia
Vision
 How much to fund
 When funding becomes
available (Pre-funded,
monthly, quarterly)
How do Employees Access HRA funds?
 Manual Claims
 Check
 Direct Deposit
 Debit Card
 Vendor Specific
 Auto-Pay from Carrier Claims Data Feed
 Pay Provider Directly
 Pay Member
IRS Required Substantiation – Plan Sponsor (Employer) must
require proof that Employee claims are eligible under HRA plan
guidelines (i.e. eligible expense)
Not all HRA Administrators are Alike
 Compliance
 Plan Documents,
Substantiation, Health
Care Reform Changes
 Service
 Online Accounts for Employees to check
Balance, Transactions, Submit claims Online
 Utilization Reporting for Employer
 Claims Data Feeds with Carriers
 Flexibility of Plan Design
Flexible HRA Plan Designs
Employer
Employee
Premiums
Savings
Potential Out of Pocket
Responsibility
“Deductible”
Adding A Flexible Spending Account (FSA)
 What is an FSA?
 A tax advantaged plan that an employer can offer as a voluntary
benefit to their employees and employees can choose to
contribute funds pre-tax via payroll deductions
 Employer saves on payroll tax (7.65%)
 Pre-tax for employees
 Pre-funded
 Use it or Lose it for employees
 Eligible Expenses:




Deductible, Copays, Coinsurance
Dental and Orthodontia
Rx and limited OTC
Vision
Tax Savings for Employer
Dependent Care Accounts (DCAs) can add savings too!
What is a DCA?
•
•
•
•
A tax advantaged plan employees can elect to contribute funds pre-tax
via payroll deductions to pay for custodial care of dependents while the
employee is as work
Pay as you go (no prefunding required by employer)
Maximum Contribution : $5000 per household
Eligible Expenses Include:
• Custodial Care while employee is at work
• Daycare while employee is at work
• Non Eligible Expenses Include:
•
•
•
Tuition and classes
Babysitters during non work hours
Qualifying dependents:
•
•
A child, that is under the age of 13 and a tax dependent of the employee
Spouse or tax dependent that is physically or mentally incapable of self-care
Tax Savings Example: Small Employer
# of Participating
Employees
Plan
Average
Contribution
Total
10
FSA
$1,500
$15,000.00
5
DCA
$3,500
$17,500.00
Total
$32,500.00
Payroll Tax (7.65%)
$2,486.25
Administration Fees
$1,402.00
Employer Savings
$1,084.25
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Tax Savings Example: Large Employer
# of Participating
Employees
Plan
Average Contribution
Total
65
FSA
$1,000
$65,000.00
10
DCA
$5,000
$50,000.00
Total
$115,000.00
Payroll Tax (7.65%)
$8797.50
Administration Fees
$4725.00
Employer Savings
$4072.50
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FSA Tax Savings for Employee
Without FSA/DCA
Gross Monthly Salary
Less:
Federal Income Tax
State Income Tax
Social Security Tax
With FSA/DCA
$2,500.00
$333.50
$175.00
$191.25
Net Income
Less:
Health Care Expenses
Dependent Care
$1,800.25
Spendable Income
$1,350.25
$150.00
$300.00
Gross Monthly Salary
$2,500.00
Less:
Health Care Expenses
$150.00
Dependent Care
$300.00
Taxable Income
$2,050.00
Less:
Federal Income Tax
State Income Tax
Social Security Tax
$273.47
$143.50
$156.83
Spendable Income
Monthly Savings
$1,476.21
$125.96
Annual Savings
$1,511.46
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Questions
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