Flex-Plan Services, Inc.
Creative Ways to Manage
Employee Benefit Costs
Hilarie Aitken
www.flex-plan.com
© Flex-Plan Services, Inc
Agenda
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Consumer Driven Health Care overivew
Sec 125 POP Plans & FSAs
Health Reimbursement Arrangements (HRA)
Health Savings Accounts (HSA)
Dental & Vision Reimbursement Plans
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Employee Health Benefits Today
• Employers can no longer afford the rising financial
cost of employee health benefits.
-Last 10 years steady increase to premiums
-Health Care Reform will not slow the increases anytime soon
-Will Employers continue to play? Or will they pay?? BIG question…
• Employees are not satisfied with paying out more for
premiums and receiving a lesser benefit:
-Higher deductibles, copays & coinsurance
-Restricted networks
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Consumers Need to Take a More Active
and Informed Role in Health Care
Transactions
• Increased financial responsibility
– “Nobody spends someone else’s money as carefully as they spend their
own”
– EE’s make smarter choices about medical care.
• Assume a renewed and serious interest in managing one’s own
health and well-being
– FSAs: help employees to budget and save
– HSAs: ee’s can spend or save?
– Bridge plan HRAs for deductibles: ee’s responsible first and they see
how much utilization costs
– HRA funded for Wellness participation
Sec 125 Premium Only Plan
• Provides a tax savings to Employers and Employees
– Employer Savings: 7.65% Payroll Taxes (FICA)
– Employee Savings: 20-40% (FIT & FICA)
• ER must have Plan Document in place in order to take
employee pre-tax deductions for qualified insurance
premiums.
• Extremely low-cost and simple way to help employees
pay for benefits and helps employers save on employee
premium cost sharing amounts.
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Sec 125 FSAs
• Allows employees to set aside pre-tax dollars to pay for out-of-pocket
healthcare expenses. Employees save 20-40% and are engaged in the
health care purchasing process, which creates consumer awareness.
• Copays, dental, vision, chiropractic, ortho etc. “Like” us on Facebook and
see daily eligible expenses!
• Access the FSA with a debit card or by submitting claims (email, online,
smart phone, fax and snail mail).
• Average utilization in an FSA plan is only 22%...VERY under-utilized benefit.
• EDUCATION IS KEY!! Employers who dedicate resources and engage an
active TPA can see increase in participation up to 40% and realize
associated cost savings to the organization and to the employees.
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Show me the MONEY!!
Sec 125 POP & Flexible Spending Accounts (FSA)
• 50 Employee Group
– Each participant pays 20%
of premiumsapproximately $30,000
– Average FSA enrollment$15,000
– Employer FICA tax savings$4,200
– Estimated Administration
Cost- $1,600
– Net savings- $2,600
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HRAs
• Sec. 105 reimbursement plans have been in existence
since the late 1970’s
– Due to the rich benefit plans of the 80’s and 90’s, the plans were
never made popular
– Employers are looking for creative ways to provide benefits
• Account is only funded if used
– Unused funds are not subject to Exclusive Benefit Rule under
ERISA if funds are held in General Assets.
– Huge propensity for savings for employers if they can pair with
premium savings on an HDHP
• Reimburse any expenses under IRC Sec. 213(d)
– May be limited to certain expenses- most popular is Deductible
HRA.
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HRAs
• Plan Design Flexibility- help ERs meet financial goals and
employee benefit needs
-Deductible Bridge Plans
-Standalone
-Wellness
• FPS has grown HRA business 130% for the last 5 years
-Bridge plans very popular
-Rollover of unused funds not so popular
-Cost varies with plan design complexity
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Deductible Bridge Plan
• Plan reimburses expenses
subject to the major
medical plan’s deductible
• Often an employer will
fund only part of the
deductible- bridge plan
• How does it work??
– Patient sees doctor
– Obtains EOB
– Submits for reimbursement
Major Medical Plan
$2,000 deductible
Employer pays
$1,500
Employee pays
$500
Current Plan
Number of Participants
Total Premiums Annually
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$300 deductible
39
$202,989.24
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#1 Choice
Number of Participants
Total Premiums Annually
Premiums Savings
Max HRA Reimbursement
Total HRA Liability (worse case)
$1,500
deductible
39
$162,392.16
$40,597.08
$1,200.00
$46,800.00
w/Admin Fees
$49,789.00
Total Savings
-$9,191.92
20% Utilization
$9,360.00
w/Admin Fees
$12,349.00
Total Savings
$28,248.08
30% Utilization
$14,040.00
w/Admin Fees
$17,029.00
Total Savings
$23,568.08
40% Utilization (Conservative)
$18,720.00
w/Admin Fees
$21,709.00
Total Savings
$18,888.08
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#2 Choice
Number of Participants
Total Premiums Annually
Premiums Savings
Max HRA Reimbursement
$2,000
deductible
39
$152,244.00
$50,745.24
$1,700.00
Total HRA Liability (worse case)
$66,300.00
w/Admin Fees $69,289.00
Total Savings
$18,543.76
20% Utilization
$13,260.00
w/Admin Fees $16,249.00
Total Savings
$34,496.24
30% Utilization
$19,890.00
w/Admin Fees $22,879.00
Total Savings
$27,866.24
40% Utilization (Conservative)
$26,520.00
w/Admin Fees $29,509.00
Total Savings
$21,236.24
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Creative…or Old Fashioned?
Defined Contribution Health Plans
• Under Sec 125 employers can offer a “cafeteria” style plan with a
defined contribution that employees can allocate to their benefits.
– ER sponsored benefits (medical, dental, supplemental)
– FSA or HSA
– Premium Reimbursement Accounts- individually owned policies
• Under Sec 105 an employer could provide for a standalone HRA
that employees could use to buy benefits.
– Individually owned policies or any out of pocket
– HIPAA nondiscrimination for both standalone PRA & HRA??
• Health Care Reform implications
– Will the coverage meet the Pay or Play provisions? In some cases it
could be cost effective to “pay” and still provide one of the above.
– Some HRAs are subject to 1) prohibition on lifetime limits, 2) CER fees,
3) SBC requirements.
HSAs
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The only tax-favored health benefit truly supported by the HCR bill.
HSA Eligibility
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High Deductible Health Plan
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Can be combination of employee and employer contributions (note employee HSA contributions are
made pre-tax under Employer’s 125 plan)
Employee Only: $3,100
Employee Family: $6,250
Distributions
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$1,200 individual & $2,400 for family
OOP cannot exceed $6,050 for individual or $12,100 for family
Contributions
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In order to have contributions to the HSA employee must be covered by a HDHP, and have NO nonHDHP coverage (including spouse’s FSA)
All Sec 213(d) expenses
Non-qualified expenses assessed an excise tax (up to 20% due to PPACA)
Accounts
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Balances rollover
Individually owned
Administered FPS through Healthcare Bank
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HSA vs HRA
• HSAs are a true consumer driven health care vehicle
– HSA owned by the employee
– Good for S-Corps, Partnerships & LLCs
– Lower paid employee populations may struggle w/ the Rx
benefit in the HDHP, especially if not ER funded.
• HRAs enable employers to create plan designs that
meets benefit objectives and financial goals.
– HRA can be paired with any medical plan
– HRA requires claim substantiation
– HRA funds remain “employer” funds until benefits are paid
Dental/Vision Reimbursement Plans
• Employer funded with a
defined contribution
• Employee pre-tax
contributions (Sec 125)
are allowed
• Annual maximum benefit
determined by employer.
• Flexible plan designs
Why??
• On average, 65% of employees utilize their
dental benefits.
– Employer is paying premiums for employee’s not
using the benefit.
• Employers are looking for a way to save
money while still offering comprehensive
benefits.
• A great way to ease employees into Consumer
Driven Health Care.
Continued…
• All dental/vision services within the scope of
Sec. 213d are allowable
• No UCR, pre-authorizations or balance billing
• Employees have freedom to choose provider
• 90% of funds goes to treatment
• Account is only funded when used
Sample Plan Design
Plan will reimburse employee’s as follows:
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100% of the first $300
80% of the next $500
50% of the next $1,600
Annual Maximum Benefit: $1,500
**Note that benefit is paid on dollars spent
opposed to services rendered**
How It Works
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Patient visits Dentist.
Obtains bill or receipt.
Submits bill or receipt to Flex-Plan.
Flex-Plan can either pay Dentist, or pay
participant.
The Future of Employee Benefits…?
• We will see a bigger shift to “consumer driven
healthcare”
-Last 10 years steady increase to premiums
-Health Care Reform will not slow the increases anytime soon
-Consumer Driven Health Care is seemingly the only way to curb costs
-Will Employers continue to play? Or will they pay?? BIG question…
• Will employers exit the benefit marketplace??
-Employers may decide to pay the penalty
-Economic growth = Employer sponsored benefits (attract & retain EEs)
www.flex-plan.com
© Flex-Plan Services, Inc
Questions???
Hilarie Aitken
Flex-Plan Services, Inc.
haitken@flex-plan.com
www.flex-plan.com
www.flex-plan.com
© Flex-Plan Services, Inc