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Benefit Trends: Evaluating Consumer-Based Models. Presented By: Christopher J. DeLorey President Telamon Insurance & Financial Network 617-614-1215. Key Points. Factors driving trends Employer options Employee perspective Consumer Driven Health Plans (CDHP)

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benefit trends evaluating consumer based models

Benefit Trends: Evaluating Consumer-Based Models

Presented By:

Christopher J. DeLorey


Telamon Insurance & Financial Network


key points
Key Points
  • Factors driving trends
  • Employer options
  • Employee perspective
  • Consumer Driven Health Plans (CDHP)
  • What’s next?
factors driving trends
Factors Driving Trends
  • Rising Health Insurance Costs
  • The national average for medical plan rate increases is 15% to 20%
  • These increases are driving employers to look for solutions
  • Fueling interest in consumer models
factors driving trends5
Factors Driving Trends
  • Health Care Cost Drivers:
    • Skyrocketing Rx costs
    • Rising hospital and physician costs
    • Advances in technology
    • Increase in chronic conditions
    • Increased utilization
    • Aging population
    • Lack of consumer involvement in purchase
factors driving trends6
Factors Driving Trends
  • In 1960, consumers paid for 50% of health care costs
  • In 2003, they pay for only 15%
  • Consumers don’t know the true costs of health care
factors driving trends7
Factors Driving Trends
  • Entitlement Perspective in America
    • Corporations are bottomless pits
    • Unrestrained desires
    • Employees are unaware of the actual costs
    • “Want it All” for a $10 co-pay
employer options
Employer Options
  • Medical Cost Outlook
    • Impossible for employer to pay for all the future drug/medical technology and services desired by employees
    • Employers have a few options:
      • Drop coverage
      • Absorb the cost
      • Pass on the premium increase to employees
      • Reduce coverage
      • Offer a consumer-based model
employer options9
Employer Options
  • Moving Toward Consumer Models
    • Determine level of medical benefits needed to recruit/retain employees
    • Provide a menu of group medical options
    • Set employer subsidies based on efficient plans or base year subsidy level
    • Encourage employees to select efficient medical plans
    • Motivate employees to “own” their personal health status
    • Facilitate employee use of pre-tax flexible spending accounts
employee perspective
Employee Perspective
  • Educate them on health care costs
  • Educate them on products
  • Provide them tools
employee perspective11
Employee Perspective
  • Are Your Employees Ready for Consumerism?
    • 87% of employees confident in choosing a health plan
    • 70% of employees understand how to navigate the health care delivery system
    • 87% willing to take on more responsibility for researching, choosing, and maintaining their health coverage
    • 49% want full responsibility for purchasing their own health care coverage
consumer driven health plans cdhps
Consumer Driven Health Plans (CDHPs)
  • A concept, not a product
  • Often referred to as “consumerism”
  • Engages the consumer in making health care decisions and purchases
  • Encourages better health
  • Many variations
history of cdhps
History of CDHPs
  • MERPS (Medical Expense Reimbursement Account)
    • Allowed tax-free reimbursement to employees
    • 100% employer-funded
    • Sometimes called 105(h) plan or direct reimbursement plan
    • Uncertainty as to ability to rollover unused funds or spend downs
    • Typically did not include any health tools or health assessments
history of cdhps14
History of CDHPs
  • Health Flexible Spending Accounts
    • Allowed for tax-free reimbursement to employees
    • Typically funded via employee salary deduction or flex credits
    • No rollover allowed
    • Individual insurance premium ineligible
web based resources cdhps
Web-Based Resources & CDHPs
  • Carrier Resources
    • Current balances
    • Claims activity
  • Medical Libraries
    • Johns Hopkins
    • First Data Bank
    • Reuters News
    • The Natural Pharmacist
  • Personal Health Tools
    • Health risk assessments
    • Health calculators
    • Personal health records
    • Drug interaction information
  • Provider Search
  • Healthcare Prices
    • Diseases/conditions
    • Procedures and providers
    • Visits
    • Prescription drugs
  • Marketplace
    • Online shopping
types of consumer driven health plans
Types of Consumer Driven Health Plans
  • Popular emerging options:
    • Defined Contribution Plans
    • Health Reimbursement Accounts (HRAs)
    • Health Flexible Spending Accounts (FSAs)
defined contribution plans
Defined Contribution Plans
  • Defining the contribution employers will spend and passing the rest of the cost onto the participant
  • An employer gives employees a fixed sum of money to purchase one of several healthcare plans; if an employee chooses a plan that costs more than the amount provided by the employer, the employee pays the difference
defined contribution plans18
Defined Contribution Plans
  • Establish a high deductible plan which is partially funded by the employer; any employer monies not spent by the end of the year may be rolled over to the next year
  • Employer defines the amounts of reimbursement to providers, thus encouraging the participant to negotiate directly with provider to accept the plan’s reimbursement as payment in full
defined contribution plans19
Defined Contribution Plans
  • Add additional co-pays for care at more expensive facilities
  • Providers are grouped into mini-networks based on cost/quality; employee pays a higher contribution in order to access higher cost providers (Patient Choice Model)
defined contribution plans20
Defined Contribution Plans


  • Employees
    • Member responsibility
    • May be more involved in negotiating with providers
  • Employers
    • Potentially complex enrollment
    • Employee education


  • Employees
    • May have choice of plans
    • Become better consumers
  • Employers
    • Predictable cost
health reimbursement arrangements hras
Health Reimbursement Arrangements (HRAs)
  • IRS Sec. 105 Plans
  • Allows employer to reimburse employees tax free for medical expenses
hras financing
HRAs - Financing
  • HRAs must be paid by employers
  • HRAs may be unfunded or funded
    • Typically, employers use unfunded “credits”
  • HRAs may accept some after-tax employee contributions (e.g., COBRA premiums)
  • HRAs may not accept pre-tax employee contributions, either directly or indirectly
  • Use of debit cards when employer pays first
hras reimbursement
HRAs - Reimbursement
  • HRAs can reimburse deductible “medical expenses”
    • Health expenses not reimbursed by other plans
    • Health insurance premiums (including LTC, unless HRA is a health FSA)
  • HRAs can’t reimburse non-health expenses
    • Can’t pay bonus, severance, or death benefits
    • Can’t reimburse premiums paid with pre-tax dollars
how does a high deductible plan work

Health Coverage


Preventive 100%


Member Responsibility

How Does a High Deductible Plan Work?
  • Either member or HRA pays first
  • 100% for preventive
  • Rollover of account is an option
hras and cobra
  • HRAs are subject to COBRA rules
  • Issues to consider:
    • Notices
    • Elections
    • Reimbursement amounts
    • Duration of coverage
    • Premiums
  • Non-Discrimination rules apply
coordinating hras with high deductible plans
Coordinating HRAs with High-Deductible Plans
  • An HRA may be offered as a stand-alone option
    • Employees can be required to elect high-deductible coverage to receive an HRA
    • Employees can pay for the high-deductible coverage with pre-tax contributions (but can’t subsidize HRA coverage with pre-tax dollars)
  • HRAs may be coordinated with high-deductible health plans
  • No fixed coordination rules; typically, HRA pays first and covers same expenses as high-deductible plan
hras and the rollover feature
HRAs and the Rollover Feature
  • Provides incentive to save for future needs
  • If an employee knows they are leaving they may spend quicker
  • Previous rollovers may encourage higher dollar claim submission
  • Be aware of “look back loophole” (HRAs can cover expenses from previous years)
  • How do you have a COBRA premium “actuarially determined?”
  • How do employees get health care cost information?
  • Can create a future liability for plan (plan can cap the rollover)


  • Personal Health Management Toolkit
  • Online provider information
  • Online prescription drug cost information
  • Health Risk Appraisals
  • 24-hour nurselinee
  • Wellness program


Prescription drugs carved out and provided on a coinsurance basis



Preventive Care Covered 100%

Prescription & OTC Alternative Drugs Covered 70%

Preventive care is carved out of the program and is provided at 100%

Employee uses this first to cover healthcare expenses. Unused portions are carried over to next plan year.

Personal Care Account

$1,000 Employee only

$1,500 Employee + 1 dependent

$2,000 Employee + 2 or more dependents

The employer funds this portion

Once the PCA is exhausted, employee is responsible for 100% of healthcare expenses until the maximum is reached.

The employee funds this portion

Bridge – Employee Deductible

$2,000 Employee only

$3,000 Employee + 1 dependent

$4,000 Employee + 2 or more dependents

Employer and employee share the premium cost of this traditional PPO plan

PPO plan covers employee after bridge deductible is met.

Catastrophic Health Coverage

90/70 PPO Plan

Designed to encourage network utilization




hra pros and cons
HRA Pros and Cons


  • Employees
    • Member responsibility
    • Cost, if chronic disease
  • Employers
    • Adverse selection
    • Actual cost savings
    • Accuracy of actuarial assumptions
    • High HRA administrative cost


  • Employees
    • Rollover of unspent funds
    • Employee directs own care
    • Preventive coverage
    • Decision support tools
  • Employers
    • Less involved in coverage
    • Cost control
    • Shares risk of cost/utilization w/employee
health flexible spending accounts fsas
Health Flexible Spending Accounts (FSAs)
  • Allowed for tax-free reimbursement to employees
  • Typically funded via employee salary reduction
  • No rollover allowed
  • Individual insurance premiums ineligible for reimbursement
hra coordination with health fsas
HRA Coordination with Health FSAs
  • HRAs may be offered in lieu of FSAs
  • HRAs may be offered in addition to FSAs
  • Coordination rules
    • Health FSA may reimburse expenses before the HRA is exhausted if written into both plan documents
    • FSA can also pay first if expenses are different expenses than HRA
hra fsa rules ignored
HRA – FSA Rules Ignored
  • HRAs are not subject to “use-it-or-lose-it” rule
    • Permits carry forward of unused amounts
    • Accumulations may be capped
    • Terminated employees may spend down accumulations
  • HRAs are not subject to “uniform coverage” rule
    • Permits HRA credits/contributions to accrue by payroll period, or less frequently (e.g., monthly, quarterly, semi-annually)
health savings accounts hsas
Health Savings Accounts (HSAs)
  • Tax deduction for amounts contributed
  • Employer and employee contributions
  • Must offer with high deductible health plan
  • May not be covered by any other health plan
  • Self employed individuals are eligible
  • May include in cafeteria plan
hsa pros and cons
HSA Pros and Cons


  • Employees
    • Rollover of unspent funds
    • Own account
    • Can reimburse some insurance premiums
    • Can save tax free for later use
  • Employers
    • Limits liability
    • Employees may put cost pressure on health care providers
    • Employer contribution may be used as employee incentive
    • Employer contributions not subject to FICA


  • Employees
    • More cost sharing
    • New information to learn
    • Must take more responsibility
  • Employers
    • Requires a high deductible plan
    • Trustee requirement can add cost and complexity
    • HDHPs may cause employee resentment
    • Can’t control employer contributions
hsas open issues
HSAs – Open Issues
  • Claims adjudication & substantiation
  • DOL claims rules
where are we
Where Are We?
  • 93% of US companies offer some type of health promotion program (Hewitt Associates 7/02)
  • First view of 2002 CDHP customers cut cost increases by 60% with greater consumer incentives and choice (Humana SmartSuite)
  • PricewaterhouseCoopers' touts:
    • Reductions in number of Rx & office visits by 5% - 25%
    • Overall utilization dropped 10%
    • First year health care trend was in the range of ­5% to 10%
  • 58% of HMOs either have or plan to have a CDHP within 1 year (Milliman 2003 Intercompany Rate Survey)
what s next
What’s Next?

We need to start somewhere…

  • Develop a strategy
  • Educate employees on healthcare costs
    • Will help eliminate the “entitlement” perception
    • It’s “our” money being spent
  • Explore CDHP plans in our market
  • Create/evaluate contribution strategy
what s next42
What’s Next?
  • Employer creates consumerism incentives
    • Encourage employee self-care
    • Utilize community wellness resources
    • Tie financial incentives to participation in programs
    • Maximize disease management programs
    • Promote Web tools by carriers/TPAs
  • Factors driving trends
  • Employer options, status quo won’t work
  • Employee perspective, ready
  • Consumer Driven Health Plans (CDHP)
  • What’s next?