HOW TO SAVE PREMIUMS WHILE MAINTAINING COVERAGE

Consumer Directed Health Insurance

Topics

What is a Consumer Directed Health Plan (“CDHP”)?

How does it work?What type of savings can I achieve?Can I keep the same level of benefits?Do I have to switch my insurance companies?How do I implement such a plan?

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What is a Consumer Directed Health Plan?

Usually defined as a “high deductible” plan with the participant exposed to the first $1,100 or more for a single participant and $2,200 or more for a family Usually paired with either a Health Savings Account

(“HSA”) or a Health Reimbursement Account (“HRA”) to provide funds to limit such exposure

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What is a Health Savings Account?

A tax-deferred funding vehicle Contributions may be made by the employer, employee or

both Earnings on the account balance grow on a tax-deferred

basis Can be invested in mutual funds or interest bearing accounts

May be used to pay for medical expenses on a tax-free reimbursement basis (similar to a flexible spending account) Is NOT subject to “use it or lose it” feature Assets accumulate over time and can provide a sizeable asset

for a participant (funds are owned by the employee) Very popular with younger, wealthier & healthier populations

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What is a Health Reimbursement Account?

Is funded by employer contributions (no employee contributions are allowed)

Any amounts not used will revert to the employer Individual investment accounts are NOT created for

each participant

Used to reimburse medical expenses on a tax-free basis

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How does it work?

Replace a $15 co-pay plan with a $2,000 deductible plan ($4,000 for families) – 100% coverage beyond deductible

Maximum exposure for participant is $2,000 for single coverage & $4,000 for family coverage Worst case scenario is fully offset by premium savings Most participants will not reach full exposure during year

Annual Premium

Annual Premium

Co-Pay Design

Deductible Design

Annual Savings

Single $5,200 $3,600 $1,600

Family $16,400 $11,500 $4,900

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How to use with an HSA

A generous employer could provide a full $2,000 HSA contribution for singles & $4,000 for families. Plan would be “cost-neutral”, but would allow employees

to accumulate funds in those years when not utilizing extensive medical care

Provides incentives for employees to manage their own care

Medical trend rates for HDHP’s have been lower than overall average

This example represents the most generous employer and is not typical (most common in small professional firms)

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How to use with an HRA

Funds which are not used revert to the employer

Using the same example of funding the full $2,000/$4,000 Expected utilization would be approximately $1,200

per single & $2,400 per family Results in expected savings of $800 per single contract &

$1,600 per family contract Administration costs of about $60 per employee

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Can I keep the same level of benefits?

As shown earlier, you can keep the same or higher level of benefits while guaranteeing costs will not exceed current levels (and expected savings of 10% to 15%)

Plan allows participants to use providers of their choice Plan does require some employee education (very

similar to pre-HMO plans) Savings benefit both employer & employee

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Do I have to switch my insurance company?

This design can usually be achieved with NO change in insurance carrier Anthem, CIGNA, Connecticare, Aetna & others all

offer HDHP’s

Allows maintenance of same networks, discounts & negotiated rates & providers

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How do I implement such a plan?

Contact your insurance consultant to design a plan for your company and get quotes from your existing & other carriers

Decide if you wish to offer an HSA or HRA Will the employer be funding a substantial amount? Does the employer seek to recover any unspent funds?

Choose an administrator (if using an HRA) Many carriers have preferred vendors

Communicate new design to employees Explain need to manage their expenses Lower medical costs allow investments in business, wages

or higher profits

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Questions?12