Do-it-Yourself Health Care –The Health Savings Account

October 27, 2009 Dave Spalding, VP Medical Banking Blue Cross and Blue Shield of Minnesota © 2008 Blue Cross and Blue Shield of Minnesota Do-it-Yourself Health Care – The Health Savings Account Change and Reform in the American Health Care System

Agenda for today
Introduction
Brief History of HSAs
The Basics
Break
Market Adoption
Extra Credit

Brief History of HSAs

HSA Timeline 8 million people covered by HSAs Archer Medical Savings Accounts (MSA) HSAs take off following key changes Medicare Modernization Act creates Health Savings Accounts 1996 2003 2009 Dec. 2006 1995 2010

HSA enrollment growth
Rapid market adoption
Midwest and South
Multiple market segments
individual, small business, national employers
Enrollee Demographics
mirrors commercial insured
higher education level
Source: AHIP

Minnesota leads the nation in adoption
Relatively vibrant commercial market place:
Healthy market segments
Innovative employers
Relatively educated workforce
Strong local health plans
As a percent of commercially insured

Something is happening in Minnesota
In 2007, growth in health expense per enrollee was the lowest in a decade
In 2007, growth in health expense per enrollee was lower than growth in wages/income for first time in a decade

The Basics

1. The HSA belongs to an individual
Medical “401 (k)”
Encourage individuals to save for their own medical expenses
Employer and Employee contributions permitted
Portable
Inheritable Asset
“ Rolls-over” annually

2. The HSA is a tax-advantaged account
TRIPLE TAX BENEFITS
Individual account contributions lower your taxable income
Savings can be accessed at anytime, tax-free to pay for qualified medical expenses
Savings can be invested free of capital gains

3. Tax-favored HSAs have a lot of rules
BIG RULES
Rule-maker is the IRS
Must have qualified high deductible health insurance
Annual contributions limits
Penalty for non-qualified withdrawal

Big Rules: What is qualified insurance?
Health insurance meeting all statutory requirements for minimum deductibles and maximum out-of-pocket costs
All services, other than preventive care, are subject to the deductible, including prescription drug purchases
$5,900 maximum out of pocket $1,200 minimum deductible Self-only coverage Family coverage (self + two or more) $11,900 maximum out of pocket $2,400 minimum deductible 2010 Statutory requirements

Big Rules: Annual contribution limits
COLA Index
Maximum contribution in 2010
$3,050 (single coverage)
$6,150 (family coverage)
Catch-up contributions
Individuals 55 and older may make additional contributions up to $1,000

Big Rules: Non-Qualified withdrawals
Withdrawals for non-qualified medical expenses
Withdrawal amount is counted as income
10% excise tax applies
Non-qualified withdrawals for those 65+
Withdrawal amount is counted as income
No excise tax applies

Small Rules
Eligibility details
Married couples, tax dependents, seniors, domestic partners
Contribution details
Mid-year enrollment, IRA roll-overs, Comparability (employer contributions), FSAs
Withdrawals
Qualified medical expenses, maintaining records, no-time limit
Type of insurance
Medical, vision, dental, LTC, etc.

Health Savings Account Basics in Review
Individual medical savings account
Triple tax benefits
Lot’s of IRS driven rules

HSA Math Example

Income Tax Savings Example

Market Acceptance

The 30,000 foot view
Kaiser Family Foundation Survey
HSA enrollment exceeded HMO enrollment nationally in 2009
Annual insurance premiums for HSAs are 20-30% lower than traditional products
American Academy of Actuaries
After first year, HSA plan premium increases are 3 to 5% lower than traditional insurance

Are higher deductibles “working”? The Finance Department says YES Source: Watson Wyatt 2008 Purchasing Value in Healthcare employer survey Forecasted premium increase

Employer Contributors and Amounts Source: Blue Cross Blue Shield Association CDH survey 2008 Source: Kaiser Family Foundation / HRET 2009 Annual Benefits Survey

Become a high performing employer
Towers Perrin research has identified four cornerstones for success for employers:
Build a new mind set around health
Help employees gain confidence in their ability to manage financial risk
Must have an organizational climate of trust and employee well-being
Thoughtful change management, communication and visible leadership
88% of enrollees at high performing employers reported a good experience with an HSA or HRA based-plan vs. 29% at low performing employers 71% of enrollees at high performing employers believe it is appropriate for them to share medical expenses with their employer

Risk Adjusted Utilization: HSA vs Traditional
Blue Cross 4 year study covering over 1 million enrollees on a risk adjusted basis:
Decreases in x-rays, lab tests and ER visits
Higher levels of preventive care
Same number of people using insurance
One less script per year and higher generic adoption

Changing Consumer Behavior Source: Blue Cross Blue Shield Association CDH survey 2008

More Data Source: Blue Cross Blue Shield Association CDH survey 2008

Healthier Behavior Source: Blue Cross Blue Shield Association CDH survey 2008

Global Competition US 55%, 24% GLOBAL 44%, 52% CHINA 62%, 87% FRANCE 22%, 35% INDIA 83%, 94% MEXICO 54%, 94% SOUTH AFRICA 60%, 17%
Private Sector Share of Health
Out-of-Pocket % of Private sector

Extra Credit
According to the New England Journal of Medicine, what is the number one determinant of early death in the US:
Genetics
Healthcare
Behavior
Environment

Extra Credit
What is the annual out-of-pocket maximum for Medicare?
$5,000
$25,000
There is no maximum

Extra Credit
How will Healthcare Reform impact HSAs:
Eliminate them
Expand them
Don’t know, don’t care – ready to go get a drink!

Extra Credit
Based upon average life expectancy, the Employee Benefits Research Institute estimates the lifetime, out-of-pocket expenses for a couple, aged 65, retiring in 2009 to be:
$15,000 to $20,000
$55,000 to $104,500
$168,000 to $415,000

Do-it-Yourself Health Care –The Health Savings Account

by Center for Health & Medical Affairs, University of St. Thomas on Nov 11, 2009

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Do-it-Yourself Health Care –The Health Savings Account — Presentation Transcript