Consumer Directed Health Plans


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Presentation to show how a High Deductible Health Plan paired with an HRA or HSA can allow an employer to maintain medical benefits while savings 10% or more

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Consumer Directed Health Plans

  1. 1. HOW TO SAVE PREMIUMS WHILE MAINTAINING COVERAGE Consumer Directed Health Insurance
  2. 2. Topics <ul><li>What is a Consumer Directed Health Plan (“CDHP”)? </li></ul><ul><li>How does it work? </li></ul><ul><li>What type of savings can I achieve? </li></ul><ul><li>Can I keep the same level of benefits? </li></ul><ul><li>Do I have to switch my insurance companies? </li></ul><ul><li>How do I implement such a plan? </li></ul>
  3. 3. What is a Consumer Directed Health Plan? <ul><li>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 </li></ul><ul><ul><li>Usually paired with either a Health Savings Account (“HSA”) or a Health Reimbursement Account (“HRA”) to provide funds to limit such exposure </li></ul></ul>
  4. 4. What is a Health Savings Account? <ul><li>A tax-deferred funding vehicle </li></ul><ul><ul><li>Contributions may be made by the employer, employee or both </li></ul></ul><ul><ul><li>Earnings on the account balance grow on a tax-deferred basis </li></ul></ul><ul><ul><ul><li>Can be invested in mutual funds or interest bearing accounts </li></ul></ul></ul><ul><ul><li>May be used to pay for medical expenses on a tax-free reimbursement basis (similar to a flexible spending account) </li></ul></ul><ul><ul><ul><li>Is NOT subject to “use it or lose it” feature </li></ul></ul></ul><ul><ul><ul><li>Assets accumulate over time and can provide a sizeable asset for a participant (funds are owned by the employee) </li></ul></ul></ul><ul><ul><ul><li>Very popular with younger, wealthier & healthier populations </li></ul></ul></ul>
  5. 5. What is a Health Reimbursement Account? <ul><li>Is funded by employer contributions (no employee contributions are allowed) </li></ul><ul><li>Any amounts not used will revert to the employer </li></ul><ul><ul><li>Individual investment accounts are NOT created for each participant </li></ul></ul><ul><li>Used to reimburse medical expenses on a tax-free basis </li></ul>
  6. 6. How does it work? <ul><li>Replace a $15 co-pay plan with a $2,000 deductible plan ($4,000 for families) – 100% coverage beyond deductible </li></ul><ul><li>Maximum exposure for participant is $2,000 for single coverage & $4,000 for family coverage </li></ul><ul><ul><li>Worst case scenario is fully offset by premium savings </li></ul></ul><ul><ul><li>Most participants will not reach full exposure during year </li></ul></ul>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
  7. 7. How to use with an HSA <ul><li>A generous employer could provide a full $2,000 HSA contribution for singles & $4,000 for families. </li></ul><ul><ul><li>Plan would be “cost-neutral”, but would allow employees to accumulate funds in those years when not utilizing extensive medical care </li></ul></ul><ul><ul><li>Provides incentives for employees to manage their own care </li></ul></ul><ul><ul><li>Medical trend rates for HDHP’s have been lower than overall average </li></ul></ul><ul><ul><li>This example represents the most generous employer and is not typical (most common in small professional firms) </li></ul></ul>
  8. 8. How to use with an HRA <ul><li>Funds which are not used revert to the employer </li></ul><ul><li>Using the same example of funding the full $2,000/$4,000 </li></ul><ul><ul><li>Expected utilization would be approximately $1,200 per single & $2,400 per family </li></ul></ul><ul><ul><ul><li>Results in expected savings of $800 per single contract & $1,600 per family contract </li></ul></ul></ul><ul><ul><ul><li>Administration costs of about $60 per employee </li></ul></ul></ul>
  9. 9. Can I keep the same level of benefits? <ul><li>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%) </li></ul><ul><li>Plan allows participants to use providers of their choice </li></ul><ul><ul><li>Plan does require some employee education (very similar to pre-HMO plans) </li></ul></ul><ul><ul><li>Savings benefit both employer & employee </li></ul></ul>
  10. 10. Do I have to switch my insurance company? <ul><li>This design can usually be achieved with NO change in insurance carrier </li></ul><ul><ul><li>Anthem, CIGNA, Connecticare, Aetna & others all offer HDHP’s </li></ul></ul><ul><li>Allows maintenance of same networks, discounts & negotiated rates & providers </li></ul>
  11. 11. How do I implement such a plan? <ul><li>Contact your insurance consultant to design a plan for your company and get quotes from your existing & other carriers </li></ul><ul><li>Decide if you wish to offer an HSA or HRA </li></ul><ul><ul><li>Will the employer be funding a substantial amount? </li></ul></ul><ul><ul><li>Does the employer seek to recover any unspent funds? </li></ul></ul><ul><li>Choose an administrator (if using an HRA) </li></ul><ul><ul><li>Many carriers have preferred vendors </li></ul></ul><ul><li>Communicate new design to employees </li></ul><ul><ul><li>Explain need to manage their expenses </li></ul></ul><ul><ul><li>Lower medical costs allow investments in business, wages or higher profits </li></ul></ul>
  12. 12. Questions?
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