Consumer Directed Health Plans
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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

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 Consumer Directed Health Plans Presentation Transcript

  • 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?
  • 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
  • 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
  • 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
  • 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
  • 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)
  • 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
  • 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
  • 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
  • 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
  • Questions?