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 (“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

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

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

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

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

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)

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

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

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

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

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?