Consumer directed health care (CDHC) plans aim to make consumers more aware of healthcare costs through high deductible plans paired with tax-advantaged savings accounts. Three common account types are flexible spending accounts (FSA), health reimbursement accounts (HRA), and health savings accounts (HSA). FSAs have annual "use it or lose it" limits while HRAs and HSAs allow funds to roll over. HSAs offer the most tax benefits and are owned permanently by the employee, unlike HRAs owned by the employer. CDHC plans shift costs to consumers in hopes of curbing healthcare spending increases.

1. Self Directed Healthcare

2. Overview : Consumer Directed HealthCare Bob Johnston,CBC

3. Agenda : Overview of CDHC Basics Market Experience of CDHC Side by Side Comparison of Tax Advantaged Accounts

4. Per Employee Health Care Costs from 2001 to 2006

5. Business Leaders are Seriously concerned about rising healthcare costs Senior Management believes that competitive health benefits are critical to talent management objectives 79 Agree 16 Mixed 5 Disagree Senior Management views health care costs as a serious business issue 92 Agree 4 Mixed 4 Disagree

6. CDHC _ an alphabet soup of new plans FSA HSA HRA

7. Common Ingredients of Consumer Directed Plan Make Consumers aware of the true cost of their care Engage consumers in health care purchases Give members a financial stake Provide resources for informed decisions

8. Three Types of CDHC Accounts Flexible Spending Accounts ( FSA ) Health Re Imbursement Accounts ( HRA ) Health Savings Accounts ( H S A )

9. Flexible Spending Accounts ( FSA ) A Health FSA is an account funded by the employee, the employer, or both under a group plan that re imburses the employee for out-of-pocket medical expenses as defined in IRC 213 (d) Pre Tax Contributions “ Use it or lose it “ No Underlying plan design requirements

10. Health Re Imbursement Accounts ( H R A ) An employer – funded arrangement that re imburses the employee for out of pocket medical expenses. Re imbursement can be for any medical expenses defined in IRC 213(d) but can be limited to only “covered expenses” at the employers discretion. Funds can roll over to subsequent year. ( at employers discretion). No underlying plan requirement. Employer owns funds in the HRA Account.

11. Health Savings Accounts ( H S A ) Individual , Small , and Large Group Specific plan design requirements established by Congress ( High Deductible Health Plans ) ( HDHP ) Can fund IRC 213 ( d ) Qualified Medical and Non – qualified expenses (with taxes and penalty ) Permanent, tax advantaged interest bearing accounts owned by employee

12. Summary Funding Method Comparison Yes, earns tax-interest No an Arrangement Yes Is it a Personal Account Employee and/or Employer Employer Employee and/or Employer Who funds it Employee and/or Employer Employer Employee and/or Employer Who owns it HSA HRA FSA

13. Summary Funding Method Comparison HSA HRA FSA Employer contribution deductible to employer, non-taxable to employee, Deductible by employer and non taxable to employee Contributions are tax-free and reduce annual income Tax Benefits 100% of deductible or $2,600 Individual / $5,150 family, whichever is less No Federal income tax law limits $5,000 per year Contribution Limits

14. Summary Funding Method Comparison HSA HRA FSA Qualified medical expenses,including OTC drugs. No health insurance premiums, except for long term care insurance. Qualified health insurance premiums and medical expenses, including OTC drugs Qualified medical expenses including OTC drugs and health insurance premiums Allowed Expenses Employee contribution deposited pre-tax Tax Benefits

15. Summary Funding Method Comparison HSA HRA FSA Yes. Personal account that belongs to employee No. Funds belong to employer No. “ Funds must be spent by years end” Portability Unused funds carried over indefinitely and may be invested Employers discretion No “ Use it or Lose it “ Carryover Tax penalty for non-medical expenses