Employer Considerations in Offering a Consumer Driven Health Plan Presentation to the ACSW/SEAC Joint Meeting November 15, 2006 Susan K. Hart, F.S.A. and Cathy W. Quock
Introduction CDHPs are becoming increasingly common in the marketplace What are goals of employers who are adopting? Employer considerations in offering a CDHP Ability of CDHPs to meet the employer s goals Plan design Financial impact Communication Administration 2
CDHP Background
Terms Term High Deductible Health Plan (HDHP) Consumer Driven Health Plan (CDHP) Health Savings Account (HSA) Health Reimbursement Arrangement (HRA) Description Plans with higher annual deductibles (e.g., over $1,000) than traditional health plans (plan parameters defined by IRS) An HDHP offered with either an HSA or an HRA Tax-sheltered savings account for paying qualified medical expenses funded by employer and/or employee Employer-funded tax-sheltered account to reimburse allowable medical expenses 4
CDHP Cost Sharing 1 st Year Example High Deductible Plan $1,500 Annual Deductible Member Responsibility $1,000 Corridor $500 Account Unused Amount Rolls Over Next Year Preventive Care 100% 5
High Deductible Health Plan (HDHP) Minimum Deductible (for 2006): Single $1,050 Family $2,100 Maximum Out-of-Pocket Expenses (for 2006) Single $5,250 Family $10,500 Amounts adjust annually for inflation. 1 st dollar coverage on preventive care is allowed. Insured cannot be covered by or claimed as a dependent on any other health plan. Out-of-network coverage allowed with higher cost sharing provisions. 6
HSA versus HRA HSA HRA Account Ownership Employee Employer Who Can Contribute to Account? Employer and/or employee Employer only Tax-Favored Treatment Contributions pre-tax, qualified disbursements not taxable Contributions pre-tax, qualified disbursements not taxable Is Account Funded? Yes Rarely Roll Overs Allowed? Yes Yes Insurance Plan Only with HDHP Any Maximum Account Contribution in 2006 Lesser of 100% of deductible or $2,700 for singles and $5,450 for families No maximum Qualified Expenses Any IRC 213(d) qualified medical expense and premiums Defined by employer but subject to IRC 213(d) Nonqualified Expense Withdrawals Income tax + 10% penalty Not allowed 7
CDHP Current and Future Expected Market Penetration
CDHP Offerings in the Marketplace 4% of employers offered CDHP in 2005* 10% of large (over 1,000 employees) employers offered CDHP in 2005 33% of jumbo (over 5,000 employees) employers offered CDHP in 2005 High degree of interest among employers: 25% not currently offering indicated likely or somewhat likely to do so in next year* 1.6 million employees enrolled in HRAs and 810,000 enrolled in HSA-qualified HDHPs* Likely to be common option in 5 to 10 years *Source: 2005 Annual Survey by the Kaiser Family Foundation 9
HSA versus HRA Percentage of Total CDHP Plans to be Offered in 2006 by Employer Size Employees HSA HRA < 500 501 to 2,500 2,501 to 10,000 >10,000 66% 50% 39% 43% 34% 50% 61% 57% Source: Inside Consumer-Directed Care, Oct. 7, 2005. 10
Employer Goals and Expectations
Why Are Employers Adopting? Figure 2: CDHP Objectives 9 8 7 6 5 4 3 2 1 0 Consumerism Reduce Costs Offer Choice Improve Health Savings Transparency Source: 2006 Milliman interviews with employers that have introduced CDHPs 12
Consumerism Persons in HDHPs are more likely to Seek out information prior to receiving care Consider costs in healthcare decisions Discuss cost of care with doctors Source: EBRI/Commonwealth Fund 13
Cost Savings Average premium not good measure of cost savings Humana: First-year CDHP claims trend of 4.9% compared to expected claims trend of 19.2% Definity: Combined CDHP and PPO cost trend of 5% over three year period compared to industry and book averages of 7%-9% per year Aetna: Medical cost trends of <4% for employers offering CDHP as option compared to double-digit increases for employers without CDHP UMinn: Cost increases of 32.4% for CDHP contracts in second and third years compared to 18.8% for PPO contracts and 6.3% for HMO contracts 14
Offer Choice Factors impacting CDHP enrollment when offered as an option Level of communication and education effort Plan design and pricing compared to other options Income levels of employees Requiring positive enrollment Enrollment goals should consider above factors First-year enrollment is often less than 5% 15
Best Practices
Best Practices Extensive communication and education programs Competitive pricing Dual focus on cost reduction and health improvement Comprehensive healthcare benefit program across a continuum of healthcare needs 17
Communication and Education Programs Members must understand healthcare benefits and how HSAs/HRAs work Members need to understand why and how they must seek information and participate in decision-making Communication should have consistent message sent in multiple ways 18
Competitive Pricing Should reflect both premium contributions and out-of-pocket costs Should take into account other healthcare benefit plan options available 19
Cost Reduction and Health Improvement Cost reduction often regarded with suspicion Health improvement goal Generates trust and mitigate suspicion Directly supports cost reduction goal 20
Comprehensive Healthcare Benefit Program Healthy members need to adopt healthy lifestyles Members with chronic diseases need disease management support Members with acute or complex healthcare problems need treatment options and shared decision-making 21
Plan Design Considerations
HSA Versus HRA HSA advantages Employee choice over account spending Portability Employee contributions More potential for cost savings HRA advantages Flexibility in plan design Employer control over account spending Employer ownership 23
Optional Versus Full-Replacement Optional advantages Less administrative risk Less pricing risk Less resistance from employees Full-replacement advantages Maximize potential cost savings Eliminate adverse selection risk Eliminate low enrollment risk 24
HDHP Design Features Covered services Cost sharing Services subject to separate copays or paid first dollar HSAs only allow reimbursement for preventive care First-dollar coverage on preventive care common 25
Account Contribution Employer contribution or not Needs to be low enough so that deductible is still meaningfully high Amount per tier Set to produce a defined relationship to current plan 26
Financial Considerations
Plan Design Comparison Account Contrib. Deductible Coinsurance OOP Max Office Visit Copay Rx Copay PPO None $200 80% $1,000 $20/$30 $50 Ded, $10/$20/$40 CDHP (HDHP w/hsa) $500/$1,000 $1,500/$3,000 80% $3,000/$6,000 Ded/Coins Ded/Coins 28
Comparison of Insurance Plan Costs* Medical Costs Ee Cost Sharing Administration Premium PPO $7,300 -$1,500 $200 $6,000 CDHP $7,000 -$2,000 $250 $5,250 Difference $300 $500 -$50 $750 *Excludes employer account contribution *Annual per ee *Base year 29
Comparison of Total Plan Costs* Premium Account Payout Account Balance Total PPO $6,000 $0 $0 $6,000 CDHP $5,250 $600 $150 $6,000 Difference $750 -$600 -$150 $0 *Includes employer account contribution *Annual per ee *Base year 30
Comparison of Employer/Employee Costs Employer Premium Paid to Account Total PPO $5,000 $0 $5,000 CDHP $4,250 $750 $5,000 Difference $750 -$750 $0 Employee Premium Received in Account PPO $1,000 $0 CDHP $1,000 -$750 Difference $0 $750 Cost Sharing $1,500 $2,000 -$500 Total $2,500 $2,250 $250 31
Total Plan Cost for Full-Replacement Plan $10,000 $9,000 Annual Total Plan Cost $8,000 $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0 Year 1 Year 2 Year 3 Year 4 Year 5 Projection Year PPO Total HDHP Only CDHP Contribution Trends Year 2 Year 3 Year 4 Year 5 PPO Total 10.0% 10.0% 10.0% 10.0% CDHP Total HDHP Only 9.1% 10.4 9.2% 10.4% 9.3% 10.4% 9.4% 10.4% 32
Total Plan Cost with Optional Plan $10,000 $9,000 Annual Total Plan Cost $8,000 $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0 Year 1 Year 2 Year 3 Year 4 Year 5 Projection Year PPO Option CDHP Option Blended PPO/CDHP PPO without Option 33
Impact on Employees
Total Employee Cost for Full-Replacement Plan $3,500 $3,000 Annual Employee Cost $2,500 $2,000 $1,500 $1,000 $500 $0 Year 1 Year 2 Year 3 Year 4 Year 5 Projection Year PPO CDHP 35
CDHP Impact on Out-of-Pocket Costs Expected Percentage of Members by Annual Claim Category (Average OOP Gain/Loss Under CDHP) High Claims (>$20,000) 2% No Claims 19% No Claims (OOP Gain of $400) Low Claims (OOP Gain of $250) Mid Claims ($500-$20,000) 50% Mid Claims (OOP Loss of $300) High Claims (OOP Gain of $1,050) Low Claims ($1-$499) 29% 36
Singles Versus Families Singles may be better off with CDHP compared to families Impact on families compared to traditional health plan may depend on total claim costs, as well as distribution of claim costs among family members 37
Communication Considerations
Availability of Cost Data Limited cost data available through carrier websites or several commercially available or public web sites HealthGrades TM limited average pricing information for more than 55 hospital-based procedures The Centers for Medicare and Medicaid Services provides information on what Medicare pays for 30 common elective procedures Subimo TM tool for comparing average discounted prices, shown as ranges, for services at specific hospitals in a particular area 39
Availability of Quality Data Sometimes available through healthcare systems HealthGrades TM limited data free of charge, more comprehensive data for a fee per hospital or physician The Centers for Medicare and Medicaid Services hospital specific quality indicators for several conditions 40
Health Education Information Best of the Web for healthcare information by Business Week Subimo TM WebMD MayoClinic Yahoo Health 41
Availability of Data - Conclusions Currently information available is less than complete or not in usable form Often more available than people think More available all the time 42
Administration
Administration Single or multiple HSA account administrators Checkbook/debit card options Customer education and support Communication with providers Investment options for account funds 44
Questions?