1940-1970 Virtually no cost control

1970-1980 Introduction of UC limits, deductibles andcoinsurance

1980-1990 Hospital Pre-admissionauthorization, surgical authorizations, utilization review 

1990’s Managed care

 

History of Cost Controls

Present Consumer Driven Health Care – CDHC

Health Care Costs % of change

Drivers of Health Care Costs

Prescription Drugs

Hospital Costs

Lifestyle choices

Third party payer system

Drivers of Health Care Costs

Prescription Drugs

Increased Utilization

Price Inflation

Higher Cost Drugs

Rx costs are projected to increased over 12% each year until 2010.

Marketing directly to consumer. Patients are asking for name-brand drugs

Drivers of Health Care Costs

Rising cost of hospital visits

Outpatient costs are the fasting growing component of healthcare costs.

Inpatient costs are being driven primarily by increasing hospital expenses per inpatient stay

Rising costs per admission are driven in part by:

Greater use of expensive technology

Higher labor costs

Hospital consolidations

Drivers of Health Care Costs

Lifestyle choices

Centers for Disease Control (CDC) estimates that U.S. obesity-attributable medical expenditures reached $75 billion in 2003

Drivers of Health Care Costs

People are not price sensitive in the market for health care as they are in the market for other goods and services because some third-party (Medicare or a private insurer) pays most of the cost of health services.

Consumers do not know the true cost of health care.

Third Party Payer

How Employees View Health Care Costs

63% underestimate health insurance costs

69% overestimate how much they contribute to health insurance

57% are unsatisfied with their coverage

A recent Hewitt Study shows employees don’t understand health care costs.

Consumer Driven Health Care (CDHC) refers to health plans in which employees have a personal health accounts such as a Health Savings Account or a Health Reimbursement Arrangement from which they pay medical expenses directly

Consumer Driven Health Care

Types of Consumer Driven Health Care

HRAHealth Reimbursement Account

HSAHealth Savings Account

FSAFlexible Spending Account

Who is eligible Employees and Retirees

Employees and Retirees

Employees

Max Annual Contribution (2007)

No maximum $2,850 Individual

$5,650 Family

No maximum

Who owns Employer Employee Employer

Who contributes Employer Only Employer or Employee

Employee Only

Can employee earn interest on money

No Yes No

Can money roll over Yes Yes No

Is an HDHP required No Yes No

Is it portable No Yes No

Eligible for Cafeteria No Yes Yes

Health Savings Accounts (HSA)

What is an HSA?

An HSA is a savings account where consumers invest money and then withdraw it, tax free, for eligible medical expenses.

HSAs combine with high-deductible health insurance plans to give consumers more control -- and more responsibility -- over their health spending.

Health Savings Accounts (HSA)

Who is Eligible

To be eligible, an individual must be covered by an HSA-qualified High Deductible Health Plan (HDHP) and must not be covered by other insurance that is not HDHP.

An individual may not be claimed as a dependent on another person’s tax return. In other words, dependent children cannot establish their own HSAs.

Other Insurance

Health Savings Accounts (HSA)

Certain types of insurance are permitted with an HSA

Specific disease or illnessAccidentDisabilityDentalVisionLong Term CareEmployee Assistance ProgramsWellness Programs

Can employees have both an HSA and FSA?

Health Savings Accounts (HSA)

You can have both types of accounts, but only under certain circumstances.

If you offer a “limited purpose” (limited to dental, vision or preventive care) FSA, then your employees can still be eligible for an HSA.

Health Savings Accounts (HSA)

What's a High Deductible Health Plan

Sometimes called "catastrophic" coverage, high-deductible insurance plans offer low premiums in exchange for a high deductible.

For 2007, the minimum deductible is $1,100 for individuals and $2,200 for families.

  

Health Savings Accounts (HSA)

What's a High Deductible Health Plan:

With the exception of preventive care, you must meet the annual deductible before the plan pays benefits.

Health Savings Accounts (HSA)

How much can you contribute to an HSA?

HSA Contribution Limits - 2007

HDHP Deductible

Maximum HSA Contribution

SingleCoverage

Minimum: $1,110 $2,850

$1,500 $2,850

$2,000 $2,850

$2,500 $2,850

$3,000 $2,850

FamilyCoverage

Minimum: $2,200 $5,650

$3,000 $5,650

$4,000 $5,650

$5,000 $5,650

$6,000 $5,650

HSA Out of Pocket Limits - 2007

Maximum out-of-pocket limits for HDHP

SingleCoverage

$5,500

FamilyCoverage

$11,000

Health Savings Accounts (HSA)

Eligible Expenses

In general, funds from an HSA can be used for a wider range of expenses than covered by comprehensive insurance plans.

HSAs cover routine doctors' appointments and prescriptions, and cash can be withdrawn to cover over-the-counter medicines, such as aspirin and antihistamines.

A partial list of eligible expenses is available in IRS publication 502.

Health insurance premiums (Exceptions: LTC, COBRA, and for individuals over age 65 certain Medicare premiums)

Expenses incurred BEFORE the HSA coverage is established.

Expenses that are covered by your health care plan.

Health Savings Accounts (HSA)

These are not considered eligible expenses

Individuals typically receive a checkbook or debit card

Individuals are responsible for paying providers as they are billed

There is no “gatekeeper” to insure the charges are for qualified expenses

During an IRS audit, it is the individual’s responsibility to prove that deductions for the account were for qualified medical expenses

How are claims processed?

Reduced Premiums

Provide Incentives to employees to get Involved with healthcare decisions

Encourage healthier staff

Advantage to the School District

Health Savings Accounts (HSA)

Money (including any employer contributions) belongs exclusively to the employee.

Money can be invested and income earned grows tax-deferred.

Unused balances carry over each year without limitations.

Portable – Employees can take with them when they change jobs or retire.

Advantages to the employee

Health Savings Accounts (HSA)

Review plan design specifics and determine level of employer involvement

Limit medical offerings to one vendor to avoid adverse selection

Outline eligibility

Select a vendor and or HSA administrator

Draw a clear line between the HSA and the health coverage to make it clear that there are two components

How to add an HSA

Communicate clearly to staff – before, during and after implementation

Share the savings from switching to a high deductible plan with the employees

Make a one time contribution to the account. Ongoing contributions can be paid by the employee

When you educate the employees, talk about the savings account first; the deductible second.

During the first year, only a small percentage of employees will participate even if it is designed correctly. The second year – through word of mouth – generates greater participation.

How to add an HSA

The two most predictive aspects of an employer’s success in offering an HSA are:

1. Whether or not they fund the account

2. How much the employer funds it.

How to add an HSA

A recent Pricewaterhouse Coopers survey of large employers who implemented an HSA:

Reductions in prescriptions by 5-25%

Reductions in office visits by 5-20%

First year rate increases in the range of –5% to +8% as opposed to +14% to +16% nationally

In the first year alone, over 60% of CDHP enrollees had average HSA balances of $400 to roll over to the next year.

According to Forrester projections, the number of HSAs will grow to more than 6 million in 2008. That number could triple to more than 18 million by 2012.

Results and forecast

Results and forecast

Results and forecast

Call Bill Baker

417-882-2992

Or e-mail: moeducators@ftj.com

Interested in a quote for your district?

Forrest T. Jones & Company has worked with Missouri School Districts since 1953.

We’d be happy to work with your School District to see how much you can save by introducing an HSA.

Resources: U.S Treasury Department for HSAs

http://www.ustreas.gov/offices/public-affairs/hsa/pdf/HSA-Tri-fold-english-07.pdf

FSAFEDS www.fsafeds.com; 1-877-FSAFEDS(372-3337) or TTY 1-800-952-0450

OPM Web address for HSAs www.opm.gov/hsa

U.S Treasury Department for HSAs www.ustreas.gov/offices/public-affairs/hsa

For a list of qualified medical expenses that can be reimbursed through an HSA or HRA: www.irs.gov/pub/irs-pdf/p502.pdf

HSA Insider http://www.hsainsider.com