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Consumer
Driven Health Care Premium increases
to health care benefit plans each year that exceed the rate of
consumer inflation finally has employers realizing that they can no
longer provide a traditional employee benefit package.
The current model of a comprehensive program with a modest cost
share to the employee population is undergoing a dynamic shift.
Employers are aware that they still need to provide competitive
benefits to retain and attract employees, so the shift is on the
financing of the health care benefits.
The development is aptly named Consumer Driven Health Care with
two benefit plan designs vying for attention, Health
Savings Accounts (HSA) and Health
Reimbursement Accounts (HRA).
As similar as they may appear, they are opposite in who
controls the finances of the plan. These Consumer
Driven Health Care plans, HSA
and HRA, shift how the member
(the end user) pays for health care services.
With either plan, the member coordinates payment on the
front-end for health care services before satisfying a larger
deductible for an underlying health plan makes payment.
This is similar to the comprehensive major medical plans that
were in place up through the mid 1980’s until Health Maintenance
Organizations (HMO’s) dominated as a solution to control the
increasing cost of health care. With a
traditional non-network based major medical plan a member typically
paid the provider for rendered services.
The claim would then be submitted to the insurance carrier for
reimbursement. If the
provider agreed to wait for payment from the carrier (assignment of
benefits), the member paid the difference to the provider after the
carrier made the balance payment to the provider.
A drawback to this model was that some providers wanted full
payment before the service was rendered and not all members had the
funds available for full payment. A variation of this model was a provider who participated in
a Preferred Provider Organization network.
The provider would bill the PPO network and then bill the
member for any balance due after discounts, deductibles, and
co-insurance were taken into consideration.
Either way the member coordinated their care. The co-payment
method used by HMO’s allowed the member to make a nominal co-payment
(when compared to actual cost) at the time a service was rendered. However, the member utilized the HMO provider network.
Two drawbacks to this model were 1) the restrictions on the
number of providers with whom a member could choose, and 2) a lack of
interest in the actual cost of medical services. Goals of Consumer
Driven Health Care plan are 1) for the member to become more involved
and better educated on how to utilize health care services, along
with; 2) understanding the actual cost of these services.
The expected result of Consumer Driven Health Care is to have
the members better utilize medical providers for the appropriate
treatment thereby leveling the medical plan increases closer to the
consumer inflation rate. Consumer Driven
Health Care changes the financing and cost sharing arrangement of the
traditional benefit plan yet allows a comprehensive benefit plan to
remain in place, albeit with a higher deductible.
By providing a health care benefit package that involves the
employee in the cost sharing of health care, the covered population
now makes decisions on how and when to access health care.
This is especially true with minor illnesses and sicknesses, as
these events are more controllable financially and the underlying plan
still provides coverage for the unexpected serious illnesses and
sickness that can be costly. High
Deductible Health Plan (HDHP) with Health Savings Account (HSA) A HDHP with a complimentary HSA
provides traditional medical coverage and a tax-free way to assist
employees in building a savings for future medical expenses. The HSA
gives members both greater flexibility and discretion on how the
members utilize the services of health care providers. With the
exception of preventive care, members must meet the annual deductible
before the plan pays. The
employer works with the plan administrator (insurer or TPA) on how to
provide coverage for preventive care services with three possible
approaches; 1) first dollar coverage for preventive care, 2) a
separate reduced deductible, 3) a co-payment to a participating
network provider. Features of the HSA include
►
cash account ►
contributions are tax-deductible ►
interest earned is tax-free unless used for non-qualified medical
expenses, in which case the interest is tax deferred until it is
withdrawn. ►
withdrawals for Internal Revenue Service qualified
medical expenses
are tax-free ► network participating providers reduce the out-of-pocket cost to the member, as these network discounts are available to the member ► ownership
of the account is with each of the enrolled employees, even when the
employee changes plans, changes employers, or retires ► unused funds and interest are carried over, without limitations, year to year for the employee EligibilityBy law, HSA’s are not available to the following individuals: ► claimed
as a dependent on someone else’s Federal income tax return ► covered
by another health plan that is not a HDHP ► enrolled in a general Health Care Flexible Spending Account, however limited use FSA’s are permissible ►
enrolled in Medicare Contributions►
catch up contributions are permitted for those employees aged 55 –
65 ►
deadline for contributions is April 15 of the subsequent year ►
employee contributes, however an employer may decide to contribute,
and these contributions by the employer are not taxable income to the
employee ►
cannot exceed the lesser of the policy deductible or the IRS
determined maximum ►
for year 2005 the IRS maximum contribution is $2,650 for
individual coverage and $5,250 for family coverage ►
generally, employee contributions made on a pre-tax basis, through a
cafeteria benefit plan ►
individuals may contribute additional funds at any time during the
year up to the maximum limits ►
individual owners of the HSA
account are responsible for ensuring that contributions do not exceed
annual maximum ► no minimum contribution required by law, plan administrator may set a minimum contribution Eligible Expenses► all
expenses under Section 213(d) of the IRS code ► COBRA and short term premium ► account
owner, not the employer, is responsible to substantiate the proper use
of these funds ► employee
maintains adequate records for compliance to the plan to substantiate
claims made during a possible IRS audit ► HSA
funds used for purposes other than medical are considered taxable
income and an additional excise penalty of 10% applies if under age
65, hence the reason for the maintenance of records by the member on
purchases Health
Reimbursement Account (HRA) A HRA provides traditional medical coverage with a high
deductible plan chosen by the employer along with an employer-funded
account that reimburses the employees for eligible medical expenses.
The employer decides how much they wish to contribute to the HRA
fund. The contribution is
discretionary however; it is an incentive to the member to use the
health benefit as necessary if there is an illness or sickness. The employer is
responsible for establishing the health plan along with the plan
administrator (insurer or TPA). The
HRA plan allows the employer
to remain in control of the benefit plan, in conjunction with the plan
administrator’s capabilities. Features of the HRA include►
HRA funds not used for any
purpose other than approved medical expenses ►
limit on the maximum accumulation as established by the employer ► network participating providers reduce the out-of-pocket cost to the member, as these network discounts are available to the member ► ownership of the account remains with the employer, if the employee terminates employment; the account balance is returned to the employer ►
withdrawals are limited to insurer / employer qualified medical
expense, similar to a current comprehensive benefit plan Eligibility►
determined by the employer in conjunction with the plan administrator,
i.e. all full time active employees regular working more than 35 hours
per week ► Health
Care Flexible Spending Account participation is permissible Contributions► Employer funds the HRA, up to the annual maximum as determined by the plan, for any covered expenses submitted for reimbursement ► HRA
contributions by the employer have generally been the halfway point of
the plan deductible, i.e. a deductible of $1,000 on medical plan the
employers HRA contribution
could be $500 Eligible Expenses►
all expenses determined by the employer and the plan administrator,
dependent on whether the plan is fully insured plan or self-funded ►
the plan can be more restrictive than the allowable Internal Revenue
Service qualified
medical expenses ►
the employer and plan administrator are responsible for substantiating
the proper use of the funds To recap the key
differences:
Considerations
that an employer needs to take into account when evaluating Consumer
Driven Health Care for the employee population; 1) Not all provider staffs are willing to release information concerning the charge for a service when an inquiry is made. 2) Members are
often reluctant to negotiate or comparison shop when it comes health
care. As CDHC’s gain in popularity these two obstacles need to be eliminated.
Please contact us
should you have an interest in implementing a Consumer Driven Health
Care plan. |
