Why Companies Should Consider Offering Health Savings Accounts

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(No Transcript)
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Why Companies Should Consider Offering Health
Savings Accounts

• Roy Ramthun, President
• HSA Consulting Services, LLC

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Current Issues in Health Care

• Employer-based insurance costs more than 13,375
  for family coverage, on average in 2009
  (Kaiser/HRET)
• Cost more than doubled in last 10 years
• Cost increase next year projected to be 7-9
• Health care costs are projected to exceed most
  companies net operating income within three years

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Current Issues in Health Care

• Most employees unaware of full cost of health
  insurance premiums
• Only see amount taken out of their paycheck
• Shocked at premium when on COBRA
• Most employees dont consider benefits part of
  compensation (i.e., in lieu of wages)
• High sense of entitlement among employees
• sick day includes day off from work, physician
  office visit and prescription

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Current Issues in Health Care

• Health care costs and insurance premiums rising
  faster than
• Inflation
• Wage growth
• Out-of-pocket payments for health care near
  historic low 15
• Patients are ill-informed about price and quality
  of care they use
• Many consume health care as if it were free

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Current Issues in Health Care

• Common preventable chronic conditions such as
  diabetes, heart disease, and obesity account for
  75 of total health care spending in the U.S.
• Incidence and prevalence of chronic conditions is
  increasing
• Major driver of health care spending increase
• Lifestyle choices are major reason for chronic
  conditions increasing
• Most chronic conditions are preventable
• Source Partnership to Fight Chronic Disease

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Current Issues in Health Care

• About 1/3 of adult Americans are obese
• Obesity rate rose 37 from 1998 - 2006
• 9.1 of health care costs (147 billion annually)
  are due to obesity-related conditions
• Spending doubled in 10 years
• Per capita medical spending is significantly
  higher (42) for obese people
• gt 1,400 more than normal weight people annually
• Diabetes costs 190 billion to treat annually
• Obesity is the single biggest risk factor for
  developing diabetes
• Source RTI International

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Current Issues in Health Care

• People who dont smoke, lose weight, get
  exercise, and stick to a good diet have a 78
  lower risk of developing chronic diseases
• People who adopt only one healthy behavior cut
  their risk in half
• People with all four health behaviors have lower
  risk of developing
• Diabetes (93 lower)
• Heart attack (81 lower)
• Stroke (50 lower)
• Cancer (36 lower)
• Source Centers for Disease Control
  Prevention/Archives of Internal Medicine, August
  2009

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Current Issues in Health Care

• Men who put on excess pounds as young adults are
  at a heightened risk of developing prostate
  cancer
• Source University of Hawaii, Cancer Research
  Center, Cancer Epidemiology, Biomarkers
  Prevention, September issue (online)
• Nearly 40 of all breast cancer cases in the U.S.
  could be prevented if women kept a healthy
  weight, drank less alcohol, exercised more, and
  breastfed their babies
• Source American Institute for Cancer
  Research/World Cancer Research Fund,
  www.dietandcancerreport.org

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Current Issues in Health Care

• When compared to 18 other industrialized
  countries, the U.S. ranks last on premature
  deaths caused by illnesses such as
• Diabetes
• Epilepsy
• Stroke
• Influenza
• Ulcers
• Pneumonia
• Source Commonwealth Fund (Health Affairs)

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Current Issues in Health Care

• Current approach is not working
• Health care costs continue to increase annually
  at rates 3 to 4 times inflation (8-12 per year)
• Higher costs ? higher quality of care
• Americans receive recommended care only 55
  percent of the time
• Americans believe they have the best health care
  delivery system in the world, yet too many people
  die from preventable medical errors

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Current Issues in Health Care

• The thing I find dismaying is the public
  doesnt recognize that its the additional
  medical care theyre getting thats driving costs
  up. They have to come to grips with the fact that
  we wont be able to slow the rise in costs
  without making trade-offs.
• Paul Ginsberg, Center for Studying Health System
  Change

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Current Issues in Health Care

• Why care about how much health care costs when
  you are spending someone elses money?

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Ten Ways Consumer Driven Health Care is a Proven
Success Greg Scandlen
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Promises, promises

• 1988, Massachusetts Governor Michael Dukakis
• Massachusetts will be the first state in the
  country to enact universal health insurance.
• 1989, Oregon Governor Barbara Roberts
• Today our dreams of providing effective and
  affordable health care to all Oregonians have
  come true.
• 1992, Tennessee Governor Ned McWherter Tennessee
  will cover at least 95 percent of its citizens.
• 1992, Vermont Governor Howard Dean
• "This is an incredibly exciting moment that
  should make all Vermonters proud."
• Similar Results in Maine, Kentucky, Washington,
  etc.

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Promises, promises

• The New Panaceas--
• Mandatory Health Information Technology
• Pay for Performance
• Disease Management
• Comparative Effectiveness Research
• Mandatory Coverage
• Insurance Exchange
• Medicaid/SCHIP Expansion
• Medicare Cuts

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What Does Work?

• Consumer Driven Health Care
• Lower Costs (KFF - HSA 9,100, HMO 13,100)
• Lower Trend (Mercer, cuts rate on increase in
  half)
• Saving for the Future (CDMR, 9.2 billion 1/1/09)
• Good for Sick as well as Healthy (Health Affairs)
• Good for Poor as well as wealthy (Save
  2,000/year?)
• Good for Alternative and Innovative Care (No
  restrictions on choice)
• Raises Participation in information, wellness,
  prevention (Vendors)
• Better Compliance, Better Health (Vendors)
• Growing Market Share (CDC, 20)

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1. CDHC Reduces Premiums

• KFF, 2008 -- Family Premiums
• HMO, 13,100
• PPO, 11,600
• HSA, 9,100
• Mercer, 2007 -- Per-Employee Premium
• PPO, 7,400
• HMO,7,100
• HSA, 5,700
• Mercer, 2008
• PPOs (with 1,000 deductible) 7,800
• CDHPs (blend of HSA, HRA) 6,200

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2. CDHC Reduces Trend

• Mercer, 2007 -- Rate of increase, 2006-2007
• HMO, 7.6
• PPO, 6.1
• HSA HRA, 3.5
• WellPoint, 2008 -- Rate of increase, 2007-2008
• HMO PPO, 7 to 10
• CDHPs, Dropped
• Cigna, 2009 --
• HMO PPO up 10
• CDHPs, down 3.3

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2. CDHC Reduces Trend

• United Benefit Advisors, 2006
• The cost of CDHPs went up just 2.7 in 2006,
  compared to 7.2 for all health plans.
• Deloitte, 2006
• 2.6 for CD Health
• 7.4 for HMOs
• 7.5 for PPOs
• 7.3 for POS
• 6.6 for traditional indemnity coverage.
• FEHBP, 2008 to 2009
• Standard Option BCBS up 13.4
• Aetna HSA, up 7
• Postal Workers and GEHA HSAs, both flat for four
  years

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3. Fund HSA with Premium Savings

• 2009 Contribution Limits
• 3,000 for Single
• 5,950 Family
• Plus 1,000 catch upfor those over 55
• American Medical News
• 2007, 9.4 billion deposited in 2,100 banks
• CD Market Report
• 9.2 billion deposited as of 1/1/09, expect 16
  billion by 1/1/11

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4. Save on Taxes with HSA

• Triply Tax Advantaged
• Employer deposits are excluded from income
• Personal deposits are deductible
• Build up is tax free
• Medical withdrawals are tax free
• Non-medical, taxable plus 10 penalty
• No deposits allowed if on Medicare, or have a
  non-qualified policy

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5. Good for Sick as well as Healthy

• Reduce OOP for High Users
• Strict limits on OOP
• Reach 100 coverage faster
• McKinsey Company
• Chronic conditions -- better compliance
• UnitedHealth, 2007
• Diabetics, more likely to see a doctor, 16 more
  likely to be tested
• CAD, CHF, 22 more likely to have lipid tests,
  26 more likely to receive potassium tests
• Cigna, 2009
• CD Health -- more compliant with medications for
  ongoing conditions, and more discerning in their
  use of medications with over-the-counter
  alternatives.
• Cost trends down 13 for CD Health enrollees, but
  18 for those with hypertension and down 20 for
  those with diabetes.

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6. Good for Poor as well as Wealthy

• Granted, no tax savings for low income, however
• Saving on premium far more important
• More efficient to pay cash -- more health care
  for same dollars
• Premium vs. deductible, a trade-off
• Examples abound of situations where premium
  savings more than covers the full deductible.
• Note on Selection
• CDH enrollees appear to be somewhat healthier and
  wealthier than others
• However, they are also much better educated
• Better educated people are more self confident
  and willing to try new things
• If education levels were controlled for, CDH
  enrollees would likely be less wealthy and less
  healthy than non-enrollees

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7. Free Choice of Provider, service

• Traditional coverage dictates the providers and
  treatments it will recognize
• HSA funds may be spent on any provider or service
  recognized by IRC 213-d, including alternative or
  holistic services
• Caution Such spending may not apply to the
  deductible

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8. CDH Changes Enrollee Behavior

• JAMA, 2007
• CDH enrollees, 10 fewer ER visits, 25 fewer
  repeat visits
• BCBSA, 2007 CDHP enrollees are more likely to
• Research doctor quality 20 of HSA enrollees
  14 of non-CDHP enrollees
• Research hospital quality 12 of HSA enrollees
  7 of non-CDHP enrollees
• Smoking Cessation 20 of HSAs 6 of non CDHPs
• Stress Management 22 of HSAs 8 of non-CDHPs
• Nutrition Programs 27 of HSAs 12 of non-CDHPs
• Exercise Programs 29 of HSAs 12 of non-CDHPs
• CIGNA, 2009
• Preventive care visits per 1,000 members was 387
  for HMO and PPO, but 448 for first year CD Health
  enrollees and 443 for second year enrollees.

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9. Market Growth is Sizzling

• CDC NHIS Survey, 2008
• 20.3 of people under age 65 are covered by a
  HDHP
• KFF/HRET Survey, 2008
• 18 of workers are covered by a HDHP.
• United Benefit Advisors, 2008
• 43 more companies offered CDHPs in 2008 than in
  2007, now comprising 13 of all plans offered.
  Employees enrolled nearly doubled from 6 in 2007
  to 11.2 in 2008.
• EBRI, 2008
• HSA Qualified enrollment for ages 21-64 9.8
  million
• Aon Consulting, 2008
• 45 of employers now offer, 39 are planning to
• Mercer, 2008
• Average PPO deductible went from 500 in 2007 to
  1,000 in 2008.

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9. Market Growth is Sizzling

• AHIP -- HSA-Qualified plans

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10. What About Satisfaction?

• This has been a problem
• Change of benefit is always suspect. J.D. Powers
  found that enrollee satisfaction always drops for
  18 months after a change of plan.
• Early research on CDHC by Towers Perrin found
  satisfaction was only 50, compared to 65 for
  traditional
• More recently, EBRI found satisfaction about
  equal on quality of care and choice of doctor,
  but less with cost and coverage generally.
• Interestingly, CDH enrollees were somewhat more
  satisfied on several other measures encourage
  good health, consider costs, and catastrophic
  protection
• Generally, satisfaction seems to be growing with
  time and education

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10. What About Satisfaction?

• However
• There is a lot to be dissatisfied about in
  American health care
• If CD Health exposes patients to the flaws in the
  system, they will be extremely dissatisfied
• But that is a healthy, appropriate
  dissatisfaction that will result in much needed
  system wide change

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Contact

• Greg Scandlen
• Consumers for Health Care Choices
• www.chcchoices.org
• 301-606-7364
• greg_at_chcchoices.org

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AAA Validates CDHPs

• The Academy of Actuaries released a public policy
  monograph in May 2009
• Emerging Data on Consumer-Driven Health Plans
• http//www.actuary.org/pdf/health/cdhp_may09.pdf)
• Report summarizes the results of the Academys
  analysis of the existing studies of
  consumer-driven health plans, focusing on the
  studies that are based on historical claims
  data, use credible methodologies, and that
  provide reasonably detailed and relevant
  results. 

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AAA Validates CDHPs

• AAA analysis addresses four main questions that
  are frequently raised regarding consumer-driven
  health plans
• Do consumer-driven health plan designs result in
  any first-year cost savings and/or favorable
  effects on cost trends beyond the first year?
• Are the apparently positive results presented by
  market participants real or the result of
  favorable selection?
• Are cost savings generated at the expense of
  necessary care or the result of delayed or
  inappropriate avoidance of care?
• Are consumer-driven health plans merely a device
  for employers to shift more of the total benefit
  cost to employees?

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AAA Validates CDHPs

• Key Academy conclusions
• All studies showed a favorable effect on cost in
  the first year of a CDHP
• Trends ranged from -4 to -15
• When compared to a control population enrolled in
  traditional plans that experienced trends of 8
  to 9, the total savings generated could be as
  much as 12-20 in the first year
• For savings after the first year, at least two of
  the studies indicate trend rates lower than
  traditional PPO plans by approximately three to
  five percent (3-5)

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AAA Validates CDHPs

• Key Academy conclusions
• All of the studies indicated that cost savings
  did not result from avoidance of appropriate care
• The studies showed that necessary care was
  obtained in equal or greater amount relative to
  traditional plans
• Three of the studies found that CDHP participants
  received recommended care for chronic conditions
  at the same or higher level than traditional plan
  (non-CDHP) participants
• Two studies reported a higher incidence of
  physicians following evidence-based care
  protocols
• All of the studies reviewed reported a
  significant increase in use of preventive
  services for CDHP participants

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High Satisfaction

• Buck Consultants survey (2009) for ACS Mellon
  indicates that most employers and account holders
  utilizing HSAs and HSA-qualified health plans are
  satisfied with their coverage, spend less, and
  are more engaged in managing health benefits
• Significant findings include
• 84 of account holders said their HSA-qualified
  plans are affordable
• 81 said the ability to personally control health
  care costs was an important factor that caused
  them to select an HSA
• 72 of account holders said they pay the same or
  less than with a traditional type of health plan

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High Satisfaction

• Buck Consultants survey findings (cont.)
• After moving to an HSA, more than half of account
  holders said they more closely monitor their
  health care costs
• Forty-eight percent read their medical bills more
  closely than when they did not have an HSA
• 46 percent have a better understanding of where
  their money goes
• 40 percent more closely evaluate costs before
  electing medical services
• Of the employers offering HSAs for more than
  three years
• 86 percent indicated that plan costs were the
  same or less than the previous year
• 96 of employers said that HSAs allowed the
  company to continue offering group-sponsored
  health insurance

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How HSAs Can Help Your Business

• Premium savings

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How HSAs Can Help Your Business

• Companies can provide a relatively low-cost
  catastrophic health plan and allow employees to
  fund their own HSAs
• Companies can make HSA contributions for any
  workers who purchase their own HSA-qualified
  coverage
• HSAs can be enhanced by limited purpose and
  post-deductible FSAs and HRAs

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How HSAs Can Help Your Business

• Tax savings
• HSA contributions by company are treated the same
  as payments for health insurance premiums
• Contributions can be made with or without a Sec.
  125 cafeteria plan in place
• Cafeteria plan allows employees to make the
  contributions tax-free (saves on payroll taxes)

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How HSAs Can Help Your Business

• HSA contributions are optional (but encouraged)
• Company contributions stimulate employee
  engagement and ownership of their health
• Employees can always make additional
  contributions on their own but often need the
  company to get them started before
  procrastination sets in
• Employee adoption lowers future cost trend
• Ability to save tax-free for retiree health
  expenses can be an additional retirement benefit

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How HSAs Can Help Your Business

• HSA funds can be used to pay for dental, vision,
  and other expenses not covered by your health
  insurance plan
• HSA funds can be used to pay for spouse and
  dependent expenses, even if you are unable to
  provide dependent coverage
• HSAs are easy to explain if you already offer
  FSAs or HRAs
• Employees like rollover vs. use or lose
• Employees like not having to submit receipts

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How HSAs Can Help Your Business

• Full replacement HSAs have the biggest impact
  on total cost
• Offering HSAs as a new option will segment your
  risk pool and not induce the behavior changes in
  employees who need it most
• Employer contribution is key
• Convert premium dollars previously paid by
  company into HSA contributions directly to
  employees
• Move to a defined contribution strategy

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How HSAs Can Help Your Employees

• Affordability HSAs make health insurance more
  affordable by lowering premiums
• Control Employees can make choices that are
  best for them, and physicians can be more
  effective patient advocates, without intrusion
  from insurance companies
• Security Insurance policy and the HSA account
  provide stop loss protection against high or
  unexpected medical bills

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How HSAs Can Help Your Employees

• Flexibility HSA funds can pay for current
  medical expenses, including expenses that
  insurance may not cover, or be saved for future
  needs, such as
• Health insurance or medical expenses if no longer
  working (unemployed, or retired, but not yet on
  Medicare)
• Out-of-pocket expenses when covered by Medicare
• Long-term care insurance and expenses
• Portability HSA accounts are completely
  portable, even if employees
• Change jobs or become unemployed
• Change their medical coverage or marital status
• Move to another state
• Ownership Funds roll over automatically and
  remain in the account from year to year, just
  like an IRA
• There are no use it or lose it rules for HSAs

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How HSAs Can Help Your Employees

• Preventive care usually doesnt apply to their
  deductible
• Out-of-pocket limits protect employees with
  chronic conditions
• Network discounts apply even when using HSA funds
• Employees can maximize HSA contributions
  regardless of deductible

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Contact Info

• Roy Ramthun, President
• HSA Consulting Services, LLC
• eMail roy_at_hsaconsultingservices.com
• Phone [phone]
• Web www.hsaconsultingservices.com