Ch. 5: Consumer-Driven Health Plans
What are the HDHP requirements for the 3 individual health accounts?
- HSAs must be paired w/qualified HDHP - HRAs can be paired w/HDHP as part of CDHP; w/other type of plan; or as standalone - Health FSA can be stand-alone + other health plans may be offered (but if ER offers HSA, then FSA must be limited purpose)
What are employer's responsibilities when offering CDHP?
- educate EEs to true cost of medical services + role in managing health care spending - hold EE responsible for health purchase decisions via incentives - provide clinical + financial info to EEs to promote health care consumerism - provide proactive clinical management + coaching to optimize provider efficiencies + treatment
What are the three types of individual controlled health accounts that can accompany a CDHP?
- health flexible spending arrangement (FSA) - health reimbursement arrangement (HRA) - health savings account (HSA) 3 types may take advantage of tax-favored treatment to pay copays, coinsurance, deductible, services not covered by HDHP (but only HSA or HRA can be part of true CDHP)
What are the federal tax regulations regarding more than 1 type of individually controlled health account?
- if HDHP + FSA: no ER or EE HSA contribution unless "limited purpose" FSA that covers expenses not in plan (like dental or vision) - If HDHP + HRA: No ER or EE HSA contribution - HDHP + HRA + FSA OK but may not pay same claim
How do employer contributions in a CDHP affect consumers?
- might be tiered by family status - proper ER funding + premium contribution levels affect EE acceptance, participation, behavior - ER contributions fund portion of deductible to encourage greater consumerism
What have been the cost and trends of CDHPs?
- significant 1st year cost savings + subsequent year trend rates (vs. traditional PPO) - less spending + utilization - individual ER experience may differ due to plan design, large claims, group demographics, ER contribution strategy
What are the key components of consumer-direct health plans?
1. high deductible health plan to cover catastrophic costs 2. individual health account (balanced carried forward to encourage future savings, cover expenses not paid by HDHP) 3. info sources + tools to educate re health issues + locate quality, cost-effective providers 4. communication program (enhance understanding, consumerism, health behaviors) 5. health coach or consultant (expert to help understand health info + issues, for guidance, choice, interaction w/providers) 6. proactive medical professional needed if serious chronic condition or illness (regular contact w/patients, acts as coordinator between patient + provider)
How do HSAs provide triple tax savings?
1. pre-tax (tax deductible) contributions 2. tax-free interest on investment earnings 3. tax-free distributions for qualified medical expenses
Historically, healthcare makes up how much of the US economy?
1/6 of US economy - purchasers have little financial responsibility for, nor understanding of, healthcare costs
What is the basic plan design of a CDHP?
1st dollar coverage through individual account (HSA or HRA) - if account doesn't have enough funds to cover full deductible, difference is OOP - after deductible, HDHP pays benefits (EE pays copay + coinsurance) * no federal-level reqs for CDHP - IRS sets minimum deductible + OOPM for CDHP w/HSA - no restrictions on funding - underlying plan type can be anything (PPO, HMO, POS)
What are qualified medical expenses for the 3 individual health accounts?
All permit "qualified medical expenses" that have not be reimbursed by another plan (excluding OTC drugs except prescribed drugs + insulin)
What is the relationship of CDHPs to health care cost trends?
As consumers spend less out-of-pocket, total spending on healthcare has risen - early 1970s: individuals paid 35% healthcare costs, healthcare = 6% GDP - 2008: individuals pay 12% healthcare costs; healthcare = 16% GDP (Medicare/Medicaid: 48%, Consumers: 12%)
How do price + quality transparency affect CDHPs?
CDHPs work best if EEs well informed - re provider quality, health costs, available treatment, best medical practices - must be easy to access - women + older/sick tend to use info - lowered expenditures + med OOP, but not Rx OOP
What are health flexible spending accounts?
Cafeteria plan feature since 1980s - funded on pretax basis by ER or EE - contributions must be determined before plan year - not subject to income, FICA (medicare/SS), FUTA (unemployment) taxes - use it or lose it: generally balances NOT rolled over * plan may choose to offer grace period or allow $500 to be carried over
What are health savings accounts?
Created by Medicare Modernization Act and MUST be w/HDHP that meets SPECIFIC criteria - permits tax-free funded by ER and/or EE - greater flexibility in funding, encourage participating savings - no limits on accounts to be accumulated + carried forward *fully owned by EE and portable (if EE takes distribution for unqualified expenses, amount is subject to income tax + 20% penalty)
How do communications + information affect CDHPs?
EEs should understand plan mechanics + be empowered to make informed, cost-effective personal health decisions - keep simple - trade-off vs. more complex plans whose tax advantages relatively small - health coach helps EEs navigate - general medical resources (i.e. help line) or specific individual (chronic illness) - most effective campaigns reach EEs early + often - initial media campaign critical for EE acceptance + understanding - ongoing communications for achieving + sustaining behavioral changes
Why would an ER consider HRA carryovers?
HRA accounts are ER $$ - decides whether or not to allow carryover and amount $$ - can't refund, must only reimburse for qualified medical expenses - carryover solves problem of reckless year-end spending
Who can contribute to the 3 individual health accounts?
HSA: ER and/or EE HRA: ER FSA: ER and/or EE
What are the contributions limits for the 3 individual health accounts?
HSA: IRS limits for 2011 = $3,050/$6,150 w/$1,000 catch-up HRA: none set by IRS, ER sets limits FSA: IRS limits began in 2013 ($2,500); ER may choose to set limit now
Are of the 3 individual health accounts subject to COBRA compliance?
HSA: No HRA: Yes FSA: Yes
Can you reimburse any long-term care services in the 3 individual health accounts?
HSA: Yes HRA: No FSA: No
Is there a balance carryover for the 3 individual health accounts?
HSA: Yes - no annual or lifetime limits HRA: Yes - but ER can set limits FSA: Maybe - possible $500 into next year or 2.5 month grace period OR use it or lose it
Are any of the 3 individual health accounts required to be in a trust?
HSA: assets must be held in a trust or custodial account HRA: No FSA: No
What is the tax treatment like for EE contributions in the 3 individual health accounts?
HSA: deductible (within funding limits) HRA: N/A FSA: made on pre-salary reduction basis, no FICA
What is the tax treatment like for ER contributions in the 3 individual health accounts?
HSA: excludable from gross income + FICA + FUTA wages (within funding limit) HRA: excludable from gross income + FICA+ FUTA wages FSA: excludable from gross income + FICA + FUTA wages (within funding limit)
Can you reimburse health insurance premiums in any of the 3 individual health accounts?
HSA: generally no unless receiving unemployment, COBRA, medicare HRA: yes FSA: no
What is the tax treatment like for earnings on account in the 3 individual health accounts?
HSA: generally not taxable, but might be subject to business income tax HRA: generally notional accounts, so no earnings FSA: generally notional accounts, so no earnings
Are any of the 3 individual health accounts subject to nondiscrimination compliance?
HSA: if contributions made through cafeteria plan, must satisfy caf non-discrimination rules; otherwise must be comparable for similar individuals HRA: general non-discrimination requirements for self-insured medical expense reimbursement plans FSA: general non-discriminations requirements for self-insured medical expense reimburse plans AND caf plan non-discrimination rules
Who can set up the account for the 3 individual health accounts?
HSA: individual + EE covered by qualified HDHP and NO OTHER health insurance (can't be in Medicare or tax dependent) HRA: ER FSA: ER
What is the tax treatment like for permitted distributions in the 3 individual health accounts?
HSA: no income tax to reimburse medical expenses (otherwise income tax + 20% UNELSS medicare-eligible, disabled, deceased) HRA: only for qualified medical expenses FSA: only for qualified medical expenses
Are any of the 3 individual health accounts subject to ERISA compliance?
HSA: no unless ER involvement not limited HRA: yes FSA: yes
Can you reimburse long-term care insurance premiums in the 3 individual health accounts?
HSA: yes HRA: yes FSA: no
Is there portability for the 3 individual health accounts?
HSA: yes, EEs keep even if they leave HRA: no FSA: no
Which individual health account has a use it or lose rule?
Health FSA
What is the underlying premise of CDHPs?
If directly aware of full costs, patient will scrutinize need for care, act as cost-conscious consumer
Why do CDHPs require consumers to be informed?
Individuals who don't pay for healthcare directly are unlikely to be involved in cost decisions + healthcare industry won't control costs - informed re cost issue, quality, outcomes = no notion that more care is better care - consumer behavior changes reduce demand + long-term healthcare expenses
What do managed care cost controls focus on? What do CDHP consider?
Managed care: supply side (providers) using network discounts, managed care interventions, etc. CDHP: demand side (consumer)
How are CDHPs introduced as a plan?
May be offered as option along other plans or stand-alone basis (replacing all others) - large ERs likely to introduce CDHP as option - small ERs likely to do full-replacement - stand-alone plans minimize adverse selection, max potential cost savings
How have CDHPs grown?
Now 15% of firms, 13% covered workers (in 2010) - experience significant growth in short period of time
What are the CDHP arguments regarding experience + effectiveness?
Pro: costs lowered if EEs have financial incentives + info tools to become better health care consumers Anti: high-deductible plans just shift costs to EEs, selected by health EEs, may discourage necessary care
What is the basic insurance principle reflected in CDHPs?
Protect person vs. losses that aren't expected but would cause financial hardship - if plan covers predictable + controlled claims, insured become indifferent, over-utilize, file small claims - CDHP individual accounts encourage EEs to seek out cost-effective care
What are health reimbursement arrangements?
Treasury + IRS asked by insurance companies to provide guidance since early 2002 - wanted high-deductible product w/annually funded account - permit unused balances to be used in future years - treasury + IRS OKed product w/ER funded HRA - NO EE contributions - ER limits what are reimbursable medical expenses *HRAs not ideal (even though used in CDHPs) - only permits ER contributions
What was the HDHP deductible + OOPM for 2011?
deductible: $1,200/$2,400 OOPM: $5,950/$11,900
Why do CDHPs focus on preventive care?
premise that staying healthy is cheaper than treating illness - initial screenings or physical, immunizations, well-mother/baby visits - health coach helps w/chronic illness - PPACA requires preventive services w/no EE cost-sharing for plans not "grandfathered" (existing when PPACA became effective 03/23/10 and no changes since then)
How does consumer behavior + quality of care change with CDHPs?
studies have found CDHP participants: - received same or higher levels of care than traditional plans - showed significant higher use of preventive services - received same or higher levels of care for chronic conditions (diabetes, hypertension, etc.) - use more generic drugs than in traditional plans - more engaged consumers, more likely to use online tools + info