Healthcare Options Change the Game

Only a few years ago Western New Yorkers were paying health insurance premiums that were among the lowest in the nation. A typical monthly premium for HMO family coverage was in the $500-600 range as recently as 2006. Deductibles and co-pays were very modest and many of the programs were enriched with competitive enhancements. Five years of double digit rate increases driven by medical inflation, state taxes and surcharges have changed all that. Today most employers are facing renewals with monthly family rates in the $1,100 to $1,200 range. Employer-financed health insurance now trails only payroll and materials as the highest expense faced by local business.

What alterations can an employer make to change the game? Change the way subscribers interact with the medical services providers and their insurance carrier.

Many employers, especially those with experience-rated programs, have instituted wellness programs to improve the medical outcomes. While effective wellness programs help, they represent only one step toward altering the overall environment.

Consumer Directed Healthcare Programs

High Deductible Health Plans (HDHPs), paired with either Health Reimbursement Accounts (HRAs) or Health Savings Accounts (HSAs), have shown the greatest impact. These programs contain a large up front deductible ($1,200 -$1,500 single, $2,500- $3,000 family). The subscriber is responsible for the full provider negotiated price of the services until the deductible is met. Becoming aware of the actual cost of services, in lieu of the "standard" co-pay assigned to the service, has motivated many subscribers to become more discriminating "shoppers" before purchasing a prescription or service. This shopping for services has "changed the game" by incenting subscribers to become more informed consumers.

Health Reimbursement Accounts (HRAs)

HRAs are funds held by the employer specifically designated to reimburse each employee/subscriber for out of pocket expenses incurred within the health insurance program. Generally the employer designates a specific dollar amount available for each employee. The employee then submits confirmation of the out of pocket expenditure (for deductibles or co-pays) for reimbursement. The employer then reimburses up to the specific dollar amount designated. Reimbursements are tax free to the employee and tax deductible to the employer. Funds not used remain with the employer. Frequently the HRA is used with an up-front deductible that is lower than the minimum deductible required for an HSA program.

Health Savings Accounts (HSAs)

HSAs are individual savings accounts set up in the name of each employee/subscriber. The account is owned by the employee. Once funds are deposited into the account the funds belong to the employee. IRS rules allow for pre-tax deposits to the account by both the employer and the employee. For the 2010 tax year the minimum deductibles in the HDHP in order to be eligible to fund an HSA are $1,200 single and $2,400 family. The IRS allows pre-tax annual funding of the Health Savings Account at a maximum amount $3,050 single and $6,150 family.

Premiums for HDHPs are generally 30-50% lower than traditional products. Frequently a portion of the employer’s savings is directed to the HRA or HSA account allowing the employee to fund most or all of the deductible.

Federal Legislation

The new federal legislation on health care has not altered the status of HSA/HRA accounts. The primary provision in the new law relating to Health Savings Accounts increases the tax penalty for paying non-qualified expenses from the HSA account to 20% (from 10%) effective January 1, 2011. The provision requiring employers to offer health coverage to employees with minimum employer contribution to premiums starting January 1, 2013 does not address minimum employer contributions to HSA accounts. Using HDHP plans in conjunction with HSA or HRA programs will provide employers with more flexibility in dealing with the new federal requirements as they are phased in over the next several years.