There are two distinct threads emerging in consumer driven health care. One is financial management, which is attracting growing interest from banks and other financial institutions. The other is patient support services which help consumers better manage their own health care.
IN THIS ISSUE:
? Mid-Sized Printer Lowers Total OOP, Cuts Costs 21%
? CD Health Could Cut Costs 40%
? Actuaries See Behavioral Change as Key to HRA Success
? New Role in Health Care for Financial Institutions
? Banks Cautiously Interested in HSAs
? Bancorp Bank to Offer Private Label HSAs
? Department of Labor – HSAs are not ERISA Plans
Mid-Sized Printer Lowers Total OOP, Cuts Costs 21% with HRA
Real life results from companies that are converting to consumer driven approaches keep trickling in. The latest was written up in “Employee Benefit News” and looks at the experience of Wise Business Forms of Atlanta, Georgia. Wise has 500 employees scattered among three facilities in Pennsylvania, Indiana, and Georgia. It converted to a Definity HRA program after being notified of a 35% increase in its existing PPO plan in 2001. The CD plan was full replacement and offered employees a choice of a core plan that featured a $2,500 deductible and $1,500 out-of-pocket for a single employee, or a “buy-up” program with a $1,500 deductible and $1,000 OOP. Both plans also had a $350 allowance for prevention that did not roll over. The richer plan was chosen by 80% of employees. Interestingly, workers with claims of less than $20,000 or more than $30,000 actually had less OOP exposure than they did with the PPO. Only those with claims between $20,000 and $30,000 had more OOP exposure, according to the article. The results were dramatic, even with less cost sharing by workers. The average claims per employee dropped from $4,346 with the PPO to $3,772 in the first year of the CD plan, and $3,475 in the second year. The company has saved $639,447 in health care outlays in two years, even while offering employees a richer set of benefits. Moral of the story? Incentives matter.
CD Health Could Cut Costs 40% With Patient-Friendly Support
“Employee Benefit News” also wrote up the Galen Institute briefing on “Reports from the Field” as part of a larger story by Jill Elswick looking at what is happening with consumer driven health. The story summarizes the experience reported by Definity, Aetna, Destiny, and Lumenos, especially the lack of selection issues, the changing behavior, and the encouraging cost savings. The article goes on to cite the testimony of Arnold Milstein, MD before the Joint Economic Committee of Congress. He said CD health could eliminate 40% of current expenses, but he is worried about the inadequacy of patient-friendly information and inadequate attention to changing the behavior of the 20% of the population that spends 80% of the money. The article wraps up with a look at a study released by the American Academy of Actuaries in January. More on this below.
Actuaries See Behavioral Change as Key to HRA Success
The American Academy of Actuaries released a new monograph in January on, “The Impact of Consumer-Driven Health Plans on Health Care Costs: A Closer Look at Plans with Health Reimbursement Accounts.” The monograph was developed by a working group of 19 actuaries headed by James Murphy. The paper models a CDHP that is actuarially equivalent to a typical PPO plan and then looks at how changes in benefit design or consumer behavior could affect the costs of the plan. It poses four scenarios: Reducing the HRA amount, raising deductibles, a modest change in behavior, and a substantial change in behavior. It defines a “modest” change in behavior as shaving 3% off physician costs and none in hospital costs. “Substantial” is defined as a 7% reduction in physician costs and 2% in hospital (the paper doesn’t deal with drug costs, assuming drugs are carved out from the core benefits). The “substantial” scenario appears to be closest to what we are seeing in the market, with reductions in the out-of-pocket costs of employees, reduced employer expenses, and greater retention of HRA funds. The authors conclude, “The issue of whether HRA plans will reduce utilization relative to traditional plans is of critical importance in judging the cost effectiveness of these plans. If employees view the money in the HRA as their own, and use the decision support tools to make prudent consumer purchasing decisions, utilization savings can be material.” This conclusion has implications for HSAs as well. Clearly employees will view HSA funds as “their own” because the money does indeed belong to the consumer and is never forfeited.
New Role in Health Care for Financial Institutions
Randall Abbott, senior consultant at Watson Wyatt is pretty bullish on HSAs, according to an article in “Business Insurance.” He told a meeting of the Employers Council on Flexible Compensation (ECFC) that “HSAs tied to high-deductible health plans will become the next generation of consumer driven health plans,” according to the article by Joanne Wojcik. He focused on several aspects: 1. Separating the benefits from the financing allows for greater flexibility in program design; 2. HSAs enable employers to migrate to a defined contribution or even begin “getting out of the health care business;” 3. “This concept of asset-based plans really changes the whole idea of who is going to be in the health care business,” and encourages financial institutions to become players in health care. He calls it “a very different ballgame.”
SOURCE (requires subscription): http://www.businessinsurance.com/cgi-bin/article.pl?articleId=14441&a=a&bt=wojcik
Banks Cautiously Interested in HSAs
“The American Banker” reports on March 24 that banks “are considering whether to offer the health savings accounts created by last year’s Medicare reform law,” but are cautious because of the experience with MSAs. The article by Damian Paletta cites Ed Clift of the Merrill Merchants Bank in Bangor, Maine as saying he has been sending staffers to seminars on HSAs. “Once we get the final bit of information that we need, I think we’ll probably launch something.” Mark Baran of the American Bankers Association says, “We were pleasantly surprised at the level of interest and excitement from our member banks. I think that much of the interest has been consumer driven.” And Kathleen Thompson of the Credit Union National Association reports that their members need to find out “what kind of disclosure requirements they have to provide, as well as what sort of information they need to collect,” according to the article. The article points out that the insurance industry is not so hesitant, with 42% of companies either offering or developing HSA products.
SOURCE: http://www.americanbanker.com. You can register for a two-week trial subscription. This article was published on March 24.
Bancorp Bank to Offer Private Label HSAs
One bank that is not waiting is Bancorp Bank of Delaware, according to a later issue of “The American Banker.” The April 12 article by Lee Ann Gjertsen says, “Guidelines released last month by the Treasury Department clear up some of the concerns about these accounts?” Bancorp Bank specializes in private-label banking, and offering privately labeled HSAs for insurance companies and other administrators “seemed like a natural extension of what the bank already does,” according to bank spokesman Jill Kelly.
SOURCE: See above. The article was published on April 12, but you may also contact Jill Kelly at 302-385-5012 or e-mail HSAinfo@thebancorp.com
Department of Labor – HSAs are not ERISA Plans
The appeal of HSAs to financial institutions will certainly be helped by new Department of Labor guidelines addressing whether HSAs will be considered “employee welfare benefit plans” as defined by ERISA. The Department concluded, “HSAs generally will not constitute ’employee welfare benefit plans’ for purposes of Title I of ERISA,” nor will employer contributions to the HSA. The high deductible health plan that accompanies the HSAs, however, probably will be when it is sponsored by an employer. This comports with earlier decisions by the IRS that HSAs are not subject to COBRA continuation requirements. It is an important issue for financial institutions that are not interested in having to comply with all the ERISA reporting and disclosure regulations.
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