Need vs. Want o Filet mignon or hamburger o Vioxx or aspirin Employee noise and understanding Provider resistance Funds for accounts 2

Has created a generation of consumers unaware of the true cost of healthcare Provided little incentive to be a prudent healthcare consumer Result - the return of runaway medical inflation 3

Cost of the benefit dollar exceeds cost of real dollar $1000 in insurance benefits costs more than $1000 in cash Result – Account-based health plans 4

A healthcare program: Through plan options or Funding of claims The employee has a significantly larger stake in financial decision-making for healthcare provided under the plan If done right – THIS IS NOT A COST SHIFT – It is a responsibility SHIFT 5

Stabilize employer premium Facilitate employee behavior change Educate employees Engage employees with financial incentive Promote better healthcare spending decisions and utilization habits 6

7 Common 1 st step

8 Two or more health benefit plans offered to employees, with a differentiation in the employees cost of healthcare coverage depending upon their plan selection. One of the health plans offered usually is a high deductible health plan.

Employee chooses between: Plan A – Low deductible plan that cost $$$ per month or Plan B – Higher out of pocket exposure that cost $$ per month Typically – Seasoned employees and those with chronic conditions will select the low deductible plan. Younger and /or lower utilizers of care will select the high deductible plan 9

Employer sponsored healthcare plan with an annual deductible of $1000 or more May or may not have copays, Rx etc.. 10

One plan with high potential out-of- pocket exposure Typically, employees do not view this as coverage that is worth anything 11

Employer offers a high deductible health plan and self-funds a portion of the deductible for reimbursement to the employees. 12

Employer offers a high deductible health plan to the employees Sponsors a menu of supplemental options Employees share in the total cost of the supplemental programs. 13

Any type of plan that also offers: Flexible Spending Accounts Specific disease coverage Cancer Accident Critical Illness Gap Plan 14

Federally approved program, which allows an employer to create an arrangement or plan for reimbursing employees for a portion of their medical expenses. Most flexible account-based plan Created by the market, not the government 15

Plan design/flexibility/can be coupled with FSA Employer can fund reimbursements using savings from switching to a high deductible plan The employer determines the funding mechanism and amount Employer owns the funds until used Reimbursements are tax deductible for the employer 16

HRAs are available to any size group Employer determines how much of funds can be carried over Employee can use only for applicable medical expenses defined by the employer Employee contributions not allowed Employee does not own account 17

18 HRAs can be portable Funds available on day 1

Typically no additional EE out of pocket exposure Typically savings in year one for the employer Smaller groups total replacement, larger groups option plan 19

Tax exempt trust or custodial account established exclusively for the purpose of paying qualified medical expenses Created by the government with assistance of specific groups 20

Anyone enrolled in a qualified health plan with an annual deductible of $1,150 for self coverage and $2,300 for family. 21

High deductible plan with limited 1st dollar coverage, no Rx after 2005 Account to reimburse qualified medical expenses – 213(d) Both employee & employer may contribute to the account Tax advantages for both employee & employer Carryover provision 22

Lower premium costs for qualified plan Employer contributions are tax deductible Individual contributions are tax deductible Interest and earnings on assets are tax free, money grows tax deferred Money saved can be used for qualified medical expenses tax free for life 23

Account is portable Money remaining in account rolls over Employee sees advantage of building funds…Better healthcare consumer Catch-up provision for those 55 and older Can be used to pay COBRA and other medical insurance premiums No substantiation requirements Age 65 and over - no penalty for non-medical use of money 24

Flexibility up to maximum contribution into accounts Medicare eligible individual loses ability to deposit into HSA the month they are entitled to benefits Must be held by a bank or other qualified trustee Total contributions limited annually - all sources Potential asset accumulation = ??? 25

$2500 deductible, 100% plan Employer or Employee funds up to statutory max Physician Office Visits and Prescriptions subject to deductible Contributions Tax Free, growth Tax Free, medical IRA 26

High income Tax shelter Employer contribution strategies 27

Not ERISA Can discriminate Good for company where executive benefits are a must 28

January start date HDHP limitations – No 1 st dollar benefits or copays except for Wellness Prescriptions subject to deductible 29

Above The Line tax deduction at all income levels Use HSA to invest Pay for all other services out-of-pocket 30

Cant be covered by other plans Except Limited or Specified Benefit Plans Cant combine HSA with HRA or FSA unless designed as a specific use plan 31

Does employer limit his contributions to 50% of single rate across all tiers? Is single rate >$225 for high deductible health plan? How much are the employees currently paying? 32

If yes and yes…. 33

Take existing employee contribution and place in HSA Employee contribution + employer contribution remaining apply to high deductible health plan 34

$500 deductible, 80% plan Office visit $25, Rx $10/$30/$50 $300 single rate $900 family rate Employer pays $200 of single, employee pays balance 35

Qualified HDHP $2500 Single, $5000 Family deductible, 100% plan No office visit, Rx roll up under deductible $200 single premium, $600 family premium Employer pays $200 per employee 36

Single employee Premium$0 HSA$1200 or more Family employee Premium$400 HSA$3600 or more 37

Employer impact Less insurance company exposure = less rate increase Same cost Employee impact Keep $$$ Earn interest Better retirement Same cost Funds available ENGAGES THE EMPLOYEE!!!! 38

Questions to ask Who owns the $$ Auto adjudication All the time for everyone? Portability for employee Termination for employer Experience 39

40 Employer perspective HRAHSA Cash Flow Can vary, employer has total control 100% gone Income Statement Expenses taken as claims paid. No deduction or account contribution Expense taken as contribution made Balance Sheet Asset can accumulate and off set any potential liability No impact. NO assets

Employee perspective HRAHSA Funds Availability Full amount available on day 1 Available as contributed unless tied to credit Office Visit Can have copay or come from account Must come directly from account Pharmacy Drug card can run outside or be integrated in the program Has to be taken from the account 41

42 For additional questions or to schedule an appointment, contact Jeff McGuire or Matt Robertson. Call Daines Insurance & Financial Services, LLP