1. 1 Consumer Driven Health Plans

2. Health Plans Premiums Experiencing Double Digit Increases! Increasing Premiums Decreasing Benefits AND

3. 3 Who Consumes Health Care? “Nobody spends someone else’s money as carefully as they spend their own.” Milton Freidman Nobel Prize Economist  Who are the consumers of health care? Individuals NOT Employers (Plan Sponsors) NOT Health Insurance Carriers

4. 4 Acting as a Consumer : Car Insurance  Option 1  Fixed Costs  Pay $750 in Car Insurance Premiums  Potential Liability  $250 Deductible if Crash Car  Option 2  Fixed Costs  Pay $450 in Car Insurance Premiums  Savings of $300 Annually  Potential Liability  $500 Deductible if Crash Car Most Consumers choose to lower their premiums and take on more responsibility if they crash their car.

5. 5 Consumer Driven Health Plan Alternative Decrease Premiums Increase Employee Responsibility “Deductible” Employees: More aware of costs Make informed decisions Incentive to use tools to make price and quality conscious decisions Wellness Initiatives Employer: Cost effective health plan Provide a long term solution Continue to offer great benefits with savings

6. 6 Consumer Driven Health Plan Alternative BUT, I don’t want to increase my employees’ out of pocket responsibility ! You don’t have to! Preventative Procedures are covered in full “Oil Changes” Consider what employees are already liable for in copays And you can add an HRA and FSA for the deductible

7. 7 CDHP at Work Employers and Employees can share the savings and the risk, by adding a Health Reimbursement Arrangement (HRA) Employer Premiums Savings Employee Premium Savings Premiums Potential Out of Pocket “Deductible” Employee Risk HRA Employer Risk

8. 8 What is an HRA? A tax advantaged plan that employers can use to help pay for employee medical expenses.  Tax Deductible to Employer  Tax Free to Employee ( Doesn’t count as income )  Pay as you go (No prefunding requirement)  Flexible Funding Mechanism

9. 9 Savings Example #1  Traditional Co-Pay Plan  Renewal Premium Increase of 14%  Preventative Visits covered at 100%  $10 Office Visit Copay  $ 25 Specialist Copay  $100 Hospital Copay  $300/$600 Deductible  80% Coinsurance Up to $2000/$4000  CDHP with $2000/$4000 Deductible  Premium Savings of 26%  Preventative Visits covered at 100%  $2000/$4000 Deductible for all other services (Hospital, Lab, Diagnostic Doctor and Specialist Visits)  No Copays  No Coinsurance

10. Savings Example #1 Small Group Traditional Plan Proposed CDHP Plan Monthly Premium Savings Annual Premium Savings HRA Contributions (monthly premiums) (per tier)(aggregate)(per tier)(aggregate) Single8 $592.31$424.92$167.39$16,069.44$1,500.00$12,000.00 EE + Spouse2 $1,232.00$883.83$348.17$8,356.08$3,000.00$6,000.00 EE + Child3 $1,273.46$913.57$359.89$12,956.04$3,000.00$9,000.00 Family9 $1,693.99$1,215.26$478.73$51,702.84$3,000.00$27,000.00 Total22 $89,084.40 $50,000.00 SAVINGS SUMMARY HRA Utilization100%80%65%50%35%20% Annual Premium Savings$89,084.40 Less: HRA Utilization$50,000.00$40,000.00$32,500.00$25,000.00$17,500.00$10,000.00 Less: HRA Administration Fees $2,604.00 Estimated Annual Savings$36,480.40$46,480.40$53,980.40$61,480.40$68,980.40$76,480.40

11. Savings Example #3 Large Group Traditional Copay Plan CDHP $3000/ $6000 Monthly Premium Savings Annual Premium Savings HRA Contributions (monthly premiums) (per tier)(aggregate)(per tier)(aggregate) Single52 $670.04$475.06$194.98$121,667.52$2,000.00$104,000.00 EE + Spouse24 $1,440.58$988.11$452.47$130,311.36$4,000.00$96,000.00 EE + Child14 $1,393.68$1,021.37$372.31$62,548.08$4,000.00$56,000.00 Family38 $1,916.31$1,358.65$557.66$254,292.96$4,000.00$152,000.00 Total128 $568,819.92 $408,000.00 SAVINGS SUMMARY HRA Utilization 100%80%65%50%35%20% Annual Premium Savings$568,819.92 Less: HRA Utilization$408,000.00$326,400.00$265,200.00$204,000.00$142,800.00$81,600.00 Less: HRA Administration Fees $9,332.00 Estimated Annual Savings$151,487.92$233,087.92$294,287.92$355,487.92$416,687.92$477,887.92

12. HRA Flexibility – Employer Choice  Eligible Expenses (IRS 213(d)  Deductible only  Co-pays and Coinsurance  Rx  Dental and Orthodontia  Vision  How much to fund  When funding becomes available (Pre-funded, monthly, quarterly)

13. How do Employees Access HRA funds?  Manual Claims  Check  Direct Deposit  Debit Card  Vendor Specific  Auto-Pay from Carrier Claims Data Feed  Pay Provider Directly  Pay Member IRS Required Substantiation – Plan Sponsor (Employer) must require proof that Employee claims are eligible under HRA plan guidelines (i.e. eligible expense)

14. Not all HRA Administrators are Alike  Compliance  Plan Documents, Substantiation, Health Care Reform Changes  Service  Online Accounts for Employees to check Balance, Transactions, Submit claims Online  Utilization Reporting for Employer  Claims Data Feeds with Carriers  Flexibility of Plan Design

15. Flexible HRA Plan Designs Employer Employee Premiums Savings Potential Out of Pocket Responsibility “Deductible”

16. Adding A Flexible Spending Account (FSA)  What is an FSA?  A tax advantaged plan that an employer can offer as a voluntary benefit to their employees and employees can choose to contribute funds pre-tax via payroll deductions  Employer saves on payroll tax (7.65%)  Pre-tax for employees  Pre-funded  Use it or Lose it for employees  Eligible Expenses:  Deductible, Copays, Coinsurance  Dental and Orthodontia  Rx and limited OTC  Vision

17. Tax Savings for Employer Dependent Care Accounts (DCAs) can add savings too! What is a DCA? A tax advantaged plan employees can elect to contribute funds pre-tax via payroll deductions to pay for custodial care of dependents while the employee is as work Pay as you go (no prefunding required by employer) Maximum Contribution : $5000 per household Eligible Expenses Include: Custodial Care while employee is at work Daycare while employee is at work Non Eligible Expenses Include: Tuition and classes Babysitters during non work hours Qualifying dependents: A child, that is under the age of 13 and a tax dependent of the employee Spouse or tax dependent that is physically or mentally incapable of self-care

18. 18 Tax Savings Example: Small Employer # of Participating EmployeesPlan Average ContributionTotal 10FSA$1,500$15,000.00 5DCA$3,500$17,500.00 Total$32,500.00 Payroll Tax (7.65%)$2,486.25 Administration Fees$1,402.00 Employer Savings$1,084.25

19. 19 Tax Savings Example: Large Employer # of Participating EmployeesPlanAverage ContributionTotal 65FSA$1,000$65,000.00 10DCA$5,000$50,000.00 Total$115,000.00 Payroll Tax (7.65%)$8797.50 Administration Fees$4725.00 Employer Savings$4072.50

20. 20 FSA Tax Savings for Employee Without FSA/DCAWith FSA/DCA Gross Monthly Salary$2,500.00Gross Monthly Salary$2,500.00 Less: Federal Income Tax$333.50 Health Care Expenses$150.00 State Income Tax$175.00 Dependent Care$300.00 Social Security Tax$191.25Taxable Income$2,050.00 Net Income$1,800.25Less: Federal Income Tax$273.47 Health Care Expenses$150.00 State Income Tax$143.50 Dependent Care$300.00 Social Security Tax$156.83 Spendable Income$1,350.25Spendable Income$1,476.21 Monthly Savings$125.96 Annual Savings$1,511.46

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