Introducing CDHP Solutions for a Successful Renewal

PrimeFlex Administrative Services, LLC 2 Hour Continuing Education Credit

GWAHU October 20, 2010

Agenda

• Health Care Law Update• CDHP Trends• Review of CDHP Solutions• 5 Steps to a Successful Renewal• Wellness – presented by Wellness

Corporate Solutions

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The New Health Care Law

• 2010– Age 26 Eligibility Rules– Non-Discrimination Rules – 105(h)

• 2011– OTC changes– Penalty Increase for Non-qualified Distributions

for HSAs– Simple Cafeteria Plan– W-2 Health Insurance Reporting Requirements

• 2013– FSA Limit $2,500

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CDHP Trends

Kaiser Foundation Study, 2010• Overall, enrollment in HSA/HDHP coverage in the group

market rose to 8.0 million in January 2010, up from 6.2 million in January 2009.

• Average Annual Deductible* $2,329 single / $4,418 family• Average Annual Out-of-Pocket Limit $2,641 single /

$5,064 family• Percentage of Policies with Unlimited Lifetime Maximum

Benefit 33% Watson Wyatt, 2009• 4 in 10 employers will raise deductibles, copayments

and out-of-pocket expenses• More employers will add ADHP as an option, not full

replacement 07/01/10

Flexible Spending Accounts

An FSA is: (IRC Section 125)• A Voluntary, Employee Benefit Program which

allows for Pre-Tax Deductions of Qualified Expenses (Un-reimbursed Medical and Dependent Care Expenses) reducing the employee’s taxable income for a higher bottom line take home pay

– Premium Only Plan - POP– Un-Reimbursed Medical - HFSA– Dependent Care Account - DCA– Premium Reimbursement Account - PRA

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FSA, cont.• Employee Pre-tax Payroll Deduction• Employer Contribution – tax-free• Two risks you must consider

– Use it or Lose it – Employee Risk• IRS rules do not allow unused $$ in the account to

be returned to the participant at the end of the Plan year

– Uniform Coverage Rule – Employer Risk• Requires the employer to have some risk in order

to save on reduced social security taxes• Requires the employer to front the employee

allocation if a legitimate medical expense occurs07/01/10

Health Reimbursement Account

• Health Reimbursement Arrangements - HRA

• A HRA is: (IRC Section 105)→ Unfunded employer responsibility – risk

retention→ Partially/Fully self funding of Section 213

expense→ Analyze the ‘true’ value of Health

Insurance→Owner decides on plan year exposure

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HRA, cont.

• HRA Maximum Employer Flexibility• No restriction on Plan Design!!!• Choice of covered expenses to reimburse:

→ Premiums and/or Deductibles → Uninsured Medical Expenses/section 213d → Dental and/or Orthodontics → Prescription Drugs and/or Vision

Expenses are only reimbursed when an expense is incurred!

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Health Savings Account

• Health Savings Accounts originate from the Medicare Prescription Drug Improvement and Modernization Act of 2003 (the “Medicare Bill”)

• IRA-like accounts providing for tax-deductible contributions, accumulations and distributions for qualified medical expenses– The Purpose?

• To encourage savings for retiree medical costs

• Encourage growth of “Consumer Driven Health Plans”

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HSA, cont.

• Employer contributions to HSA are excluded from income – can be pre-tax under Section 125

• Employee contributions to HSA are 100% deductible above the line

• HSA account is completely portable• Distributions for qualified medical expenses are

excluded from income• Distributions for other than qualified medical

expenses are permitted but are included in income and generally subject to an excise tax (exception for excise tax for death, disability or post-65 distribution)

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5 Steps to a Successful Renewal

• Step 1: Basic Guidelines for Proper Plan Design

• Step 2: Develop a “Big Picture” Renewal Strategy

• Step 3: Deliver the Renewal with Attainable Solutions

• Step 4: Combination Plans• Step 5: Implementation – Common Issues

to Avoid

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Step 1: Basic GuidelinesProper Plan Design Options:• FSA (ER & EE contributions)

– Least restrictive– Most convenient – Annual election is available from 1st day

• HRA (ER funded only) – Extremely flexible in Plan design– Liability defined – exposure known upfront– Reimbursed when incurred

• HSA (ER & EE contributions)– Most restrictive– Triple-tax exempt– Retiree medical account

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Step 2: The Big Picture

• What is your belief in CDHP?• Introduce cost savings ideas with a 3

year strategy in mind• Determine employers goals – ask

important questions• Align plan years based on your strategy

and future plan implementations

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Step 3: Deliver the Renewal

Attainable Solutions based on:• Behavioral Motivations• Financial Motivations

Let’s Take A Closure Look at Each…

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Behaviorally Motivated

• Seeking financial relief; and changing how the employees think:– HDHP Plans (2nd dollar HRA with FSA)– Even Higher HDHP (% split HRA with FSA)– QHDHP (HSA)– QHDHP (1st dollar HSA with 2nd dollar

HRA)– Paying employee, not Provider, directly

(HRA)

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Financially Motivated

• Seeking the quick fix in premiums with:– HDHP Plans (HRA & FSA)– Higher copayments (FSA)– Adding coinsurance (HRA)– Increasing payroll deductions (IRC 125 &

FSA)– Removal of the group plan or individual

medical premiums exist (PRA and/or HRA)

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Step 4: Combining Plans

• FSA & HRA – perfect match– Ordering Rules Apply

• FSA & HSA– Ltd-use FSA: dental, vision & preventative care

only• HRA & HSA

– Ltd-use or Post-deductible HRA • FSA, HRA & HSA

– Ltd-use FSA/HRA, Post-deductible HRA/FSA

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FSA-HRA Plans

FSA - Employee is responsible for next $500

HRA - Employer Reimburses 1st $1,500

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• Employer reimburses the first $1,500 of the In-network deductible

• Employee is responsible for the next $500

• HRA could pick up co-insurance after deductible is met.

HRA - HSA

• This HRA replaces the ability to contribute to an HSA altogether.

• A first dollar HRA with QHDHP can start the “consumer driven” philosophy.

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QHDHP –

HRA for a portion or all of the HSA deductible

Percentage Split HRA with FSA

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• Example is a $2,000 deductible (traditional or QHDHP)

• ER will reimburse 80% throughout the deductible

• FSA can pay employee responsibility of 20%

HSA with Post Deductible HRA• $3,000 / $6,000

deductible, 100% co-insurance.

• HSA must meet the statutory minimum ($1,200/$2,400 for 2010)

• HRA provides catastrophic coverage after the HSA deductible

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HRA –

Employer Reimburses $1,800

HSA –

Employee/Employer Contributions: $1,200

Step 5: Implementation Employer, do you have an FSA or HRA? Does your FSA/HRA renew at the same as your health plan

renewal? Did you amend your Section 125 plan to include the HSA

language? Will you fund the EEs accounts right away or through payroll?

Consequences? Will the owners be able to participate with pre-tax

contributions? Do your employees have a spouse that has “other” coverage,

like an FSA? How can we best communicate our message to the employees? Would the employer like to adopt a new or more

comprehensive wellness initiative?07/01/10

For More Information:

Lisa Collins | Area Sales Manager, Benefit Services

PrimePay | 14150 Parkeast Circle, Suite 140 | Chantilly, VA 20151

Phone: 703-286-1831 Cell: 703-220-8750 | Fax: 484.323.1531

lcollins@primepay.com | www.primepay.com

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