Patient-Centered Health Benefits:How to Reduce Premium Costs and

Improve Employee Health

Tarren BragdonThe Maine Heritage Policy Center

207.321.2550tbragdon@mainepolicy.org

How Does Insurance Work?Employee Perspective

Best case– have coverage, don’t use any health care and remain healthy (net premiums cost only)

Worst case – have coverage, have catastrophic health event (net premiums + maximum out of pocket)

Everyone in betweenImportant Terms

Premium DeductibleMaximum Out-of-Pocket

13%

5%

82%

How Much Health Care Do People Actually Use?

Adults age 18-44 (privately insured all year in Northeast, 2005)

• Median (half more/half less) - $626

• Average (mean) - $2,178

Source: Medical Expenditure Panel Survey, 2005, www.meps.ahrq.gov

13%

33%

16%

20%

18%

$0 $1-$500$501-$1,000 $1,001-$2,500$2,501+

Once a High User, Always a High User?For the top 10 of every 100 health care consumers

(using more than $5,000 in 2005) in a given year (who consume 65% of all health care used)only 4 will be in the top 10 the following year (41%).

However, those 50 with the lowest consumption (less than $800 per person in 2005, using 7% of all health care used)38 will be low users the following year (75%).

Source: Agency for Healthcare Research and Quality, Nov 2007, Statistical Brief #191.

HMO 1-08

PPO 1-08 PPO 7-08 (HSA)

HMO 8-08 (HSA)

PPO 11-08

HMO 7-08

$0

$3,000

$6,000

$9,000

$12,000

$5,940$4,368

$2,532$3,492 $3,108 $3,672

$1,500

$1,500

$3,000$2,700

$4,500$5,000

$7,890

$6,318$5,532

$6,192

$8,958

$10,172 Tax Con-sequence

Annual Indi-vidual Max Out of Pocket

Annual In-dividual Premium

Series4

Typical Individual Plans

HMO$0 ded.

PPO$500 ded.

HSA$3000 ded.

HSA$2700 ded.

PPO$2500 ded.

HMO$1000 ded.

Individual (Employee-Only) ChamberChoice Plans

PPO $3.5k ded.

PPO $1k ded.

HSA - $5k ded.

HMO $1k ded.

HMO $500 ded.

$0

$6,000

$12,000

$18,000

$24,000

$30,000

$2,631 $3,717 $2,592 $4,376 $4,857

$8,500$4,000 $5,000

$5,000 $3,000

$13,681

$8,917$7,592

$10,876$8,757

Tax Con-sequence

Annual Individual Max Out of Pocket

Annual Individual Premium

Series4

Family ChamberChoice Plans

PPO $7k ded.

PPO $2k ded.

HSA - $10k ded.

HMO $2k ded.

HMO $1k ded.

$0

$6,000

$12,000

$18,000

$24,000

$30,000

$7,894$11,151

$7,747

$13,127 $14,572

$17,000$8,000

$10,000

$10,000 $6,000

$29,994

$21,551

$17,747

$26,127

$22,372

Tax Consequence

Annual Individual Max Out of Pocket

Annual Family Premium

Series4

Changing your approach…Employer Perspective

Old Model New Patient-Centered Model

Premium Premium

Health savings account (HSA)with optional employer contribution

Health reimbursement account (HRA)employer promise to pay

Real Maine Case Study

Old (Traditional) Plan$405 monthly

individual premium

$500 deductible$3,000 out-of-

pocket (OOP)Co-pays for drugs

not counted toward OOP

10% trend premium increases annually??

Old (Traditional)Plan

$0

$3,000

$6,000

$9,000

$12,000

$4,857

$3,000

$8,757

Tax Con-sequence

Annual In-dividual Max Out of Pocket

Annual In-dividual Premium

Series4

New Patient-Centered Plan$213 monthly

individual premium$5,000 deductible$5,000 out-of-

pocketDrugs subject to

deductible3%-5% trend

premium increase annually ??

New Patient-CenteredPlan

$0

$3,000

$6,000

$9,000

$12,000

$2,592

$5,000

$7,592

Tax Con-sequence

Annual In-dividual Max Out of Pocket

Series4

Quick Facts - Qualifying Health PlanMinimum deductible (2009): $1,150/$2,300Out of Pocket Max (2009): $5,800/$11,600No Rx prior to deductible (exception:

preventive Rx)Preventative allowed prior to deductibleOther non-qualifying coverage prohibitedFSA and HRA prohibited unless “limited

purpose”

Side by SideThe HMO out-of-

pocket costs are paid with post-tax dollars

The Patient-Centered Plan trades fixed premium cost for increased and broader deductible

Best and worst-case favors the Patient-Centered

Old (Tra-ditional)

Plan

New Patient-Centered

Plan

$0

$3,000

$6,000

$9,000

$12,000

$4,857

$2,592

$3,000

$5,000

$8,757$7,592

Tax Con-sequence

Annual In-dividual Max Out of Pocket

Annual In-dividual Premium

Series4

Health Reimbursement Arrangement (HRA)

Employer promises to reimburse employees for the last $3,850 of the deductible.

Administered by TPAOOP reduced to

$1,150Expected HRA

utilization (30%) ER cost $96.25

PMPM

New Patient-CenteredPlan

$0

$3,000

$6,000

$9,000

$12,000

$2,592

$1,150

$3,850

$7,592

Tax Con-se-quence

HRA

Annual Individ-ual Max Out of Pocket

Can be attached to any health planFunded by employerAdministered by a Third Party AdministratorEmployer flexibility regarding reimbursed

expensesCan have rollover provisionStructured as “promise to pay”Not portable to employee

Quick Facts - HRAs

Health Savings Account (HSA)Triple tax advantaged

checking accountEmployer and/or

employee depositsFunds can cover any out-

of-pocket medical, dental, vision expenses +

Fully portable, owned by the employee

No employer liabilityCritical component for

patient-engagementER Cost - $83.33 PMPM

New Patient-CenteredPlan

$0

$3,000

$6,000

$9,000

$12,000

$2,592

$1,000$150

$3,850

$7,592 HRA

Annual Individ-ual Max Out of Pocket

HSA

Requires qualified health planFunded by employee, employer or bothSelf administered with assistance of

custodianEligible expenses determined by IRS (213D)Unused funds rollover (Use it or Save it, not use

it or lose it!)Employee owned and controlled account

(portable)

Quick Facts - HSAs

Quick Facts - HSA Contributions2009 contribution limits: $3,000/$5,950Partial year qualified plan coverage

allowedEmployer, employee, and family can

contributeContributions not limited by deductibleEmployer does not pay FICA on

employee’s HSA contributions made through payroll deduction

Fund lump sum or periodic (may accelerate by need)

April 15, 2010 deadline to fund 2009

Side by SideOnly the premium is

a fixed expense in the patient-centered plan

The same dollars have provided more comprehensive coverage

There is opportunity for substantial savings from the prior fixed cost

Old (Tra-ditional)

Plan

New Patient-Centered

Plan

$0

$3,000

$6,000

$9,000

$12,000

$4,857

$2,592

$3,000

$150$1,000

$3,850

$8,757$7,592

HRA

Annual In-dividual Max Out of Pocket

HSA

Annual Individual Premium

Total Monthly CostEmployer Perspective

Old ModelNew Patient-Centered

Model

Premium - $405 Premium - $216

HSA - $83 ER contribution

HRA - $96 est. cost

$405 $3965 years later (2014) – total costs

With 10% premium trend With 5% (10%) premium trend

$652 $455 ($528)

5-Year Trend - Employer

2009 2010 2011 2012 2013 2014 $-

$250

$500

$750

$405 $445 $490 $539 $593 $652

HMO Premium

2009 2010 2011 2012 2013 20140

250

500

750

$216 $227 $238 $250 $263 $276

83 83 83 83 83 8396 96 96 96 96 96 $396 $406 $418 $430 $442 $455

HSA PremiumHSA-ER ContributionHRA-ER FundingSeries4

Employee’s Cash Position in 2013 (Patient-Centered v. Traditional)

Assumes employee contributes $1,000 a year & increases contribution by 5% annually, 5% annual interest on HSA, and $800 a year in health care used on average or employee hits max OOP for worst case

2009 2010 2011 2012 2013 $(7,500)

$(5,000)

$(2,500)

$-

$2,500

$5,000

$7,500

$10,000

$12,500

$(5,931)

$-

$4,602

$7,239

$11,603

HMO - Best Case (20% EE paid) HMO - Best Case (0% EE paid)HSA - Worst Case HSA - Average HSA - Best Case

Keys to An Effective Patient-Centered BenefitFostering a culture of health care consumerism among

all employees, beginning with senior executives

Implementing a focused employee education campaign

Offering wellness programs and incentives for healthy behaviors, as well as 100 percent coverage for preventive care

Carefully constructing a benefits package that includes appropriate levels of employee financial responsibility

Patient-Centered Plans – Majority of Patients Control All Their Spending

0 10 20 30 40 50 60 70 80 90 100 $-

$2,500

$5,000

$7,500

$10,000

$12,500

$15,000

Percent of All Patients

Healt

h C

are

Used

by

Pati

en

t

At $2,500 deductible:76% of patients control all

health care dollars usedAll patients collectively control

41% of all health care dollars used

Key Findings of Patient-Centered Employees – 1. Committed in Wellness The Blue Cross Blue Shield Association 2007 CDHP Member Experience Survey showed HSA plan members were more engaged in wellness and prevention:

Exercise program

Nutrition/diet program

Stress management

Smoking cessation

-5% 0% 5% 10% 15% 20% 25% 30%

12%

12%

8%

6%

29%

27%

22%

20%

Patient-Centered Traditional

Participate

d in

The Blue Cross Blue Shield Association 2008 CDHP Member Experience Survey showed HSA plan members researched cost and quality of providers much more:

Key Findings of Patient-Centered Employees – 2. Focused on Cost & Quality

Choose lower cost treatment option

Ask doctor about cost of treatments

Use mail order Rx

Search the Internet for a lower priced Rx

0% 10% 20% 30% 40% 50% 60%

36%

52%

43%

21%

23%

33%

30%

15%

Traditional Patient-Centered

The Blue Cross Blue Shield Association 2008 CDHP Member Experience Survey showed HSA plan members planned for health expenses more thoroughly:

Key Findings of Patient-Centered Employees – 3. Saved for the Future

Tracked Health Care Expenses

Estimated Future Health Care Expenses

Discussed Health Expenses with Physician

0% 10% 20% 30% 40% 50% 60% 70% 80%

72%

38%

38%

40%

22%

27%

Traditional Patient-Centered

Patient-Centered Health Benefits:How to Reduce Premium Costs and

Improve Employee Health

Tarren BragdonThe Maine Heritage Policy Center

207.321.2550tbragdon@mainepolicy.org

Joel AllumbaughMaine Association of Health Underwriters207.623.1110joel@nwbgroup.com

How Much Health Care Do People Actually Use? - Kids

Children (privately insured all year in Northeast, 2005)

• Median (half more/half less) - $466

• Average (mean) - $1,935

Source: Medical Expenditure Panel Survey, 2005, www.meps.ahrq.gov

9%

43%

17%

20%

11%

$0 $1-$500 $501-$1,000$1,001-$2,500 $2,501+

How Much Health Care Do People Actually Use? – Middle Age Adults

Adults age 45-64 (privately insured all year in Northeast, 2005)

• Median (half more/half less) - $1,700

• Average (mean) - $4,122

Source: Medical Expenditure Panel Survey, 2005, www.meps.ahrq.gov

8%

17%

10%

24%

41%

$0 $1-$500$501-$1,000 $1,001-$2,500$2,501+