Today’s small to mid-size employers and employees are challenged by rising healthcare costs to find effective ways to afford, maintain and manage their healthcare spend.
According to a study of small businesses, cost is a significant concern – with rising healthcare costs and the cost of insurance benefits as the top two critical issues facing their companies.
Offering customizable healthcare plans such as a self-funded consumer-driven health plan (CDHP) with stop-loss insurance paired with a health savings account (HSA) or health reimbursement arrangement (HRA) can help employers control their healthcare spend while providing an appealing benefits package to attract and retain employees, and allow employees to control and get the most out of their healthcare dollars.
Increasing Costs Leading to CDHP Popularity
According to a Kaiser Family Foundation study in 2014:-
The average annual premiums for employer-sponsored health insurance were $6,025 for single coverage and $16,834 for family coverage.
Average premiums for high-deductible health plans (HDHP) with a savings option were lower than the overall average for all plan types for both single and family coverage, at $5,299 and $15,401, respectively.
As employers search for ways to afford healthcare costs and maintain benefits, providing employees with the ability to make informed healthcare choices and the transparency of healthcare spend from a self-funded plan can prove to be an affordable plan option.
And, it is one that is gaining popularity – with employers of all sizes adding CDHPs in 2014. In addition, CDHP enrollment increased from 18 percent to 23 percent for all covered employees, making it the largest one-year increase in high-deductible CDHP enrollment.
What Is a CDHP?
A CDHP, also known as a consumer-directed or consumer-driven health plan, is a health plan with a typically lower monthly premium, higher medical deductible and higher medical out-of-pocket limit than most traditional PPO plans.
CDHP plans aren’t new, they’ve been in the marketplace for 10 years. But they’re just as relevant now in the post-ACA world as they were when they were first rolled out.
Since CDHPs don’t allow copays for services such as physician office visits; lab/X-ray services; or outpatient prescription drugs before the deductible is met, employees are responsible for covering minor or routine healthcare expenses.
Once they meet their annual individual or family deductible, the plan begins paying a portion of medical benefits and prescription drug costs. When they meet their individual or family out-of-pocket maximum, the CDHP will pay 100 percent of covered benefits.
According to a recent study, adults in a CDHP were more likely than those in a traditional plan to exhibit a number of cost-conscious behaviors. The CDHP encourages them to take control of their healthcare, making them proactive in their healthcare decisions regarding care and cost.
The same study showed that those in a CDHP were more likely than those in a traditional health plan to:
- Say that they had checked whether the plan would cover care;
- Ask for a generic drug instead of a brand name;
- Talk to their doctors about prescription options and costs;
- Check the price of a service before getting care;
- Ask a doctor to recommend less costly prescriptions;
- Talk to their doctors about other treatment options and costs;
- Develop a budget to manage health care expenses.
CDHPs are commonly offered with an HSA or HRA, which allows employees to use pre-tax dollars to pay for eligible out-of-pocket healthcare costs. HSAs and HRAs are designed to work with the CDHP to keep premiums low.
What Is an HSA?
The most popular account to pair with a CDHP is an HSA.
In order to have an HSA, the employer must select a qualified high-deductible health plan (HDHP), which is a plan governed by the Internal Revenue Service (IRS). As of January 1, 2015, the HDHP must have at least a $1,300 deductible for individual coverage and $2,600 deductible for family coverage. Once the HDHP is in place, the employee can select an HSA. The HSA works much like a savings account with tax savings to pay qualified medical expenses or even to save for retirement, as defined by the IRS.
Sometimes funded by the employer, and always funded and owned by the employee, HSAs provide contributing employers with tax benefits by reducing their payroll tax liability; while employees benefit from tax-exempt contributions, earnings from interest, and investments and distributions for qualified medical expenses. For 2015, a total of $3,350 per calendar year for individuals and $6,650 for a family can be contributed.
When an employee leaves the company or the plan, funds are portable and can be used for their future qualified medical expenses.
The average cost of coverage in a CDHP paired with a tax- advantaged health savings account is 18% less than coverage in a PPO and 20% less than in an HMO. Since the HSA Is primarily funded by the employee, they are invested in making more informed decisions toward benefits usage and controlling their healthcare spend, leading to savings.
What Is an HRA?
HRAs are an IRS-approved arrangement in which employers set up and reimburse an employee for qualifying medical expenses, including doctor appointments and prescriptions.
Entirely funded and owned by the employer, HRAs must be integrated with a health benefit plan and provide benefits for eligible health expenses only. An HRA can be used with any plan, including a qualified HDHP, unlike the HSA that must be paired with a qualified HDHP.
Employees are typically either provided with a debit card for the HRA or are reimbursed after providing documentation of expenses.
An HRA has tax benefits for the employee as their employer’s contributions are not added to their gross income and they are not taxed on their HRA reimbursements. If an employee terminates employment, any unspent funds are retained by the employer’s plan.
What Is Self-Funding?
A self-funded health plan with stop-loss insurance is a plan In which an employer or other group sponsor is financially responsible for employee claims up to a certain dollar amount.
The employer’s stop-loss insurance policy then covers the remaining costs, providing protection for the employer. There are two ways stop-loss insurance protects employers from large, unexpected or catastrophic claims:
- Aggregate stop-loss insurance reimburses employers for covered claims over a certain amount for the entire group.
- Specific stop-loss insurance reimburses employers for covered claims over a certain amount for an individual.
Since self-funded claim dollars are not subject to state health insurance premium taxes, employers can get direct savings. Additionally, if an employer has lower than expected claim costs throughout the plan year, there may be an opportunity to receive a refund.
A self-funded plan allows employers to be rated based on their own risk profile versus being rated on a block of business, which can provide overall plan cost savings. With a wide range of flexible plan choices, including higher deductibles with lower premiums, and different coinsurance choices, self-funded plans can be customized to meet an employer’s needs and budget.
They also have the advantage of claim utilization reports, which include important information such as a summary of where claim dollars are being spent, or claim payments by type of service. These reports provide
detailed information on how their plan is running, help identify how their claim dollars are being used, where there are potential cost-savings changes; and provide insight to forecast future plan design changes to better meet the needs of their employees.
While a self-funded health plan may not always be a good fit , small to mid-size employers should consider them as an option to help meet their unique needs and budget as they seek to provide affordable benefits for your employees.
How They Work Together to Provide Affordability
Bringing a self-funded CDHP and stop-loss insurance together and pairing it with an HSA or HRA can offer overall affordability to both employers and employees.
A win-win strategy for employers and employees who are a good fit for a self-funded CDHP with stop-loss insurance paired with an HSA or HRA, the plan provides many advantages, including:
- Cost and tax savings from empowering and encouraging their employees to make informed healthcare choices
- Lower premiums than traditional PPO plans as a result of rates being based on their own risk profile
- Flexibility to design a plan with a higher deductible and ability to help offset deductible costs when paired with an HSA or HRA
- Transparency of healthcare spend with utilization reports
- Tax and cost savings from the use of pretax dollars with an HSA or HRA,
- Savings through their educated choices, such as selecting in-network doctors, requesting generics or developing a budget to manage their healthcare expenses
- Potential for savings with lower premiums than traditional PPO plans.
- Overall satisfaction with a full benefit Plan
Further details and Quotes ( with no obligation) from:
ERIC WALTERS Insurance Services
Health insurance including ACA plans for individuals and families and
Employee Benefits for employer groups of all sizes PLUS income protection, Dental, Vision, Life ,Pensions , Annuity,etc.
SCOTTSDALE AZ 85260