Tuesday Update...

Grand Rounds is up over at AggravatedDocSurge. The Doc did a particularly good job with this weeks 'Rounds -- recommended.

Okay, Just One More on HSA and HRA...

Recently, I received this email from a colleague, whose nom-de-plume is smansfield. He’s graciously allowed me to share it with you:

I love the concept of the HSA, but it appears that the QHDHP's [ed: Qualified High Deductible Health Plan] for both individual and group don't seem to offer any real savings. I can't help but think that these carriers have the pricing structure all wrong
for these plans.

I just met with a 13 person group.

They have a plan with UHC that was/is a $1,500 deductible. The renewal came in June and they decided they were going to go with a higher deductible to save on premiums. The new plan they decided on with UHC was an HSA plan with a $2,850/$5,600 deductible (although they had no idea it was an HSA plan they switched to). The new premium, $7,200 per month. They actually thought they were getting a plan that paid 100% for doctor visits. I kindly explained to them that they had no benefits until the deductible was met. So they hurriedly switched back to the $1,500 deductible prior to the end of June (renewal month). Now the premium is just over $9k per month.

So I simply show them a similar plan with another carrier for under $7k per month. My point is, they get a $1,500 deductible with dr. copays, prescription copays, etc for less than the QHDHP with a $2,850 deductible. If only the original writing agent had serviced this account, he wouldn't be losing it.

Until carriers can price these plans so that the individual or employer can see a tangible benefit, they will only have limited success. I'm not saying that the plan has to be so inexpensive that the difference in premium fully funds the HSA, but they have to get it lower.

Just my 2 cents.

Well said, and Thank You!

Wow! Now *That’s* Getting Results…

Over at Health Business Blog, proprietor David Williams recently excoriated the Bush administration for it’s underwhelming commitment to VA funding.

That was two weeks ago.

Today, the Wall Street Journal had this to say:

"Less than two weeks ago, the administration asked for an extra $975 million for this summer. Now the VA estimates it needs another $300 million prior to Sept. 30 and as much as $1.7 billion -- on top of the president's budget request -- for fiscal 2006."

The VA system is one which doesn't get a lot of play in the blog world (well, at least in my little corner of it). David's post is important, in that it heightens our awareness of that system. Thanks, Dave!

Lagniappe: I Stand Corrected (Sorta)

In the first post of my recent HRA-HSA series, I stated that there were no hard numbers identifying just how many HSA plans had been sold to date. That statement was made based on an exhaustive search of relevant government sites, but I failed to take into account the resourcefulness of my own industry.

To wit: America’s Health Insurance Plans (the carriers’ association and lobbying group) has completed a survey of their membership, and found some surprising information. According to AHIP’s report, more than a million Americans are covered by HSA-eligible medical plans. This represents a more than two-fold increase over the number of such folks only 8 months previously.

Even more remarkably, the study indicates that some 37% of those purchasing these plans were previously uninsured; that’s one good way to lower the overall number of uninsureds. And over a quarter of the group HSA plans were sold to employers who had not previously offered medical coverage.

Another common misconception with High Deductible Health Plans (HDHP) is that they’re only attractive to young, healthy individuals. But the study showed that almost half of the purchasers were over 40 years old (not exactly Medicare-fodder, but not quite spring chickens, either).

These are, of course, numbers reported by carriers, and not the gummint, so they may or may not reflect the true picture. But they’re instructive, nonetheless. My only real beef is with two numbers that are not reported:

First, there’s no breakdown by income level. This is important, because one of the objections to MSA/HSA has been that they appeal primarily to the affluent, and are typically rejected by “Joe Sixpack.” It would be nice to test the accuracy of that claim.

Second, while there are plenty of premium figures tossed around, there’s no way to tell the difference between what a group paid last year for their generic co-pay plan and how much they save (and are putting into accounts) by switching.

If and/or when those numbers become available, I’ll let you know.

HSA and HRA: Some Conclusions...

Well, that was certainly an interesting exercise: I’ve never done a 3-parter before. Any feedback is, of course, quite welcome.

Given the lengths of the previous posts, I’ll try to be brief in summation. First, it seems to me that the most important lesson to take away from this whole “debate” is that one needs to ask questions. Lots and lots of questions. Ultimately, whether you’re an employer or an employee (or self-employed, in the case of HSA), you’re going to have to live with the decisions, and its consequences, for a while.

Second, it’s critical that one avoid confusing the benefits and drawbacks of each program. The HSA certainly has an appeal to the employee, in that – by staying healthy, and exercising good judgment in health-care purchases – said employee stands to collect a nice windfall. On the other hand, an employee covered under an HRA can look forward to generally lower gross out-of-pocket expenses.

From the employer standpoint, both programs seem pretty equally matched. The HDHP that is the hallmark of the HSA can result in substantial premium savings. But the HRA obviates the need to set up funded, vested accounts for employees. And, in many ways, it’s a simpler plan to understand.

At its core, the biggest drawback to the HRA is that it seems to reward those employees who experience larger (or more frequent) claims. That is, the only way to access the extra funds that now reside in the employer’s pocket (i.e. the savings enjoyed from upping the deductible, etc) is to have a large claim, or more smaller ones. I’m not convinced that this is a positive.

My biggest beef with the HSA is the carriers really don’t price it effectively: there should be a much more dramatic difference between the High Deductible plans and the generic co-pay plans they’re designed to supplant.

Thanks for patiently slogging through all these posts, and a Special Thank You to Joe Kristan at Roth & Co for the nice links.

In case you missed 'em: Part 1 here, Part 2 here, Part 3 here

Monday Update...

Grand Rounds is up at Shrinkette's site. Check it out.

“Real Life” with HSA and HRA…

[UPDATE: I've corrected some of the numerical assumptions in the HSA section]

Okay, enough with the theory, let’s talk turkey. One of my small group clients asked me about changing their plan to an HSA. Let’s review some basic information of how this group’s plan currently works:

A small professional practice, 8 people work at the XYZ Company. Their current plan is relatively rich, with $10 office visit co-payments and a modest $500 annual deductible per person for “the big stuff.” Once the deductible’s met in a given year, the plan pays 80% of the next $5,000 of covered expenses, leaving any one person with a maximum exposure of $1,500 in a year. There’s a family maximum of two on the deductible and co-insurance. This means that, even if all 4 members of a particular family have major claims in a year, the family’s only responsible for $3,000, not $6,000.

There’s also a prescription drug card, with $10 co-pays for generics and $20 for brand names. All in all, a decent enough plan, maybe a little benefit rich, and therefore pricey, but you get what you pay for. The current monthly premium for this group is a little over $3,100.

Now, to keep things manageable, we’re going to be looking at only two alternatives. The first is the HRA; simply by increasing the deductible to $1,000, and the co-insurance participation to $1,250, the employer would save over $300 a month, or about $4,000 a year, in premiums; each covered person would have an additional $750 of potential claims participation (subject, of course, to the two per family maximum).

In its simplest form, an HRA would obligate the employer to pay (or help pay) the additional $500 added to the deductible. There are eight employees, and an additional 4 or 5 dependents (spouses, children) in this group, so we’re talking a total of a dozen or so warm bodies to be covered. On average, maybe 4 of them will have claims exceeding $500 (the original deductible) in a given year, so the employer could conceivably pocket about $2,000 in savings in this scenario. And the employees still have their office and drug card co-pays.

With the HSA, we’ll need to make more substantive changes. We’ll be bumping the individual deductible up to $1,250, and the family deductible to $2,500. We’ll also be doing away with the office visit co-pays and prescription drug cards. In other words, pretty much everything medical will be going toward the deductible until it’s satisfied. On the other hand, we’re also getting rid of the 80/20 coinsurance: once that deductible is met, the plan pays 100% -- nice. This part alone is worth the price of admission, because no one understands co-insurance.

One interesting “twist” on that deductible: a “family” is defined as two or more covered people (could be husband and wife, or single parent, or whatever), and they kind of “pool” the deductible. That is, whatever expenses any one of them has goes towards it, until the $2,500 is hit. Could be one person with a heart attack, or 3 with broken arms. Once the $2,500 threshold is met, everyone’s at 100%. The group’s premium for this plan is about $2,500, representing a $7,000+ annual savings for the employer.

Well, sorta.

Each employee is actually decreasing his potential claims exposure by $250 a year, and each family by $500. However, this comes at the expense of the 1st dollar benefits (office and rx co-pays). In order to mitigate this, the employer could contribute $50 per month for each "single," and $100 for each "family". This group has six with individual coverage, and two with family. So the employer would be contributing up to $3,600 for the singles (6 x $600), and $2,400 (2 x $1,200) for the families. This reduces the net savings to $1,000 per year.

That’s money he’ll have to spend, and which the employees would then “own.” Not necessarily a bad thing, but it changes the equation. All of a sudden, that $7,000 savings starts to go away. Granted, he doesn’t have to be that generous; he could, for example, choose to contribute less to to the accounts. But still…

Next time, some conclusions, and suggestions.