Medical Funding Concepts

MEDICAL FUNDING CONCEPTS
APRIL 24, 2013
John C. McDonough
Benefits Consultant
7225 Northland Drive, Suite 300
Minneapolis, MN 55428

MARSH & McLENNAN AGENCY LLC 2April 30, 2013
Medical Funding Concepts
Agenda
• Fully Insured
• Health Reimbursement Arrangement (HRA)
• Health Savings Accounts (HSA)
• Stacked HRA/HSA
• Partially Self-insured
• Which type is best for you

FULLY INSURED

Fully Insured
Concepts
• Most widely used insurance type
• Entire claim risk in transferred to the carrier
• Guaranteed cost
• Incurred contracts

Fully Insured
Sample Plan Design
In-Network Benefits Option 1
In-network
Option 2
In-network
Calendar Year Deductible None $750 single
$1,500 family
Coinsurance 80% coinsurance 80% coinsurance
Out-of-pocket Maximum $1,600 single
$3,200 family
$2,000 single
$4,000 family
Preventive Health Care Visits 100% Coverage
Deductible does not apply
100% Coverage
Office Visits/Urgent Care $35 copay $35 copay
Retail Health/ Convenience Care $0 copay $0 copay
Lab/Pathology/ Diagnostic Imaging 80% 80% after deductible
In/Out Patient Hospital Services 80% 80% after deductible
Emergency Room $75 copay $75 copay
Prescription Drugs
•Generic
•Preferred Brand
•Non-preferred Brand
$9 copay
$40 copay
$90 copay
$9 copay
$40 copay
$90 copay

Fully Insured
Incurred Contracts
Jan. 2012 Jan. 2013 Jan. 2014 Jan. 2015
12 month
Fully-Insured Contract
Incurred Claims
24 month
Fully-Insured Contract
Paid Claims
12 month
Next Contract Year
Incurred Claims
24 month
Next Contract Year
Paid Claims

Fully Insured
Advantages and Disadvantages
• Advantages
– Employers can effectively budget costs on an annual basis
– Easy for employees to understand
– Pre-determined premium is paid monthly irrespective of claim costs
– Incurred claim basis makes changing carriers fairly simple
• Disadvantages
– Premiums include highest percentage of taxes and assessments
- MN Premium Tax: 2.0%
- MCHA (MN high risk pool): 3.0%
- Conversion 1.0%
Total 6.0%
– Premium paid may exceed total cost of insurance

HEALTH REIMBURSEMENT
ARRANGEMENTS

Health Reimbursement Arrangements (HRA)
Concepts
• Employer purchases a large deductible to reduce overall premium costs
• Self-funded policy used to offset employee’s out of pocket costs
• HRA Plans are strictly governed by the IRS
• Solely employer-funded
• Employer’s budget determines contribution amounts
• HRAs are usually associated with high deductible health plans (HDHP)
• A number of other features are available but not widely used
– Rollovers
– Ability to pay COBRA premiums
– Etc…

Fully Insured
Sample Plan Design where HRA funds 75% of Deductible
In-Network Benefits Coverage purchased
In-network
Benefits realized by
Employees
In-network
Calendar Year Deductible $2,000 $0 single
$0 family
$6,000 family
$1,500 single
$3,000 family
100% Coverage
Office Visits/Urgent Care 75% coinsurance 75% coinsurance
Retail Health/ Convenience Care 75% coinsurance 75% coinsurance
Lab/Pathology/ Diagnostic Imaging 75% coinsurance 75% coinsurance
In/Out Patient Hospital Services 75% coinsurance 75% coinsurance
Emergency Room 75% coinsurance 75% coinsurance
Prescription Drugs
•Generic
•Preferred Brand
$9 copay
$40 copay
$90 copay
$9 copay
$40 copay
$90 copay

Claim Process
• Member incurs a claim
• Provider submits claim to Insurance Carrier
• Insurance Carrier processes the claim and applies to deductible
• Insurance Carrier sends claim to HRA administrator
• HRA administrator processes claim
• Employer verifies HRA plan costs on a weekly basis and Administrator
pays the claim from a shared account
• Member receives an Explanation of Benefits from both the Insurance
Carrier and the HRA Administrator
• Member is then billed from provider for the balance

• Advantages
– Lower guaranteed cost of insurance
– Introduces employees to consumerism
– Fairly easy to administer
• Disadvantages
– Employer assumes entire risk of the HRA account
– Can be more confusing for employees
– Requires another Summary Plan Description (SPD)
– Currently, HRAs will pay two PCORI fees ($1 pmpy for 2014)

HEALTH SAVINGS ACCOUNTS

Health Savings Accounts (HSA)
Concepts
• Not a health plan
• HSAs are accounts that can be established with a qualified high deductible
health plans (HDHP)
• Individual tax preferred accounts that can be established to fund
unreimbursed medical expenses
• Combination of a flexible spending account (FSA) and a 401(k)
– If pre-tax dollars are taken out of the account to pay for eligible
expenses, there is no tax penalty paid (similar to FSA)
– Unspent funds roll over year to year and earn interest (similar to a
401(k))
• Maximum Contributions for 2013 are $3,250/$6,450

Fully Insured
Sample Plan Designs
In-Network Benefits Option 1
In-network
Option 2
In-network
Calendar Year Deductible $1,500 single contract
$3,000 family contract
$2,500 single
$5,000 family
$3,000 family
$2,500 single
$5,000 family
100% Coverage
Office Visits/Urgent Care After deductible, 100% coverage After deductible, 100% coverage
Retail Health/ Convenience Care After deductible, 100% coverage After deductible, 100% coverage
Lab/Pathology/ Diagnostic Imaging After deductible, 100% coverage After deductible, 100% coverage
In/Out Patient Hospital Services After deductible, 100% coverage After deductible, 100% coverage
Emergency Room After deductible, 100% coverage After deductible, 100% coverage
Prescription Drugs
•Generic
•Preferred Brand
After deductible, 100% coverage
No Coverage
No Coverage

MARSH & McLENNAN AGENCY LLC
Health Savings Accounts
Claim Flow
• Member incurs a claim
• Provider submits the claim to Insurance Carrier
• Insurance Carrier processes the claim and applies discounts
• Insurance Carrier applies the claim amount to the deductible
• Insurance Carrier sends EOB to member
• Provider bills the member
• Member pays the claim using HSA account
16April 30, 2013

Unembedded vs Embedded Deductibles
• Unembedded Deductible
• For HDHPs (HSAs) with deductibles less than $2,500, the deductible is
determined by contract type rather than individual
• Family members have to hit the family deductible before benefits would
be eligible
• One member could incur the entire family deductible
• Once the family accumulates their deductible, benefits are payable
• Embedded Deductible
• For deductibles equal to or greater than $2,500, members covered
under family contracts can maintain single level protection
• In order to hit the family deductible maximum, more than one person
must have claims

• Advantages
– Introduces consumerism
– Employees own the account; it’s portable
– Unspent funds rollover year to year and earn interest
– Contributions can be made by employee and/or employer
– Contributions can be changed throughout the year
• Disadvantages
– Can create short term financial hardship
– Mandated deductible levels are higher than most other plans
– Pharmacy claims must apply to deductibles
– Complex tax implications
– Limitations on who is eligible to establish an account
– Carrier pricing is conservative at this time

STACKED HSA/HRA

Stacked HSA/HRA
Concepts
• Employer buys a Qualified HDHP with a higher deductible (usually
$5,000+) or a plan that provides 75% coinsurance after deductible
• Employees maintain an HSA eligible plan which allows them to contribute
to an HSA
• Employer implements the HRA to help cover costs in excess of HSA
deductible

Stacked HSA/HRA
Sample Plan Design
• Single coverage:
– $2,500 deductible
Employer funds $500
Member Funds $2,000
– $5,000 out of pocket maximum
Employer funds $2,000
Member funds $500
Total maximum outofpocket is $2,500
Employee
funds
$2,000
Employeefunds5%
to$500max
Carrier pays
75%
up to $7,500
HSA
First$2500
Employer
funds
$500HRA
Next$10,000
Carrier pays 100% of eligible
expenses over $12,500

Stacked HSA/HRA
• Advantages
– Lowest guaranteed cost
– Encourages consumerism
• Disadvantages
– Higher administrative costs
– Confusing for employees
– Requires significant time for education

PARTIALLY SELFINSURED

Partially Selfinsured
Concepts
• Employer takes on a greater risk by hiring a Claim Administrator to process
their claims
• Cost Components are broken into two groups
– Fixed Administrative costs, reinsurance, network management, etc…
– Variable Claims
Under most plans, the employer assumes a 125% risk corridor for their
claims
• Employer actually funds the claims
• Fixed costs are billed monthly
• Claims are processed and paid weekly
• Contracts are based on claims paid date in addition to incurred date

Partially Self-insured
Sample Plan Design
• Employer has the ability to create their own plan designs, but most closely
mirror fully insured options

Incurred and Paid Timeline
Jan. 2012 Jan. 2013 Jan. 2014 Jan. 2015Mar. 2013 Mar. 2014
12 months
Self-Funded
Contracts
Incurred Claims
15 months
Self-Funded Contract
Paid Claims
12 months
Next Contract Year
Incurred Claims
24 months
Next Contract Year
Paid Claims

Stop Loss Insurance
• Specific Stop Loss Insurance (Individual Stop Loss)
– Protects employer when eligible claims during the policy year on any
one individual exceed a specific liability limit
- When this occurs, you are reimbursed by the insurance company
• Aggregate Stop Loss Insurance (Group Stop Loss)
– Protects employer from eligible claims for the entire group that exceed
the annual aggregate liability limit
• If eligible claims for entire group exceed the aggregate liability limit (the
125% corridor), insurance company will reimburse for those claims

Partial Self Insurance
• Advantages
– Greater flexibility with plan design
– Employer pays actual claim costs
– Approximately 5% reduction in fixed fees due to avoidance of some
taxes
• Disadvantages
– More administration for the employer
– Cash flow can be an issue
– Claims could exceed expected levels
– Can be costly to convert back to a Fully Insured Contract

Which Plan type is best?

Which plan type is best?
• There are a few examples where one type fits a specific group
– Large, non-governmental employers with sophisticated HR teams
usually benefit from being Partially Self Insured
– A healthier smaller clients (less than 200 employees) that is getting a
significant increase due to a high claimant may benefit from an HRA
• At RJF/MMA, we think it is important that you are aware of the various
options and are able to select the plan type that best aligns with your
objectives and your culture

Legal/regional regulatory statement to be added here if required.

Medical Funding Concepts

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