High Deductible Plans and Health Savings Accounts
General Background & Maryland Health Insurance Plan Experience
Agenda
Background
Maryland Health Insurance Plan (MHIP) Experience
HSA Trends in the Employer Marketplace
Questions?
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Background
HSA Overview
A Health Savings Account (HSA) is a tax-favored account owned by an individual used to pay for current and future medical expenses.
HSAs are used in conjunction with a “High Deductible Health Plan” (HDHP). – Insurance that does not cover first dollar medical expenses (except
for preventive care) – Can be an HMO, PPO or indemnity plan, as long as it meets the
requirements
HSAs were created in Medicare legislation signed into law by President Bush on December 8, 2003.
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HSA Eligibility
Any individual that: – Is covered by an HDHP – Is not covered by other health insurance – Is not enrolled in Medicare – Can’t be claimed as a dependent on someone else’s tax return
Children cannot establish their own HSAs
Spouses can establish their own HSAs, if eligible
No income limits on who may contribute to an HSA
No requirement of having earned income to contribute to an HSA
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Definition of a HDHP
Health insurance plan with minimum deductible of (for 2007): – $1,100 (self-only coverage) – $2,200 (family coverage)
Annual out-of-pocket (including deductibles and co-pays) cannot exceed (for 2007): – $5,500 (self-only coverage) – $11,000 (family coverage)
HDHPs can have: – first dollar coverage for preventive care (copays allowed) – higher out-of-pocket for non-network services
All covered benefits must apply to the plan deductible, including prescription drugs 6
Definition of a HDHP
If HDHP provides prescription drug benefit, prescription drug expenses must be subject to the annual deductible or the individual may not contribute to an HSA.
Preventive care generally does not include any service or benefit intended to treat an existing illness, injury or condition.
Certain drugs and medications can be considered preventive care.
Safe harbor list of preventive care that HDHP can provide as firstdollar coverage before minimum deductible is satisfied: – Periodic health evaluations (e.g., annual physicals) – Screening services (e.g., mammograms) – Child and adult immunizations – Obesity weight loss programs 7
HSA Contribution Rules
Contributions to HSA can be made by the employer or the individual, or both – If made by the employer, it is not taxable to the employee
(excluded from income and wages) – If made by the individual, it is an “above-the-line” deduction – Can be made by others on behalf of individual and deducted by the
individual – Beginning in 2007, individuals can make a one-time transfer from
their IRA to an HSA
For 2007, the maximum amount that can be contributed (and deducted) to an HSA from all sources is: – $2,850 (self-only coverage) – $5,650 (family coverage) 8
HSA Contribution Rules
For individuals age 55 and older, additional “catch-up” contributions to HSA allowed – 2007 - $800, 2008 - $900, 2009 - $1,000 – Contributions must stop once an individual is enrolled in any type
of Medicare.
The total amount of contributions to an HSA are based on the number of months that the individual is covered by an HDHP as of the first day of the month. – 3 months of HDHP coverage with an annual high deductible
amount of $1,200 will mean that the maximum contribution will be 3/12ths of $1,200 or $300.
“Catch-up” contributions must also be pro-rated for number of months eligible. 9
Maryland Health Insurance Plan Experience
Maryland Health Insurance Plan Experience
Enrollment & Demographics
Cost Analysis – HSA $2,500 deductible – PPO $1,000 and $500 deductible – EPO – Restricted to Medically Eligible and HIPAA Eligible – Open and closed group experience – Removed $300,000 from HSA medical experience due to $434,000
IP hospital stay
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Evolution of MHIP HDHP in Maryland
OOP Max Period July04 – June05
July05 – June06
July06 – June07
Deductible $1,200
$1,200
$2,500
End of Year
Inc. Deduct
Premiums
Subscribers
$4,500
Same as $1,000 deductible nonHDHP
88
$2,500
Same as $1,000 deductible nonHDHP
237
$2,500
23% less than $1,000 nonHDHP
845
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Maryland Health Insurance Plan – Monthly Enrollment Open Group 3,500
3,000
Members
2,500
2,000
1,500
1,000
500
0 Jul-06
Aug-06
Sep-06
Oct-06
Nov-06
Dec-06
Jan-07
Feb-07
Mar-07
Apr-07
May-07
Jun-07
Month HDHP
$1,000 PPO
$500 PPO
EPO
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Maryland Health Insurance Plan – Subscriber Income Distribution by Plan 45%
40%
35%
30%
25%
20%
15%
10%
5%
0% Income < $35,000
Notes: Income is self reported
$35,000 < Income < $55,000 HDHP
$55,000 < Income < $75,000
$75,000 < Income
Non HDHP
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Maryland Health Insurance Plan – Subscriber Demographics Closed Group Plan HDHP $1,000 PPO $500 PPO EPO Total Plan HDHP $1,000 PPO $500 PPO EPO Total Plan HDHP $1,000 PPO $500 PPO EPO Total
Subscribers 242 808 1,256 458 2,764
Total Average Age % Male 52.4 55% 51.8 50% 47.5 43% 44.2 46% 48.6 46%
Mem/Sub 1.37 1.32 1.30 1.20 1.30
Subscribers 153 579 785 325 1,842
Medically Eligible Average Age % Male 51.7 59% 50.6 50% 45.7 44% 42.5 50% 47.2 48%
Mem/Sub 1.26 1.28 1.27 1.16 1.25
Subscribers 89 229 471 133 922
HIPAA Eligible Average Age % Male 53.6 48% 54.8 49% 50.5 41% 48.5 38% 51.6 43%
Mem/Sub 1.56 1.42 1.36 1.29 1.39
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Maryland Health Insurance Plan – PMPY Cost Open Group
PMPY Cost Plan
Members
Medical
Rx
Total
469
$8,255
$951
$9,206
$1,000 PPO
1,187
$6,606
$1,236
$7,842
$500 PPO
1,701
$5,091
$1,664
$6,755
670
$8,491
$2,263
$10,753
HDHP
293
$6,420
$840
$7,260
$1,000 PPO
544
$4,452
$1,249
$5,701
1,058
$5,176
$2,087
$7,263
301
$7,783
$2,619
$10,401
Medically Eligible HDHP
EPO HIPAA Eligible
$500 PPO EPO
Notes: Per Member Per Year data on an estimated incurred basis No pre-existing exclusion for MHIP during data period
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Maryland Health Insurance Plan – PMPY Cost Closed Group
PMPY Cost Plan
Members
Medical
Rx
Total
HDHP
193
$9,029
$1,132
$10,161
$1,000 PPO
739
$5,936
$945
$6,881
$500 PPO
996
$4,814
$1,011
$5,825
EPO
378
$6,844
$1,973
$8,818
HDHP
139
$6,184
$899
$7,083
$1,000 PPO
325
$3,368
$599
$3,966
$500 PPO
641
$4,652
$1,359
$6,012
EPO
172
$5,698
$1,759
$7,458
Medically Eligible
HIPAA Eligible
Notes: Per Member Per Year data on an estimated incurred basis Rx average assumed to be same as open group No pre-existing exclusion for MHIP during data period
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Maryland Health Insurance Plan – Inpatient Utilization Statistics Closed Group
Avg. Admits
Avg. Days
Avg. Days
Members
Per 1,000
Per 1,000
Per Admit
HDHP
193
129.5
1,145.1
8.8
$1,000 PPO
739
101.5
462.8
4.6
$500 PPO
996
115.5
482.9
4.2
EPO
378
137.6
645.5
4.7
HDHP
139
122.3
482.0
3.9
$1,000 PPO
325
86.2
424.6
4.9
$500 PPO
641
98.3
418.1
4.3
EPO
172
145.3
790.7
5.4
70.0
260.0
3.7
Plan Medically Eligible
HIPAA Eligible
Pop. Avg. Notes: Utilization statistic on an immature incurred basis No pre-existing exclusion for MHIP during data period
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Maryland Health Insurance Plan – Member Out of Pocket (OOP) Expenses Closed Group
Member
Member
Tax
Total
Copays
Premiums
Savings
Member OOP
HDHP
$1,636
$1,773
($327)
$3,082
$1,000 PPO
$1,330
$3,198
$0
$4,529
$500 PPO
$1,192
$3,394
$0
$4,585
EPO
$1,291
$5,234
$0
$6,525
HDHP
$1,748
$1,773
($350)
$3,172
$1,000 PPO
$1,239
$3,198
$0
$4,437
$500 PPO
$1,313
$3,394
$0
$4,706
EPO
$1,307
$5,234
$0
$6,541
Plan Medically Eligible
HIPAA Eligible
Notes: Per Member Per Year data on an estimated incurred basis Rx copays estimated to equal 18% of total Rx cost for non HDHP Rx copays estimated as difference between $500 PPO and HDHP paid Assumed 20% tax rate
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Maryland Health Insurance Plan – Conclusions and Observations
HSA plans: – Have higher members in upper income brackets – Have a slighlty older population – Attract more male subscribers – Attract members with higher risk profiles
Pros and Cons of High Risk Pools offering HSA plans – Pros
Consistent with general trend of medical consumerism
Affords members tax advantaged savings
– Cons
Exposes High Risk Pool to anti-selection
Lower member OOP expenses increase overall loss ratio 20
HSA Trends in the Employer Marketplace
Survey results suggest CDHP growth will accelerate among smaller employers Percent of employers offering/likely to offer CDHP, by employer size
EMPLOYER SIZE
2005
2006
Very likely to offer in 2007
10-49 employees
2%
5%
13%
50-199
1%
7%
17%
200-499
5%
7%
13%
500-999
4%
6%
10%
1,000-4,999
4%
12%
15%
5,000-9,999
10%
18%
21%
10,000-19,999
19%
21%
22%
20,000 or more
22%
37%
39%
Source: Mercer 2007 National Survey of Employer-Sponsored Health Plans
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HSA-based CDHPs quickly overtaking HRAbased plans
Offer CDHP in 2006
Very likely to offer CDHP in 2007
HSAbased CDHP
HRAbased CDHP
HSAbased CDHP
HRAbased CDHP
Small employers
4%
2%
10%
8%
Large employers
6%
6%
10%
9%
Jumbo employers
22%
21%
30%
28%
Source: Mercer 2007 National Survey of Employer-Sponsored Health Plans
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Assistance required by employees enrolling in HSAbased CDHP, compared to other medical plans Large CDHP sponsors
Don't know 6%
Much more assistance 31%
Less assistance 5% About the same amount 17%
More assistance 40% Source: Mercer 2007 National Survey of Employer-Sponsored Health Plans
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Questions?