Consumerism and High Deductable Health Care Plans

Monday, November 15, 2010

The premise is simple. Employees who are enrolled in an employer’s health care become more savvy consumers of health care products and services as their financial participation (skin in the game) increases. You say that as long as health care plans have had premium payments, deductibles, co-payments, co-insurance payments, and out-of-pocket expenses we have had a form of consumerism. And to some extent, you are correct, but only to a limited degree.

However, health care consumerism starts with a High Deductible Health Care Plan (HDHP), also known as a Consumer Driven Health Care Plan or an Account Based Health Care Plan. Along with the health care plan, some form of a “savings” (HSA), “spending” (FSA), or “reimbursement” (HRA) account is usually available to the employee. In addition, a HDHP should be paired with a high performance, effective, and efficient network of medical providers, i.e., doctors, hospitals, and pharmacists. The final component is employee education.

The U.S. Treasury Department sets the annual minimum and maximum dollar limits for high deductible health plans (HDHP). For example in 2011, the minimum deductible for single coverage in an HDHP was $1,200 and $2,400 for family coverage. Treasury also sets the HDHP maximum out-of-pocket amounts, Individual $ 5,950 and Family $ 11,900.

As mentioned earlier, HDHP’s are usually paired with either a Flexible Spending Account (FSA), Health Savings Account (HSA), or Health Reimbursement Account (HRA). Pre-tax monies are deposited into one of these accounts by the employer and/or the employee. The employee is then permitted to withdraw amounts from the account and pay for qualified medical expenses. The IRS places significant restrictions on how, when, and on what health care products and services the monies may be spent.

Flexible Spending Account (FSA): pre-tax money from either the employer and/or the employee. Accounts balances not used by the end of the plan year are forfeited. Account balances earn no interest and may not be ported to another employer or account. Full account balances are available upon the first day of the plan year, even though the account has not yet been fully funded.

Health Savings Account (HSA): the employee must be enrolled in a HDHP. Pre-tax money may come from either the employer and/or the employee. An HSA is a tax-exempt trust or custodial account set up with a qualified HSA trustee in the name of the employee. HSA trustees may be a bank, an insurance company, or anyone already approved by the IRS to be a trustee of individual retirement arrangements (IRAs) or Archer MSAs. Unused account balances rollover to next year, accounts balances are portable to another employer, health care plan or trustee. Account balances may follow employee into retirement.

Health Reimbursement Arrangements (HRA): must be funded solely by the employer. Cannot be paid through a voluntary salary reduction agreement on the part of the employee. Employees are reimbursed tax free for qualified medical expenses up to a maximum dollar amount for a coverage period. An HRA may be offered with other health plans, including FSAs.

The requirement for a HDHP to be paired with a high performance, effective, and efficient network is necessary so that employees can obtain the best possible health care at the most appropriate cost. The most appropriate cost does not translate into the cheapest or most expensive health care. A generic drug may be just as effective as its brand name counter-part and at a fraction of the cost. A visit to a retail medical clinic may be just as effective as an office to a doctor, but at a fraction of the cost and time.

The last component of health care consumerism is employee education. For the majority of a typical employee’s life, the employee has had little involvement in the selection and delivery of medical care, its alternatives, and the true cost of that care. Yes, the employee may have paid premiums, co-pays, deductibles, co-insurance payments, and other out-of-pocket expenses, but employees rarely know or care what the total cost of a procedure was. The goal of education is to help the employee make better-informed decisions about their health care expenditures and what, if any alternatives are available. Education also includes topics on medical procedures, drugs, wellness, personal safety, self-care, appropriate use of ER’s, office visits, diseases and disease management issues, how to make the best use of FSA, HSA, and HRA’s, and where to go for help and assistance.