medical funding concepts

MEDICAL FUNDING CONCEPTS

APRIL 24, 2013

John C. McDonoughBenefits Consultant7225 Northland Drive, Suite 300Minneapolis, MN 55428

MARSH & McLENNAN AGENCY LLC 2April 10, 2023

Medical Funding ConceptsAgenda

• Fully Insured

• Health Reimbursement Arrangement (HRA)

• Health Savings Accounts (HSA)

• Stacked HRA/HSA

• Partially Self-insured

• Which type is best for you

MEDICAL FUNDING CONCEPTSFULLY INSURED


Fully InsuredConcepts

• Most widely used insurance type

• Entire claim risk in transferred to the carrier

• Guaranteed cost

• Incurred contracts


Fully InsuredSample Plan Design

In-Network Benefits Option 1In-network

Option 2In-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% CoverageDeductible does not apply

100% CoverageDeductible does not apply

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



Fully InsuredIncurred Contracts

Jan. 2012 Jan. 2013 Jan. 2014 Jan. 2015

12 monthFully-Insured Contract

Incurred Claims

24 month Fully-Insured Contract

Paid Claims

12 month Next Contract Year

Incurred Claims

24 monthNext Contract Year

Paid Claims


Fully InsuredAdvantages 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

MEDICAL FUNDING CONCEPTSHEALTH 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 InsuredSample Plan Design where HRA funds 75% of Deductible

In-Network Benefits Coverage purchasedIn-network

Benefits realized by EmployeesIn-network

Calendar Year Deductible $2,000 $0 single$0 family






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





Health Reimbursement Arrangements (HRA)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


Health Reimbursement Arrangements (HRA)Advantages and Disadvantages

• 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)

MEDICAL FUNDING CONCEPTSHEALTH 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 InsuredSample Plan Designs

In-Network Benefits Option 1In-network

Option 2In-network

Calendar Year Deductible $1,500 single contract$3,000 family contract







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


After deductible, 100% coverageAfter deductible, 100% coverageNo Coverage

After deductible, 100% coverageAfter deductible, 100% coverageNo Coverage

MARSH & McLENNAN AGENCY LLC

Health Savings AccountsClaim 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 10, 2023


Health Savings Accounts (HSA)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


Health Savings Accounts (HSA)Advantages and Disadvantages

• 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


MEDICAL FUNDING CONCEPTSSTACKED HSA/HRA


Stacked HSA/HRAConcepts

• 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/HRASample 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 out-of-pocket is $2,500

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Carrier pays 100% of eligible expenses over $12,500


Stacked HSA/HRAAdvantages and Disadvantages

• Advantages– Lowest guaranteed cost– Encourages consumerism

• Disadvantages– Higher administrative costs– Confusing for employees– Requires significant time for education


MEDICAL FUNDING CONCEPTSPARTIALLY SELF-INSURED


Partially Self-insuredConcepts

• 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, re-insurance, 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-insuredSample Plan Design

• Employer has the ability to create their own plan designs, but most closely mirror fully insured options


Partially Self-insuredIncurred and Paid Timeline

Jan. 2012 Jan. 2013 Jan. 2014 Jan. 2015Mar. 2013 Mar. 2014

12 monthsSelf-Funded

ContractsIncurred Claims

15 monthsSelf-Funded Contract

Paid Claims

12 monthsNext Contract Year

Incurred Claims

24 monthsNext Contract Year

Paid Claims


Partially Self-insuredStop 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 InsuranceAdvantages and Disadvantages

• 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


MEDICAL FUNDING CONCEPTSWhich 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.

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