How to use a H.R.A. to reduce PPO premiums

Utilizing a Health Reimbursement Account to reduce PPO premiums

Year after year PPO membership continues to grow as HMO’s(health maintenance organizations) remain on the decline. Each has their advantages depending on the member’s needs but traditionally HMO plans were more effective at controlling rising costs. So how do you control rising PPO costs? Most brokers would suggest increasing out of pocket costs, changing carriers or changing copays annually to reduce cost. Another option is to pair a Health Reimbursement Account with your PPO. By utilizing a H.R.A. employers are given two primary benefits: Reduced trending premiums and plan design flexibility

Unlike a Health Savings Account qualified plan, H.R.A. plans are allowed to keep copays for physician services and prescription drug cards in the plan. This allows the majority of members and processed claims to continue as though there is no change in benefit. The area of attack here is within the deductible and how it is funded. In a standard PPO a participant may have a $500 deductible to contend with before their coinsurance begins to kick in. This deductible is used for services outside the scope of routine office services as well as most hospital rendered procedures. As an employer increases their deductible their insurance premium will decrease because a larger burden for claims payment is put on the member and less on the insurer. Following is an example of how a H.R.A. can be used.

ABC Corporation currently has a PPO plan with a $500 deductible, 90/70 coinsurance, and copays for physician services and prescription drugs. By increasing their deductible to $1,500 per person an 11% premium savings is realized. At the same time, ABC Company establishes a H.R.A. through a local third party administrator. They commit to fund the last $1,000 of the deductible for each member on the plan. This leaves the member with the same deductible and out of pocket expense as the previous plan year. For a group with 100 employees an 11% premium reduction is approximately $65,000 ($6,200 average cost per member (x) 100 participants). If the company has 65 out of 100 employees meet their $500 deductible and then utilize the company’s remaining contribution to the plan then the H.R.A. concept is a wash. If only 20 people max out their deductible and the company paid out $20,000 in H.R.A. Funds, then the net savings is approximately $45,000 or approximately 7% (minus any administration fees associated with the H.R.A.) without any benefit takeaway.

In addition to reducing your overall premiums, you are also provided additional plan flexibility. Many small employers are forced to take a cookie cutter style plan where they can only elect deductibles in increments of $500/$1,000/$1,500/etc. By utilizing an H.R.A. an employer can peg its deductible where it makes most sense. Maybe a jump from a $500 to a $1,000 deductible is too much. With the H.R.A. you could adjust it to $750 by modifying your commitment to the funding.

After the first year of use you will have an idea as to how the funding worked and you can adjust according to your budget or employees usage. A utilization review can be performed in advance with either usage feedback from your current insurance carrier or via a self administered assessment which is a tool we provide to all of our clients to help them make these decisions. I hope this information has been helpful. If you need any specific help in plan design structure or H.R.A. vendors please do not hesitate to contact me directly.

John Walker
President
Level Ten Consulting, Inc.
johnwalker@levelteninc.com

A brokers Insight to Healthcare cost increases in 2008

This year has had its challenges in many areas; banking, the ongoing war, the election and the volatile markets to name a few. As an employee benefit broker I am seeing this storm of events begin to have serious implications in the group insurance market, particularly group Health Insurance. In an industry that has spent the past 6-8 years battling never ending increases I have worked diligently to duck and move to avoid having my clients face increases that were either not budgeted or not affordable. After 14 years in this industry I’m not seeing it get any easier but there are still tools available to control costs which are what I will be addressing today.

Beginning 2008 we began to see the impact of the housing market and credit crisis impact insurance renewals. Slowly we’ve seen increases being proposed that were above the current industry trend factor of 12%. Across our block of business, the last half of 2007 saw average rate increases of 11% before any plan modifications were done. For the first half of 2008 we’ve seen this figure climb to 15%. As 2008 continues we see these rates increasing monthly. Thankfully small groups with less than 50 employees on payroll are protected under SEHIRA which only allows for 25% loading for medical conditions. For groups not protected under SEHIRA we have seen increases as high as 68%.

Moving carriers has always been an option but it’s more difficult than ever due to higher initial quotes and with the economy in such turmoil most companies want as little disruption as possible. A more common practice is to change the benefit plan. This can be viewed as a takeaway by staff but if performed properly the impact can be reduced quite a bit. For example, we perform a web based utilization assessment for our clients that relies on participant feedback to understand how each component of the plan is used or not used. I highly recommend this approach as opposed to cutting benefits and waiting for the complaint line to form. It’s easy to setup and can give you valuable insight to your plan that claims reports just can’t offer. A recent assessment on a group of 180 employees showed that most of the members utilized the plan heavily but 18% had not used it at all in the past 12 months. It left us with the perfect opportunity to implement a Health Savings Account plan and saved that group of participants and the employer almost 20% of their health costs. And those participants now had an opportunity to get retain some of their contribution.

The goal at the end of the day is to develop long term cost containment strategies while meeting the benefit needs of your staff. We have found this to be an effective method to accomplish both. If you would like any advice or assistance with anything benefit related please feel free to contact me directly.

John Walker
President
Level Ten Consulting, Inc.
johnwalker@levelteninc.com312-212-8006