Setting up an HDHP for Employers
Mar 9, 2010
High Deductible Health Plans (HDHP) are increasingly appearing as an option for employers to consider for their employees. This article will explain how to go through the process of installing a HDHP successfully and provide pointers in making certain it works.
High Deductible Health Plans are subject to federal Employee Retirement and Income Savings Account (ERISA) and Department of Labor (DOL) requirements. The plan deductible minimums and maximums are established annually by the government. An employer must employ deductibles The government establishes minimum deductibles that must apply for a plan to be considered a HDHP. For 2010, these minimum deductibles are $1,200 per individual and $2,400 for other than individual coverage (i.e.
employee and spouse, employee and child, full family). The deductible must include prescription coverage. The plan can pay nothing for benefits including prescriptions until the participant has exhausted these minimum deductibles. One exception is for wellness care where the deductible is inapplicable. An employer may use deductibles greater than these subject to a maximum of $5,600 per individual and $11,600 for other than an individual. This may increase slightly in 2010. The employer can pick between these amounts to determine the HDHP deductible for their plan.
Two ways exist to write a HDHP. Traditional health insurance companies issue a master policy with a large deductible and the employees receive an insured plan with a large deductible they must satisfy before the plan pays for loss. The plan normally has co- pays and out of network schedules in addition to the minimum deductible. When the maximum deductible permitted by the government or the plan max whichever is less, is met, then all loss above that is paid subject to any plan co- pays. This approach provides the employer less flexibility in plan design. The carrier provides the plan document and very little flexibility is normally included as to what the plan design includes. The carrier normally restrains the use of the deductible and keeps some of the benefit the deductible includes by charging a premium that is greater than needed to fund the deductible. The plan is also limited to the provider network selected or provided by the carrier.
The second way to establish a HDHP is to have the employer take risk and have their liability capped with a specific and excess stop loss reinsurance program. Under this approach the employer has freedom in plan design subject to ERISA and DOL restrictions. The employer must find a third party administrator (TPA) to maintain membership, collect premiums, access a provider network and administer claims. This approach is deemed “self-insured” because no insurance company provides a policy but the self insured retention kept by the employer is fully funded and the employer limits their exposure to adverse claim development with reinsurance. Unlike insured HDHP plans there is no state guaranty fund protection for claims if the plan fails. A fully insured HDHP provides this state guaranty fund protection. The state provides no regulation of the self insured plan. This is provided by the DOL at the federal level only. They require a trust account for all employee contributions and a bond to protect against defalcation or misuse of the funds in the trust. If the employer goes out of business the feds receive a preferred creditor status to use company assets to pay claims outstanding.
This approach puts the employer at risk of the layer he is retaining above the employee’s deductible subject to the reinsurance attachment point. The TPA provides a provider network at rates negotiated by the provider. This often leads to reductions in cost for treating illness or injury not realized under traditional health plans. Put another way, this cost savings may enable the employer to make better use of the same health dollars for claims than realized in traditional fully insured claim payment system. The claim remains unchanged but the cost receives favorable Explanation of Benefit treatment that enables the employer to receive more claim payments from the same premium dollar than the traditional policy provided.
This phenomenon combined with the impact of the employee deductible helps the employer gain control over his cost of health risk.
The HSA (Health Savings Account) provides the employee a means to fund his plan deductible using pre tax dollars. Individual employees may contribute up to $3,050 into these accounts in 2010 and other than single employees are eligible to pay up to $6,150 in 2010. When payments are made for health expenses incurred form these accounts the payments remain pre tax. Interest earned on funds in the account are tax deferred. Employers may contribute to these but there is no requirement to do so.
The employer can add medical tourism to the plan if he chooses. This enables employees to access medical care outside the country at greatly reduced rates and to receive treatment funded by their HSA accounts that are not covered by the HDHP plan.
HDHP are not for small employers but if an employer has more than 70 participants it is worth a look to determine if the costs and benefits exist. For employers over one hundred lives a HDHP can realize significant improvements in outcomes, provide employer control over the health expense and help the employer and employee both receive the most effective use for their respective benefit premiums.
The trendy management idea is that the world is now flat. Not sure I agree but it has caused us to morph into a new type of company.
Our approach is to take any budget ($500,000 minimum) insurance or benefit expense and seek options that provide better control and use and hopefully, a reduction. This may involve our traditional captive management service but more likely it may involve us in creating a solution. For instance, we can create fully insured national MEWA programs for associations and members seeking to pool their experience and obtain better and more affordable group benefits. We did that for the LPL stock brokers through one of our strategic partners. We use HDHP self insured health plans combined with a HSA account run by First Horizon. This combined with effective claims TPA work accessing major medical network at their network rates offers employers much greater transparency, better effective use of funds and control over plan and costs. We have even devised a VEBA arrangement using a captive that is much more efficient than what Coke did and equally or more legal than their approach.
Making outside the box and building custom solutions using a network of strategic partners operating independently makes for a lower cost solution with better quality. It also insures the avoidance of any agendas or conflicting interests impeding communication to the client.
It saves overhead and reduces waste.
To glue this network together this we have an incredible software system put out by our strategic partner IDMI. They provide complete software solutions for any project we tackle that needs their help. It provides full access and real time operation over the Internet for anyone using it at whatever level of use they need. Chubb used it to write their flood insurance program nationwide and rejected their own systems in doing so.
We are a revolution. Can we re do a paradigm for you or any of your customers? Maybe we flatten their world.
Bill Ford, CEO
Privately Held Insurance
CPCU CIC ARM AAI CLU JD
201 Byrd Court
Warner Robins, Ga. 31088
Phone: 478 971 3544
Fax: 478 953 9942
Cell: 678 477 2087
Email: bford@privatelyheldinsurance.com
website: www.privatelyheldinsurance.com
