| |
HSAs,
A Model of Healthcare (Part II)
- HealthDecisions.org, Opinion, Tom Cochrane
|
|
A few
weeks ago, I introduced the methodology and technology that
effectively compares various forms of health care financing
over time (HSAs, A Model of HealthCare,
Part I). More specifically, the article discussed the
merits of Health Savings Accounts (HSAs) and high
deductible health plans (HDHPs) as an alternative method
of health care funding.
The overall
objective involves enhancing awareness and understanding of
the potential benefits of HSA-based plans among all parties
involved in and affected by the health care finance decision.
Methodology
So what
exactly does this new “methodology” entail and why
is it of value? To begin with, a straightforward definition
of methodology is as follows: an analytical approach that
is comprised of a set of principles, procedures and tools.
My objective
is to provide readers with a set of principles, procedures
and tools that are especially useful in determining whether
or not the HSA funding approach makes sense given their particular
profile. Next, if the approach makes sense, the methodology
guides users in designing an optimal plan.
Principles
Principles
suggest a sense of foundation or something fundamental. In
light of a health care funding decision, the basic consideration
is whether a particular approach or plan is “good”
or “bad.”
Good or
bad depends on the audience and their respective needs and
objectives. Very generally, the plan sponsor (employer) and
the participants (employees) comprise the audience in any
employer-sponsored health care funding scenario.
From the
employer’s perspective, a good health care funding decision
results in the ability to provide employees with an attractive,
competitive health benefit program that doesn’t break
the bank.
The employee
perspective is similar. They want attractive health plan features
that are not excessively expensive in terms of out of pocket
costs or premium contributions.
Simple
enough - as a matter of principle just maximize value from
the perspectives of the primary stakeholders: the employer
and the employees. Not so simple, however, with the advent
HSAs and the requisite HDHP. HDHPs are relatively inexpensive
and HSAs have the potential to create significant value for
employees over time. These are key considerations that can
complicate any comparative analysis.
Procedures
A basic
approach for designing an optimal health care financing strategy—with
a particular emphasis on the HSA funding approach—would
involve the following procedures:
1) Maximize
value for the employer:
- Determine
that the health plan under consideration makes sense financially.
In other words, confirm that total plan costs are at least
comparable to the current program or within a defined budget
objective.
- Assess
whether total plan costs—including contribution formulas—are
sustainable over time.
2) Maximize
value for the employee:
- Attempt
to project the level of value that will be created for employees
over time through the use of HSAs. HSA funds are intended
to be spent on qualified health care expenses. However,
with a strong emphasis on funding the HSAs, residual balances
can result in asset accumulation and the creation of tangible
value.
3) Make
every effort to balance the seemingly divergent employer and
employee perspectives:
- While
the employer’s cost control desires may appear to be
at odds with the employee’s value creation goals, the
reality is that both objectives can be met simultaneously
through a proper plan design and contribution strategy.
- The
key, and I will emphasize this crucial point throughout,
is that both employer and employee must fund the HSAs. Funding
is the single most important factor driving value creation
with the HSA funding approach, and funding can be achieved
within the context of financial responsibility.
Tools
HealthDecisions.org
has partnered with Cordova Advisors to provide site visitors
with free access to a web-based application that is designed
specifically for the analysis of HSA-based plans (Click Here).
The details and results of the following case study were generated
through the use of the HSA Simulator™ application. HSA
Simulator™ and its underlying model are based on the
methodology and procedures described above.
Introduction
to a Case Study
The case
study will be based on a sample small business (Peter’s
Ads) located in southern California. Peter’s Ads is an
advertising agency with 11 employees who range in age from
22 to 52.
Peter’s
Ads is a very successful firm and the owner - you guessed
it, Peter - places a premium on talented and loyal employees.
As a result, the firm has always sponsored a very generous
health plan.
The firm’s
current health plan is a PPO. This PPO has a $250 deductible
for individuals and a $500 deductible for families. The out
of pocket maximums are $2,000 for individuals and $4,000 for
families. Office visit co-pays are $15 and in-network hospital
services are covered at 90%.
This is
a premium health plan and the costs reflect that. Total annual
costs for all 11 employees are $107,832. Peter is an especially
generous business owner who covers 100% of health plan costs
for both employees and their dependents.
Peter
has read some articles on consumer directed health care and
HSAs, and he is intrigued by possibility of enabling his employees
to become more engaged health care consumers. As a result,
Peter places a request with his insurance broker for more
information on HSAs.
Peter
wants to learn more about this new health care funding approach
and to see how it compares to the current program. While not
necessarily interested in immediate cost savings, he is interested
in hearing about solutions that may help to control future
cost increases. In addition, Peter has recently begun to consider
implementing a moderate amount of employee premium contributions,
and he would like to understand how different contribution
strategies would affect plan costs.
The next
article in this series will discuss the HSA-based
plan options that are presented to Peter’s Ads. The
article will also examine the merits of these options from
Peter’s perspective as a business owner and a plan sponsor.
|
