Medical Expense Reimbursement Plan

[Guest ScottN]

Small employer is looking for a way to control health insurance plan costs. The employer is considering establishing a medical expense reimbursement plan for all employees, HC and Non-HC would have equal benefits under the plan.

The employer would move to a higher deductible plan on a fully insured basis, say from $500 to $1,000. The medical expense reimbursement plan would reimburse eligible expenses that were applied to deductible and exceeded the first $500. (The idea being the employee would still have a $500 deductible between the fully insured medical plan and the medical expense reimbursement plan.)

To make administration of plan simple, for the expense to be reimbursable, the employer would require EOB from fully insured carrier showing expenses were eligible but applied to deductible. EOB would also show when the $500 threshold had been met.

This would mean only employees participating in the employer sponsored health plan would be eligible to participate in the medical expense reimbursement plan. (Currently the employer pays nearly all of premium so participation is 100%)

Does anyone see any problems with this idea? Any comments would be appreciated.

[Larry M]

seems as if you are maing this unecessarily complex.

[i assume the employer does not intend to pay 100% of the expenses incurred between $500 and $1000, and then have the carrier pay 80 of the excess over 1,000. If the employee incurs, for example, $700 of medical expenses, the employer intends to pay him $160 - 80% of the $200 in excess of $500.)

If the carrier is required to keep track of the expenses from $500 to 1000, and provide an EOB for those as well as the ones which exceed 1,000, it will be doing the same work as if it were responsible for paying those amounts.

The only savings the company MIGHT incur are any premium tax, commission, some investment yield and insurance company risk or profit charge on the portion of claims from $500 to $1,000.

Offsetting these savings are teh expenses of the employer's administration of the claims on the first $1,000 of bills per employee.

Why not, instead, just go with a high deductible plan.

[Guest ScottN]

Larry,

You are correct in concept, with this plan the employer would pay 90% of the medical expenses between $500 and $1,000.

Since the carrier already has the administration burden because they generate an EOB showing if the expense was eligible and how much was credited to deductible, the administrative expense to the employer would be small.

The employer is concerned about benefits for it's employees staying competitive in it's industry. Their labor market is pretty tough.

The cost savings from the insurance company risk charge on the difference between a $500 and a $1,000 deductible is significant. The rate difference is over $800 per employee per year.

Since the plan design includes $10 office visit copays and prescription cards with copays, the deductible will only apply to inpatient or Lab and X-ray charges. The probabilities that the employer will save money seem to me to be very high if we can use this idea.

However, I need to make sure the medical expense reimbursement plan can stipulate expenses will only be reimbursable after the $500 threshold has been reached by the employee.

Do you see other problems?

[Larry M]

I am having difficulty justifying the carrier's annual increase in premium of $800 per employee to go from a $1,000 deductible to a $500 deductible plan.

Outpatient XRay and Lab should be a relatively small portion of the overall costs. Therefore, I shall ignore the effect of the increased dedcutible on your plan.

What you seem to be describing is a service type of arrangement for professional visits and a Rx card for prescriptions (an expensive benefit) and the extra deductible will apply only to hospital charges.

This means, to the carrier, the significant cost change is in hospital fees. The increase in deductible saves $500 on every hospital admission and most emergency outpatient hospital visits.

My guess is the annual hospital admission rate will be somewhere between 10% and 20% - that is, for every 10 persons covered (employee and dependent) I would expect 1 or 2 hospitalizations per year...equivalent to a cost of $50 to $100 per person.

If the average family size is 4, the expected cost of the deductible is $200 to $400 per year.

I do not understand the pricing - other than to discourage the employer from reducing the deductible.

Back to the question of saving money - consider getting rid of the prescription card and treat prescriptions the same as any other medical expense. What you currently have with the card is a benefit whose costs are growing at a much, much faster rate than any other segment of the medical expense beneifts - and you have no controls over its use.

Granted employees like its "convenience". But, I would guess you could replace the drug card with a $25 per quarter bonus for each employee and save money. Fortunately, you do not have to guess at the savings - you should have that information available to you and know what it is costing you.

[This message has been edited by Larry M (edited 05-31-2000).]