Integrating HSAs into Plans

[Guest budman]

How are self-insured plans integrating HSAs into their plans? How are premium savings determined for a self-insured plan when stop-loss rates are not decreasing by implementing a high deductible plan? Are self-insured plans changing to fully-insured only plans or are employers offering both of these options? What are common examples of plan offerings that employers are providing when adopting high deductible plans when they currently have a self-insured option only? How can Third Party Administrators make up the loss of pepm from the self-insured plan and/or loss of revenue from stop-loss?

[leevena]

Wow. You are asking many questions that will require more in-depth analysis and discussion than this vehicle will allow. I'll start by making some comments about each of your questions.

Integration of any type of alternative plan to a self-funded is always tricky. You should first review your contracts in place for that plan to determine the key issues, one of which you have already identified, which is the stop-loss costs. The issue you may be facing is the defragmenting of the risk, and the possibility that you may be having the good risk migrating to the HSA. (I am assuming that your HSA is fully insured)

Plan offerings vary from employer to employer. Depending on the employer strategy, the designs are can be all over the board. For example, if the employer strategy is to transition to all HSA plans in 5 years, they will be more aggressive with plan design and costs. If the employer simply wants to add an HSA, without a strategy like the first, they might offer a very simply plan with contribution costs to reflect.

Your last question makes me believe that you work for a TPA. Loss of revenue, either to a tpa or a broker losing commission is an issue. The TPA may want to look at other sources of product/services that can not only help the client, but add revenue stream.

Again, I know this only touched the surface of your questions, but I hope it helps.

Good Luck.

Lee

[Don Levit]

Budman:

Have you considered 2 separate group plans?

Why not have an underlying, limited benefits primary plan, whose benefits vary directly with the contributions made?

Benefits can grow each year, depending on contributions and claims, per participant.

The secondary plan will have a deductible, per participant, based on the total coverage of the primary plan.

In order to have 2 plans, the HSA may not be available, but you could look at other tax-advantaged entities, such as a Roth IRA.

Don Levit

[jmor99]

Budman: 1)self insured plans "integrating" HSAs--I wouldn't say that HSAs are being "integrated" into their health plans. What I see happening is that self insured employers are adding another health plan option (qualified high deductible health plan) to their current offering and adding the convenience of payroll deduction (usually pre-tax thru a 125 plan) for employee contributions to their HSA (set up at a bank).

2) How are premium savings determined? Most self insured plans are being administered by an insurance carrier. The underwriting dept. should be able to provide a suggested rate for the HDHP (as well as their current plan) which should show the savings in premium. For instance, wouldn't the COBRA rate for the HDHP differ from the COBRA rate for the employer's standard plan? 3) Are employers changing from self insured to fully insured or vice versa (because of HSAs)? No. 4)What are common examples of plan offerings by self insured plans? Perhaps it needs to be clarified that plan designs don't necessarily have anything to do with the way those plans are funded. Let's say a currently self insured employer offers it's employees a plan with a $500 deductible, 80/20 co-insurance, 2000 out-of-pocket max. They decide to offer a qualified HDHP EITHER as a replacement of the current plan OR in addition to the current plan. The HDHP must have a minimum ann. deductible of $1050/2100 (ind./fam) and a maximum $5250/10500 out-of-pocket. Any designs in between those two limits is OK. For instance, the plan could have a $1050 deductible and immediately go to 100% coverage and that would be a qualified HDHP for an individual who could then set up and contribute to an HSA. 5) How can TPAs make up for lost revenue? They can't, unless they can "convince" an employer that a TPA needs to be involved with HSA recordkeeping, which still won't make up for those kinds of revenues.

[Don Levit]

jmor99:

Thanks for your reply.

When you wrote that the underwriting department should be able to provide a suggested rate, could this be done with varying deductibles?

For example, if one has an HSA, could the deductible be determined by the balance in the HSA, as of January 1 (subject to the maximum deductible, according to federal law)?

In this way, lower claimants will have higher deductibles, and lower premiums.

How difficult would this be for an insurer to calculate once a year, per participant, rounded to the nearest $1,000?

Don Levit

[jmor99]

Hi, Don! Not sure I understand your question. When the carrier provides a suggested rate for the HDHP, the deductible for that plan is not varying. The deductible is the same all plan year long. The HSA is a totally separate item, an employee savings account that neither the insurance carrier nor the employer has anything to do with. The dollars in the HSA have nothing to do with the risk or funding or suggested rate of the HDHP.

Here's another way to look at it. Let's say I have auto insurance with a 500 deductible and it costs me $1000 a year. I decide to get a quote for a $1000 deductible and it comes back as $800. I take the high deductible plan, but I'm uncomfortable with that much exposure. So I take the $200 I saved in premium and put it in a "wreck" savings account, and I add another $300 to it. Next year I put another 200 in it (that I saved in premium). Now I've got $700. The next year I have a wreck. I take 500 out of my wreck account plus 500 out of my pocket (which is what I would have had to do if I still had the 500 ded. plan) and the auto insurer takes care of the rest. I still have 200 in my wreck account. By being a good boy and not having wrecks, I will have a mighty fine wreck account in a few years. Party time! Meanwhile, the auto insurer doesn't know or care that I have a wreck account. All they know is that they have less risk and charge accordingly. And I have "self insured" 500 of my 1,000 exposure or the whole 1,000 if you want to look at it that way.

[Don Levit]

jmor:

The varying deductibles could be possible under my first post in this thread.

Don Levit

[jmor99]

Don: Now I see your point. Frankly, I don't think it would be anymore difficult to rate than any other product. They already know utilization patterns. But here's the wall: an HSA account balance is none of the insurers business nor the employers business. They cannot be privy to the balance in my HSA account anymore than they can in my personal savings account. It's between me, the bank and the IRS ONLY. In which case the insurer won't be able to rate it.

[Don Levit]

jmor:

Right, there are some drawbacks to the HSA/HDHP arrangement.

One, is that the deductible rises with inflation, regardless of what the HSA balance may be.

Second, with a few exceptions, one can have only the HDHP in force.

One other option would be to provide a savings account with separate balances for each employee, for example, through a Roth IRA.

Similar contributions would be made to a VEBA (Voluntary Employees' Beneficiary Association) trust.

Starting in year 3, the VEBA would provide matching dollars for the balance in the savings accounts, similar to an employer match through a 401(k).

This feature would accelerate the coverage for the VEBA/savings combination plan.

This plan would be primary; the deductible under the group plan would vary each year, depending on the savings balance, and the amount of the match through the VEBA insurance trust.

Don Levit

[jmor99]

Don: It seems to me that a group would be going through an awful lot of contortions trying to duplicate the HSA/HDHP arrangement. One of the biggest differences I see is that the employee misses out on a minimum of 22.65% upfront savings on his contribution to a Roth IRA. But it's an interesting approach. I wonder what anti-discrimination issues you would run into, what with unequal contributions to the VEBA, etc.

[Don Levit]

jmor:

You bring up a valid point about the lack of tax savings initially.

With an employee-pay-all VEBA, the contributions are after-tax.

I envision this arrangement being attractive mostly to the rank-and-file, if initial tax savings are that important.

With an employee-pay-all VEBA, you have 2 attractive benefits.

First, there are no discrimination issues, if the contributions are voluntary.

Second, coverage can vary directly with the contributions made: a big advantage for an innovative "defined contribution" health plan.

Don Levit

[jmor99]

But Don: Somewhere, the employer is making contributions, either in the form of "401-k match" characteristics OR in the form of higher (or lower) health plan coverage, tied to the VEBA balances.

[Don Levit]

jmor:

If this is an employee-pay-all arrangement, then the employer is making zero contributions.

The "match" comes from the VEBA, which is also the result of employee contributions.

The match is the same "multiplier" for each participant.

The higher the participant's savings balance, the higher the total absolute dollars that are matched.

With the 2-year waiting period, the VEBA is able to accumulate dollars in order to provide the match.

As new entrants come onboard, a "reserve" can build due to their similar waiting period.

Don Levit