Consumer-Directed Health Plans

BlueAdvantageBlueAdvantage®®

A Presentation to the Delaware Health Care Commission

Tim Constantine

March 3, 2005

Blue Cross Blue Shield of Delaware and CareFirst, Inc., are independent licensees of the Blue Cross and Blue Shield Association, an association of independent Blue Cross and Blue Shield Plans.

Background

• Health care costs are projected to increase 14% annually

• Employers will absorb 9% and pass the rest on

• Employee contributions will triple unless affirmative steps are taken to curb these increases

• Employers are confronted by a weakened economy and significant health care cost increases

• Intense competition in many industries makes it difficult to pass cost increases along to customers

• As a result, a greater portion of premium costs are being shifted to employees

BackgroundHealth plans have been increasing premiums in response to rising health care costs. Annual health insurance premium increases are dramatically outpacing earnings growth for the average U.S. worker. These expenses are expected to nearly double by 2010.

18%

16%

14%

12%

10%

8%

6%

4%

2%

0%1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

12.0

18.0

14.0

8.5

0.8

5.3

8.2

10.9

12.9

13.9

Health Insurance Premiums

Overall Inflation

Worker’s Earnings

Increases in Premiums vs. Other Indicators

Source: The Wall Street Journal, June 21, 2004, Kaiser/HRET Survey of Employer Sponsored Health Benefits

Potential Solution - CDHPsEmployee Advantages Employer Advantages

Empowers employees with more control over health spending and health decisions

Preventive coverage

Easy access to health care decision tools

Possible roll-over of unspent funds

Ongoing education helps promote appropriate use of consumer-directed health funds

Friendlier way of cost shifting Provides a mechanism for more

prudent purchasing decisions by employees

Helps to stabilize medical spending

Higher employee satisfaction with self-service features

Continued education helps keep employees involved, informed and motivated

Primary driver behind consumer-directed health plans (CDHP) is the premium savings,Primary driver behind consumer-directed health plans (CDHP) is the premium savings,

through plan design change, which is shared with employees - in part or in full.through plan design change, which is shared with employees - in part or in full.

ExampleExample: ABC Corp. – 260 Employees (HSA)

Current Plan Annual Premium $1,819,980Proposed High Ded. Plan Premium $1,301,784(HSA 100/80 PPO, $1,000/$2,000 Ded.)Savings through Plan Design Change Alone $ 518,196

HSA Funding by ABC Corp (50% of Ded.)- Individual (188 employees x $500) $ 94,000- Family or 2-party (72 employees x $1,000) $ 72,000Total HSA Funding $ 166,000

ABC Corp’s Savings after HSA funds have been fully distributed ($477,384 - $166,000) $ 352,196

CDHPs

Health Health InsuranceInsuranceCoverageCoverage

Health Health Care Care

Accounts Accounts *

Online Tools and Online Tools and ResourcesResources

**HSAHSA: Health Savings Account : Health Savings Account **HRAHRA: Health Reimbursement Arrangement: Health Reimbursement Arrangement

Components of CDHPs

BlueAdvantage® CDHPBlueAdvantage® Plans:• Based on popular PPO, EPO and prescription drug plans• Offered with either a health savings account (HSA) or a

health reimbursement account (HRA) option• Freedom to choose in-network doctors without a referral• Product designs include preventive health benefits such

as:– Routine physicals– GYN exams– Mammograms– Well-child care– Vision and hearing exams

®Registered mark of the Blue Cross and Blue Shield Association

BlueAdvantage®

• Large, national network of providers through BlueCard®

– 6,100 hospitals– 600,000 providers – Out-of-country coverage in 200 countries

• Options Discount Program – Discounts on health-related products and services

such as:• Acupuncture• Chiropractic care• Fitness centers• Laser vision correction

HSA - How Does it Work?HSA Plan Design (Example: $1,000 deductible PPO plan)

• Can be funded by employer, employee or both *

• Employees contribute monies into a tax-sheltered savings account, using payroll deduction

• Employees can pay the provider using a debit card and receive the Blue discounts (after receiving provider’s bill; Rx paid at time of service) or save HSA funds for future use

• Once the deductible is met, claims are processed through the health plan

• Unused HSA balances are rolled over from year to year

Pre

ven

tive

Co

vera

ge

- 10

0%

Co

nte

nt,

To

ols

& C

are

Man

agem

ent

Ser

vice

s

PPOPPOInsuranceInsurance

$1,000$1,000

Health Health

Savings Savings

Account Account **

(Tax Sheltered)(Tax Sheltered)

High Deductible Health Plan

$1,000 Deductible

HSA Basics• Health care account is solely-owned by the employee• Unused balances roll over to following years• Accounts are portable – always belong to the member• Tax shelter for qualified medical expenses• Contributions are tax-free, growth is tax-deferred and

qualified distributions are tax-free• Needs to conform to IRS guidelines for a “qualified high

deductible health plan”• Cannot generally be combined with a flexible spending

account (FSA)• Instills employee accountability• Plan design governed by IRS guidelines and regulations

Employer Control

• Once money is given to plan participants, the employer loses control over

their contribution

• Employer can make contributions into members’ HSA accounts in any

number of installments (e.g., monthly, quarterly, annually)

Employee Accountability and Control

• Employees maintain control of their HSA funds from day one

• Employees become more educated due to the nature of HSA concepts

and spending accountability

Plan Flexibility

• Deductibles, coinsurance and contribution parameters are set and

monitored by the IRS on an annual basis

• Cannot generally be combined with a FSA

Our BlueAdvantage® HSA

• No application or setup fees

• Low monthly administration fees – free for first three months

• Competitive interest rates paid from day one

• Free, no fee AdvantageHSA debit card

• Free initial order of checks

• Online account access – through bcbsde.com or

myAdvantageHSA.com

• Powered by The Bancorp Bank (Wilmington, DE)

• 24/7 customer service

• Ability to invest balances above $2,500

HSA Account Features

Cost Calculator Sample - HSA

Company NameNumber of Eligible Employees 65

Individual FamilyPlan Deductible $1,200 $3,600

Monthly Premium Annual PremiumCurrent Plan Renewal Monthly Premium $37,916.25 $454,995.00

Proposed Plan Monthly Premium $27,120.50 $325,446.00

Savings from Plan Design Change $129,549.00

Annual Premium Percentage Savings 28.5%

Number of Employees with Single Coverage 47HSA Funding per Employee $500Subtotal $23,500

Number of Employees with Family Coverage 18HSA Funding per Employee $1,000Subtotal $18,000

Total HSA Funding $41,500

Employer Savings Based on HSA Account Funding $88,049

Estimated Annual Total Savings Percentage 19.4%

Estimated Savings Based on HSA Fund Deposits

HSA Cost Savings EstimationClient Profile

ABC Accountants, LLC

Premium Costs

HSA Funding

• 438,000 HSAs established nationwide as of September 2004– 346,000 individuals– 79,000 small businesses

• Small businesses that previously did not offer health-care coverage purchased 16% of the HSAs in small group market

• Overall, 30% of HSA purchasers previously did not have health insurance

Industry Trends

BCBSD CDHP Use• Began selling products January 1, 2005• To date, 97 HSA accounts (330 members) and

11 HRA accounts (89 members) have been sold• Most common HSA product is EPO 100 Plan –

63 plans sold• HSA products have been sold to medical

practices, attorneys and other small businesses ranging from 1 to 42 employees

• 41 of the 108 accounts represent new business

Website e-Tools

HealthInfo

Discounts

Health CostTools

PersonalizedHealth

ConditionSpecific

HealthReference

Category

Procedure/Diagnosis

Zip

Distance

Comparative reports

Questions?