1. It’s Time to Rethink your Medical Plans Strategy Plan Planning Ahead for 2010

2. Presenter 2 Donna Lively Director, GuideStone Insurance Solutions and Services

3. Value of Employee Benefits Employees consider workplace benefits as personal safety net Consider health benefits are nearly as important as salary 3

4. Employers evaluate benefits Consider benefits to be important tool for: Retention Productivity Cost control 4

5. Employer concerns 5

6. 6 Skyrocketing Costs National Health Care Expenditures in the US Source: Centers for Medicare & Medicaid Services (Office of the Actuary, National Health Statistics Group)

7. 7 Factors contributing to the current entitlement mentality Consumers are insulated from true cost of health care Office visit co-pays Prescription drug co-pays Employer-provided or subsidized benefits

8. 8 Trends in health care cost management Shift more cost to employee Cut benefits Explore consumer-directed health care options ◦ Health Reimbursement Arrangements (HRAs ◦ Qualified High Deductible Health Plans (HDHPs) ◦ Health Savings Accounts (HSAs) ◦ Implement Wellness Incentives

9. 9 Deciding what’s right for your group Start with your health plan: Are you paying for more coverage than your employees use? Where do you want to spend your health care dollars?

10. Deciding what’s right for your group Consider your circumstances: Do you want to encourage employees to cost share? Do you want to provide benefits or subsidize salary? What’s your demographic? 10

11. 11 Creating a successful cost control strategy Consider the total cost of health care Find the right balance of premium and deductible Incorporate wellness support Encourage active employee participation Explore consumer-directed health care options

12. 12 What is “Consumer-directed health care”? Puts the consumer in the “driver’s seat”: where do you want to spend your health care dollars? Makes consumers aware of the true cost of health care Encourages people to become wiser health care consumers Incorporates preventive care and wellness as cost controls

13. 13 Types of consumer-directed health care options Health Reimbursement Arrangements (HRAs) Qualified High Deductible Health Plans (HDHPs) Health Savings Accounts (HSAs)

14. Increasing Deductibles: Savings on Premiums and Claims without moving the burden to my employees

15. 15 Why increase our deductible? The premium of any health plan is based on the ratio of the deductible The lower the deductible, the higher the premium The higher the deductible, the lower the premium

16. Why increase our deductible? Select the appropriate plan based on need Lower deductibles are beneficial for those with frequent medical needs Higher deductibles are beneficial for those with less medical needs 16

17. Health Reimbursement Arrangements (HRAs): Helping Employers Move to Higher Deductibles

18. 18 What is an HRA? Health Reimbursement Arrangement (HRA) An employer-provided medical reimbursement plan that: Is funded solely by employer Reimburses employee tax-free for “medical care expenses” (for individual, spouse and/or dependents) Funded up to specified dollar amount per coverage period Is non-discriminatory in reimbursement for all eligible employees

19. 19 Why have an HRA? Employer benefits Can pair with a higher deductible plan Helps provide quality benefits while controlling costs This unfunded approach allows payments to be made from employer’s general assets Flexibly designed: ◦ Timing of HRA fund availability ◦ Amount of HRA ◦ Who pays first – employer or employee ◦ Roll over availability

20. 20 Why have an HRA? Employee benefits HRA can help offset increased out-of-pocket expenses of higher deductible Lower monthly premiums can reduce employee share of cost HRA reimbursements are tax-free for qualified expenses Increases employee awareness of true cost of health care If allowed by employer, HRA rollover option encourages wise spending choices

21. 21 Design flexibility: HRA plan options Rollover of funds Option of cap for rollover amounts Employer determines list of eligible medical expenses (213(d) eligible) Order of HRA reimbursement: ◦ Employer pays percentage of every claim ◦ Employer (HRA) pays first ◦ Employee pays first

22. 22 HRA risk sharing options Using a $1,000 deductible plan as a model

23. 23 Maximizing the HRA: Design tips Employee pays first Makes employees aware of true cost of health care Allow some rollover Encourages wise spending Build in Wellness incentives Wellness and preventive care can improve health and productivity and reduce long-term costs

24. 24 Illustration: How an HRA can save you money (Current PPO) (New PPOw/HRA) HC 500 HC 1000 Annual cost of coverage*: $11,820 $10,082 HRA Pledge: $ 0 $ 500 Total employer costs: $11,820 $10,582 Savings with 100% of HRA Utilization: $1,238 *Illustration based on family coverage for your group for one employee with family coverage. HRA pledge is for $500 employee.

25. Federally Qualified High Deductible Health Plans (HDHPs): Helping Employees Build Savings for Medical Expenses

26. 26 Federally-qualified HDHPs Qualified High Deductible Health Plans (HDHPs) for 2009 Minimum deductibles: ◦ $1,150 (self) / $2,300 (family) Annual out-of-pocket maximums, including deductible, cannot exceed: ◦ $5,800 (self) or $11,600 (family) Can have first dollar coverage for preventive care / wellness

27. 27 How can a qualified HDHP save me money? Lower monthly cost of coverage (premium) High coinsurance levels after deductible Helps you engage total health care costs, not premium or deductible only Eligible for HSA contribution

28. 28 Saving with an HDHP: Pairing with a Health Savings Account Takes into account total cost of health care Can take savings from lower HDHP premium and contribute to an HSA HSA money can be: ◦ Used to “fund” deductible (pay for claims as they arise) ◦ Allowed to accrue for large unexpected medical expenses ◦ Allow to remain in HSA and grow year after year to pay for retiree medical expenses

29. 29 What is a Health Savings Account? (HSA) Must be paired with a federally-qualified High Deductible Health Plan (HDHP) Individually owned—no “use it or lose it” rule Contributions are tax-exempt Completely portable

30. 30 “Triple tax advantage” of an HSA Direct HSA contributions made by the employee are an above the line deduction from employee’s federal gross income HSA earnings accumulate tax free HSA withdrawals for qualified medical expenses are free from federal income tax

31. 31 Who is eligible to open an HSA? Individuals who: Are covered by a qualified High Deductible Health Plan Are not covered by any other health plan Are not Medicare enrolled Are not claimed as a dependent on someone else’s tax return

32. 32 What are HSA contribution rules? Can contribute up to federal maximums: ◦ 2009 annual maximums: $3,000 (Self coverage) $5,950 (Family coverage) Contributions can be made by employee, employer, or by someone else on behalf of employee Employees age 55 and older can make “catch-up” contributions

33. 33 What are HSA contribution rules? Employer contributions must be “comparable” for all participating employees FSA or HRA money may be used to open an HSA one time only. Maximum contribution limits apply. IRA funds may be used to open an HSA one time only.

34. 34 HSA distributions Tax-free for “qualified medical expenses” ◦ Section 213(d) items, including over- the-counter drugs Can be made for: ◦ Person covered by HDHP ◦ Spouse ◦ Dependent(s)

35. 35 HSA distributions Cannot be used to pay premiums for any coverage other than: ◦ COBRA, Medicare or LTC coverage ◦ Health premiums while receiving unemployment compensation If not used for qualified medical expenses: ◦ Amount is taxed as income ◦ 10% penalty is levied

36. 36 Which Medical Plan strategy is right for your group? Consider to current needs Consider your short-term strategy Consider your long-term goals For more information go to ◦ www.ustreas.gov and click on HSA link on the left hand side of the webpage www.ustreas.gov

37. 37 HSA / HRA comparison: Health Savings Account Health Reimbursement Arrangement Individually ownedEmployer owned PortableSpecific to employer Funded before useFunded as needed Funded by employee, employer, or others on owner’s behalf Funded by employer only Balance rolls over at year endRollover optional Must be used with qualified HDHP Can be used with any health plan Employee can use for future medical expenses Remains employer asset

38. It’s Time to Rethink Your Medical Plans Strategy Questions?