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					       Alphabet Soup --

THE ABCs OF FSAs, HSAs, HRAs

 A.I.M.’s 2nd Annual Health Fair
       The ABCs of FSA, HSAs, HRAs

   How did we get here?

   Consumer Driven Health Care

   The CDHC Tool Box

   Q&A
        The Reality Employers Face
   3 - 4 years of double digit increases


   Factors driving cost increases are many

           Prescription Drug Costs Rising
           Baby Boomers Aging
           Medical Technology Advancing
           Provider Recontracting
Factors Driving National Increases


                                                   Other
                                  Litigation,
                                  Risk Mgt                                  Drugs, Medical
                                                    5%                     Devices/Advances
                                              7%
                                                                    22%


            Increased Consumer          15%
                  Demand



                                                                          18%    Rising
                                        15%                                     Provider
                   Govt Mandates,
                                                                                Expenses
                    Regulations

                                                     18%

Sources: Pricewaterhouse, 04/02, AAHP           General Inflation
   . . . the average company pays 3% of revenue for
   health care benefits – up 50% in five years

                                    Health care as percent of revenue

        3.5%

                                          CAGR=9%
                                                                                                                      3.0%
        3.0%
                                                                                                               2.7%

                                                                                                     2.4%
        2.5%
                                                                              2.2%
                                                      2.1%
                               2.0%
        2.0%


        1.5%
                             1998                    1999                   2000                    2001       2002   2003
Source: Hew itt Health Value Initiative; United States Census; Bureau of Labor Statistics (2002 Productivity
estimated based on first 3 Quarters)
      Health care costs are growing much faster than
      productivity (revenue per employee)

                        $220,000                                                                                                      $6,000
                                                                   CAGR=3%
                                                                                                                             $205,087
                        $200,000
                                                                                                 $194,153      $195,994
                                                                                                                             $5,456 $5,500
                                                                                $187,110
                                                               $183,067
                        $180,000
                                                                                                                                      $5,000
                                                                                                               $4,778
                        $160,000
                                                                                                          CAGR=10%                    $4,500
                        $140,000                                                                 $4,336



                                                                                $3,963                                                $4,000
                        $120,000                                                                      Revenue per employee
                                                                                                      Healthcare costs per employee
                                                               $3,676

                        $100,000                                                                                                      $3,500
                                                       1998 1999                         2000             2001 2002
Source: Hew itt Health Value Initiative; United States Census; Bureau of Labor Statistics (2002 Productivity
estimated based on first 3 Quarters)
                     Healthcare increases are rapidly consuming
                     the growth in household income


                 100% =                    100%=                     100% =   100% =
                 $2957                     $2293                     $1073    $1093

                                                                                       — Annual increase in
                                                                                         household income



                                                                                       — Portion used to pay
                                                                              65%        increases in healthcare
                                                                                         premiums and out-of-
                                                                     39%                 pocket expenditures
                    7%                        4%

                  1999                      2000                     2001     2006
* 2002 estimate based on 2001 grow th
Source: U.S. Census Bureau, Kaiser Family Foundation, UHC Analysis
What is a CDHC Plan?
   ANY health plan, so far as it…

    –   empowers patients
    –   shares economic consequences
    –   rewards good health
    –   promotes consumerism
    –   provides health/healthcare tools
    –   improves healthcare quality
What a CDHC Plan DOES

   Provides member with Targeted Incentives & Tools:
           to stay healthy
           to consume health care carefully
           to shop for health care prudently

   Varies member cost based on health care behavior
           Consumer participates in small claims(controllable)
           Globally - effects utilization
           Rewards members
The Lingo

   Consumer Driven           Health Reimbursement
   Consumer Directed          Account
   Defined Contribution      Personal Care Account
   Wrap Around Plan          Personal Medical Fund
   Health Reimbursement      Personal Health Fund
    Arrangement               Health Savings Account
The CDHC Tool Box

   High Deductible Health Plan (HDHP)
    –   Reduces insurance premium
    –   Creates the ―space‖ for the other tools to work
   Flexible Spending Account (FSA)
   Health Savings Account (HSA)
   Health Reimbursement Arrangement (HRA)
   Health, Fitness & Quality of Care Initiatives
                  Some Old

   Flexible Spending Account (FSA): employee funds
    claims costs with pre-tax dollars

    –   Medical Reimbursement Account

    –   Dependent Care Account

    –   Use it or Lose it
               Some New

   HSA (Health Savings Account):

          –   Qualified Health Care Expenses (213d)
          –   Combination of employer/employee money.
          –   Unused balances vested
          –   May be used to fund health care post-retirement
          –   Trustee or custodian required
          –   Contribution maximum = the lesser of annual HDHP
              deductible or:
                 $2,600 Individual

                 $5,150 Family
                 HSA DETAILS

   Employer must purchase High Deductible Health Plan
    (HDHP)
   HDHP must have Minimum in-net annual deductible...
    –   Self-only: $1,000
    –   Family: $2,000
   … and Maximum in-net out-of-pocket cost
    –   Self-only: $5,000
    –   Family: $10,000
                 HSA

   Deductible must apply to most covered services

   Preventative Services ―Carve Out‖
    –   Well patient evaluations & tests
    –   Well-child care/routine pre-natal
    –   Immunizations
    –   Smoking cessation & weight loss programs
    –   Preventative drug therapies such as treatment of heart
        attack/stroke with ACE inhibitors
               HSA Highlights

   Automatic 100% vesting (employee owns)
   Triple Tax Advantage

          –   Funded with pre-tax dollars
          –   Grows tax free (or value declines)
          –   Reimbursement for qualified expenses paid tax free
         Possible Employer Concerns

   HSA (Health Savings Account):
     – Employer does not have control over plan specifics
            cannot limit or direct use of HSA money
    –   Employee has no access to uncontributed funds
            vs. FSA & HRA
    –   Employee can use account balance to pay for non-
        qualified expenses (Plasma TV)
               –   Employee pays State, Federal tax + 10% penalty
                  Some New

   HRA (Health Reimbursement Arrangement)

          Qualified Health Care Expenses
            –   IRC 213d expenses only
                   no non-qualified use permitted

            –   Employer can further limit access to HRA funds
          Unused Funds can be carried over
            –   ―Use it or Keep it‖
          Employee builds a benefit bank
            –   Vesting provisions may vary with plan design
                   HRA

   HRA (Health Reimbursement Arrangement)

          Employer funded only!
          Claims paid as incurred (not as funded)
          Employer can set parameters of the plan (control)
             –   Rollover %
             –   Vesting provisions
             –   Underlying medical plan specifics
             –   Amount of employer contribution flexible year-to-year
             –   HRA/FSA integration common
Health, Fitness & Quality of Care

   Fitness club subsidy
   Smoking cessation & weight loss
   Rich preventive care benefits
   Health risk assessments
   Disease management & lifestyle coaching
   Provider report cards
   Online 2nd opinions
Key to successful CDHC strategy

   Organized Health Care Arrangement:
    Partnering Employer + Insurer + Consumer
    into single strategic initiative
    –   High Deductible Health Plan (HDHP)
    –   FSA, HSA, HRA
    –   Consumer Incentives
    –   Health, Fitness & Quality of Care Tools

				
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