Benefits Consulting Case Study

Opportunity:

In 2013, a small company of 8 employees was covered under a robust Humana Medical plan featuring a $500 yearly deductible with 100% coinsurance. That was $2,000 below the average annual deductible for a small group in the United States. To this company, it was essential to offer a robust plan of benefits to retain key employees and attract new quality employees as their business grew and expanded. On their 2014 renewal in April, they were subject to the community rating provision under the PPACA Healthcare Reform legislation. Even though this group was reasonably healthy, they faced a 28% plan-to-plan renewal premium rate increase under the ACA community rating provision. This was significantly larger than the prior year’s premium renewal increase and was unacceptable to the group.

Action:

PEPL stepped in and marketed their coverage to all carriers licensed to provide coverage to groups of this size in TX and their other employee locations. Blue Cross of TX, Aetna, and United Healthcare all came back with plans that were not competitive, either through the plan offerings or because of the monthly premium costs.

PEPL also asked Humana to provide alternative plan options with higher deductibles that would still comply with PPACA regulations. Humana provided several alternative options, including plans with $2000 and $3000 individual yearly deductibles.

In comparing the proposed $500 deductible Humana plan to plan renewal at a 28.27% premium increase versus the rates for the proposed $2000 deductible Humana plan, the monthly premiums for the $2000 deductible plan represented a 44.51% decrease from the incumbent Humana plan. This provided the employer with a monthly premium cost savings of $3993.89 and a yearly premium cost savings of $47,926.68 over their current plan.

While this solved the premium increase problem, it also increased the employee’s yearly exposure to inpatient and/or outpatient hospitalization from a $500 deductible to a $2000 deductible. To the employer, this was not an acceptable way to maintain the type of robust employee health plan that the employees had come to expect.

To offset the $1500 increase in the deductible, PEPL presented the client with the option of implementing a Healthcare Reimbursement Account (HRA). The HRA is an IRS-approved funding mechanism that allows the employer to provide tax-free money to the employee to help cover the cost of approved medical expenses while allowing the employer to take a tax deduction on the reimbursement money provided. With an HRA, the employer determines the amount of money that will be reimbursed to the employee, which qualified medical services the funds will cover, and whether or not it will be provided to the covered employee only or if it will also be provided to any employee’s covered dependent(s). The HRA is administered by a Third Party Administrator who charges a yearly fee of $575 for the implementation and non-discrimination testing of the HRA plan and a monthly administrative fee of $3.95 per enrolled individual with a minimum of $75 per month.

PEPL’s client decided to fund the $2000 employee deductible and any dependent deductibles for up to $4000 HRA reimbursement per employee. This HRA reimbursement decreased the employee’s maximum deductible exposure for either inpatient or outpatient hospitalization from $500 to $0.
In the worst case scenario, if every one of this client’s covered employees and their dependents were to incur their $2000 deductible for inpatient or outpatient hospitalization, the maximum yearly cost to the client for the insurance premiums, HRA administrative fees, and HRA reimbursement would be $133,153.52 which represents an increase of $11,841.44 over their 2013 total premium expenditure. In comparison with the proposed 2014 plan to plan renewal, this worst-case scenario would still represent a cost savings of $22,451.68. However, it is highly unlikely that every one of the employees and their dependents will have a medical claim in which they will incur their deductible.

A more realistic scenario would be if four total employees and/or dependents incurred their deductible through inpatient or outpatient hospitalization. In this representation, the maximum yearly cost to this client for premiums, HRA fees, and reimbursement would be $117,153.52. This represents an annual decrease in $4158.56 over the total 2013 premium expenditure. In comparison with the proposed 2014 plan to plan renewal, it would represent a cost savings of $38,451.68.

Implementing and utilizing the HRA is a straightforward process. The client completes and submits a master application that includes the banking information from which the HRA reimbursement money will be drawn. The employer does not pre-fund any money because it is only paid when a claim is filed, and the employer receives 24-hour advance notice of the withdrawal amount to ensure the funds are available. When the contract is written, the employer is also billed the $575 implementation fee. Employees must complete and submit an HRA enrollment form, listing themselves and any employees covered on the employer-sponsored health plan. The HRA is unavailable to employees and/or dependents not covered by the employer-sponsored health plan.

Benefit:

All in all, this is a win/win proposition for a small group employer. They can offset some of the premium increases brought about by the PPACA community rating provision, they are still in compliance with healthcare reform, they are saving money on their monthly health insurance premiums, and they are still providing a very robust health plan to their employees by providing HRA funds to cover a catastrophic hospital event in which an employee and/or their dependent incurs their deductible.
“As a small company, health insurance represents a significant part of our HR cost. When the insurance company increased my rates, PEPL immediately provided several alternatives. The HRA enabled me to provide more to my employees while saving my company significant money on insurance expenses. In reviewing this new HRA plan after twelve (12) months, the cost savings were more than anticipated, and employee satisfaction was higher. This is an excellent program that is a win for the company and a win for the employee.” Chris McHan, President, Neusoft Medical Systems, USA., Inc.