do-it-yourself health care –the health savings account

October 27, 2009Dave Spalding, VP Medical Banking

Blue Cross and Blue Shield of Minnesota

© 2008 Blue Cross and Blue Shield of Minnesota

Do-it-Yourself Health Care –The Health Savings Account

Change and Reform in the American Health Care System

2Center for Senior Citizens' Education / UST

Agenda for today

> Introduction

> Brief History of HSAs

> The Basics– Break

> Market Adoption

> Extra Credit


Brief History of HSAs


1995 2010

8 million peoplecovered by HSAs

HSA Timeline

Archer Medical Savings Accounts (MSA)

HSAs take off following key changes

Medicare Modernization Act creates Health Savings

Accounts

1996

2003 2009

Dec.2006


HSA enrollment growth

>Rapid market adoption

>Midwest and South

>Multiple market segments

–individual, small business, national employers

>Enrollee Demographics–mirrors commercial insured–higher education level

National HSA Enrollment

0

5,000,000

10,000,000

15,000,000

Source: AHIP


Minnesota leads the nation in adoption

Relatively vibrant commercial market place:

–Healthy market segments–Innovative employers–Relatively educated workforce

–Strong local health plans

2008 HSA Penetration AHIP

0.1%

1.1%

3.1%

3.4%

5.0%

5.6%

6.4%

9.0%

9.2%

0% 5% 10%

HI

NY

CA

US

IA

WI

NE

LA

MN

As a percent of commercially insured


Something is happening in Minnesota

8.8%

12.1%

16.0%

12.2%

9.8%

8.3%

10.7%

3.4%

5.9%

8.4%

15.4%

10.2%

4.3%

7.4%

6.1%6.8%

9.4%10.6%

8.9%7.9%

0%

5%

10%

15%

20%

Source: MN Dept of Health

Perc

enta

ge c

hange p

er enro

llee

Premium

Health Expense

> In 2007, growth in health expense per enrollee was the lowest in a decade

> In 2007, growth in health expense per enrollee was lower than growth in wages/income for first time in a decade


The Basics


1. The HSA belongs to an individual

Medical “401 (k)”

Encourage individuals to save for their own medical expenses

Employer and Employee contributions permitted

Portable

Inheritable Asset

“Rolls-over” annually


2. The HSA is a tax-advantaged account

TRIPLE TAX BENEFITS

Individual account contributions lower your taxable income

Savings can be accessed at anytime, tax-free to pay for qualified medical expenses

Savings can be invested free of capital gains


3. Tax-favored HSAs have a lot of rules

BIG RULES

I. Rule-maker is the IRS

II. Must have qualified high deductible health insurance

III. Annual contributions limits

IV. Penalty for non-qualified withdrawal

12

Big Rules: What is qualified insurance?

> Health insurance meeting all statutory requirements for minimum deductibles and maximum out-of-pocket costs

> All services, other than preventive care, are subject to the deductible, including prescription drug purchases

$5,900 maximum out of pocket

$1,200 minimum deductible

Self-only coverage

Family coverage(self + two or more)

$11,900 maximumout of pocket

$2,400 minimum deductible

2010 Statutory requirements


Big Rules: Annual contribution limits

> COLA Index

> Maximum contribution in 2010– $3,050 (single coverage) – $6,150 (family coverage)

> Catch-up contributions– Individuals 55 and older may make additional

contributions up to $1,000


Big Rules: Non-Qualified withdrawals

> Withdrawals for non-qualified medical expenses– Withdrawal amount is counted as income– 10% excise tax applies

> Non-qualified withdrawals for those 65+– Withdrawal amount is counted as income– No excise tax applies


Small Rules

> Eligibility details– Married couples, tax dependents, seniors, domestic partners

> Contribution details– Mid-year enrollment, IRA roll-overs, Comparability (employer

contributions), FSAs

> Withdrawals– Qualified medical expenses, maintaining records, no-time

limit

> Type of insurance– Medical, vision, dental, LTC, etc.


Health Savings Account Basics in Review

1. Individual medical savings account

2. Triple tax benefits

3. Lot’s of IRS driven rules


HSA Math Example

HSA PPODIFFERENTIAL

TOTAL EMPLOYEE CASH OUTLAY

HEALTHCARE EXPENSES

OUT-OF-POCKET MAXIMUM

EMPLOYER CONTRIBUTIONS

EMPOLYEE PREMIUMS


Income Tax Savings Example

No HSA Yes HSA

TAXABLE INCOME $100,000 $100,000

TAX DEDUCTION

ADJ TAXABLE INCOME

TAX RATE 33% 33%

TAX LIABILITY


Market Acceptance


The 30,000 foot view

Kaiser Family Foundation Survey– HSA enrollment exceeded HMO enrollment

nationally in 2009– Annual insurance premiums for HSAs are 20-

30% lower than traditional products

American Academy of Actuaries– After first year, HSA plan premium increases

are 3 to 5% lower than traditional insurance


Are higher deductibles “working”? The Finance Department says YES

3.6%

5.0%

5.3%

6.5%

7.0%

0% 2% 4% 6% 8%

No CDH

less than 10% CDH

10-20% CDH

20-50% CDH

+50% CDH

Source: Watson Wyatt 2008 Purchasing Value in Healthcare employer survey

Forecasted premium increase


Employer Contributors and Amounts

37%42%

45%

38%

0%

10%

20%

30%

40%

50%

60%

2005 2006 2007 2008

% Employers Contributing

Source: Blue Cross Blue Shield Association CDH survey 2008

$1,125

$815

$0

$200

$400

$600

$800

$1,000

$1,200

small firms large firms

Avg Employer Contribution

Source: Kaiser Family Foundation / HRET 2009 Annual Benefits Survey


Become a high performing employer

Towers Perrin research has identified four cornerstones for success for employers:– Build a new mind set around health– Help employees gain confidence in their ability to manage

financial risk– Must have an organizational climate of trust and employee

well-being– Thoughtful change management, communication and visible

leadership 88% of enrollees at high performing employers reported a good experience with an HSA or HRA based-plan vs. 29% at low performing employers

71% of enrollees at high performing employers believe it is appropriate for them to share medical expenses with their employer


Risk Adjusted Utilization: HSA vs Traditional

Blue Cross 4 year study covering over 1 million enrollees on a risk adjusted basis:– Decreases in x-rays, lab tests and ER visits– Higher levels of preventive care– Same number of people using insurance– One less script per year and higher generic

adoption


Changing Consumer Behavior

72%

38% 38%40%

22%27%

0%

10%

20%

30%

40%

50%

60%

70%

80%

Formally TrackedMonthly Expenses

Estimated FutureExpenses

Discussed expenseswith a doctor

HSA Users All Insured



More Data

36%

52%

43%

21%23%

33%30%

15%

0%

10%

20%

30%

40%

50%

60%

Choose lowercost treatments

Ask Dr aboutcost

Mail order Rx Search internetfor lower cost

Rx

HSA Users Non-HDHP

26



Healthier Behavior

43%

25%21%

13%

30%

14% 15%

7%

0%

10%

20%

30%

40%

50%

HealthScreening

Exercise Diet/Nutrition HealthCoaching

HSA Users Non-HSA



Global Competition

0%

20%

40%

60%

80%

100%

20% 40% 60% 80% 100%

Private Expenditures as % total health exp

Out

-of-

pock

et e

xpen

ditu

res

as %

of t

otal

hea

lth e

xp

US 55%, 24%

GLOBAL 44%, 52%

CHINA 62%, 87%

FRANCE 22%, 35%

INDIA 83%, 94%

MEXICO 54%, 94%

SOUTH AFRICA 60%, 17%

1. Private Sector Share of Health

2. Out-of-Pocket % of Private sector

29

Extra Credit

According to the New England Journal of Medicine, what is the number one determinant of early death in the US:

A. Genetics

B. Healthcare

C. Behavior

D. Environment

30

Extra Credit

What is the annual out-of-pocket maximum for Medicare?

A. $5,000

B. $25,000

C. There is no maximum

31

Extra Credit

How will Healthcare Reform impact HSAs:

A. Eliminate them

B. Expand them

C. Don’t know, don’t care – ready to go get a drink!

32

Extra Credit

Based upon average life expectancy, the Employee Benefits Research Institute estimates the lifetime, out-of-pocket expenses for a couple, aged 65, retiring in 2009 to be:

A. $15,000 to $20,000

B. $55,000 to $104,500

C. $168,000 to $415,000

do-it-yourself health care –the health savings account

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