Happy Holidays!
Happy Holidays. Wishing you every happiness this holiday season and throughout the coming year!
How to Get the Benefits of Self-Funding without the Risks
There are typically two approaches to securing health coverage for your staff – group health insurance or self-funding.
Self-funding, however, can be costly and risky and is usually only done by larger organizations with thousands of employees. But there is a hybrid model that can help small and mid-sized employers provide their staff with affordable health coverage: partial self-insuring.
To understand how partial self-insuring works, we should start with the basics of what a self-insured plan is. In a fully self-insured plan, the employer bears the risk of all costs incurred under the plan for claims and administration.
In essence, the employer acts as the insurer and pays claims from a fund that it pays into along with employees, who pay their share of premiums into the fund.
Also, the employer will usually contract with a third-party administrator or an insurance company to process claims and provide access to a network of physicians and other health care providers.
How partial self-insuring works
Partially self-insured arrangements provide some of the benefits of being self-funded but without all the risks, while plans will have the same benefits as insured plans have. Here’s how they work:
- Employers and their employees still pay premiums, a portion of which goes into an account that will be tapped to pay the first portion of claims that are filed. That means that the employer is acting as the insurer for those claims.
- The other portion of the premium is paid to an insurance company. This is sometimes known as a stop-loss policy.
- Plans have an aggregate deductible for all claims filed by employees, meaning that once that deductible is reached an insurer starts paying the claims instead.
- Premiums are calculated to fund the claims to the aggregate deductible amount. In other words, the employer and employees are paying for the worst-case scenario in each policy year.
- It is possible for the employer to get a refund at the end of the policy year if the total claims come in at a level that is less than expected. The employer can either be reimbursed for this amount or use those funds for the next policy year.
Lower risk than fully self-insured plan
Typically, an employer should have at least 25 workers if it is considering a partial self-funded arrangement, but we’ve seen plans with fewer enrollees.
Many employers will opt for a partially self-insured plan to save money, but these types of plans also allow an employer to design a more useful and valuable plan for its workers.
The key to making this work is cost control, without which claims can spiral and drive up premiums at renewal.
Knowing exactly how much to set aside for reserves and how much you should set your employees’ premiums, deductibles and other cost-sharing can be complicated.
But with the right mixture of benefits, plan design and education, you can control behavior, which drives claims, in order to keep renewal rates from increasing too much each year.
The fine print
That said, there are some reasons partial self-insuring isn’t for all employers:
- There is additional responsibility, as the employer basically becomes an insurer or sorts.
- There is additional paperwork for these plans since the employer also becomes a payer.
- There are compliance issues that the employer needs to consider (ERISA and the Affordable Care Act, for example).
- There is some additional risk to the employer, as it is paying claims.
- If you have too many claims, you could face a non-renewal by your stop-loss insurer. If you are cancelled, it may be difficult to seamlessly enter the insured market.
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IRS Eases Access to Chronic Disease Treatment
New guidance from the IRS will help people enrolled in high-deductible health plans get coverage for pharmaceuticals to treat a number of chronic conditions.
Under the guidance, medicinal coverage for patients with HDHPs that have certain chronic conditions – like asthma, heart disease, diabetes, hypertension and more – will be classified as preventative health services, which must be covered free with no cost-sharing under the Affordable Care Act.
The background
The guidance, which takes effect immediately, is the result of a June 24 executive order issued by President Trump directing the IRS to find ways to expand the use of health savings accounts and their attached HDHPs to pay for medical care that helps maintain health status for individuals with chronic conditions.
The executive order was in response to a number of reports that have shown that people with HDHPs will often skip getting the medications they need or take less than they should because they cannot afford to foot the full cost of the medication even before they meet their deductible.
This can lead to worse issues like heart attacks and strokes, which then require more and even costlier care, according to the guidance.
The latest move is a significant step that should greatly reduce the cost burden on individuals with chronic conditions, as many of the medications they need to treat their diseases can be extremely expensive.
The IRS, the Treasury Department and the Department of Health and Human Services have listed 13 services that can now be covered without a deductible, and have promised to review add or subtract services from the list on a periodic basis, according to the guidance.
Here is the full list of the treatments, and the conditions they are for:
Angiotensin-converting enzyme (ACE) inhibitors – Congestive heart failure, diabetes, and/or coronary artery disease.
Anti-resorptive therapy – Osteoporosis and/or osteopenia.
Beta-blockers – Congestive heart failure and/or coronary artery disease.
Blood pressure monitor – Hypertension.
Inhaled corticosteroids – Asthma.
Insulin- and other glucose-lowering agents – Diabetes.
Retinopathy screening – Diabetes.
Peak-flow meter – Asthma.
Glucometer – Diabetes.
Hemoglobin A1c testing – Diabetes.
International Normalized Ratio testing – Liver disease and/or bleeding disorders.
Low-density lipoprotein testing – Heart disease.
Selective serotonin reuptake inhibitors – Depression.
Statins – Heart disease and/or diabetes.
The items above were chosen because they are low-cost, proven methods for preventing chronic conditions from worsening or preventing the patient from developing secondary conditions that require further and more expensive treatment.
The Costliest Claims for Catastrophic Conditions and the Drugs Used to Treat Them
A new report by Sun Life Insurance Co. highlights the top high-cost claim conditions that plague the U.S. health care system and account for more than half of all catastrophic or unpredictable claims costs.
The top 10 costliest claim conditions comprised over half (51.8%) of the $3 billion that Sun Life reimbursed to stop-loss policyholders from 2014 to 2017.
Stop-loss insurance (also known as excess insurance) is a product that provides protection against high-cost claims. It is purchased by employers that self-fund their own health plans, but do not want to assume 100% of the liability for losses arising from the plans.
The “2018 Stop-Loss Research Report,” which Sun Life has been publishing annually for the past six years, provides a glimpse into the kinds of claims that can have an outsized effect on both insured and self-insured employers’ health plans and can drive overall expenditures.
Here are some of the other main highlights from the study:
- Cancer treatment costs comprised 27% of all stop-loss claim reimbursements between 2014 and 2017.
- The number of health plan enrollees that had claims costing more than $1 million increased by 87% during the four-year study period. In 2017, this group comprised 2.1% of claims but accounted for 20% of all stop-loss claims reimbursements.
- The aggregate costs of injectable drugs that were part of claims that cost more than $1 million grew 80% from 2014 to 2017.
The most expensive catastrophic claims and the amounts Sun Life paid out in the aggregate between 2014 and 2017 are as follows:
- Malignant neoplasm (cancer) – Total paid out: $564 million (portion of total catastrophic claims: 19%)
- Leukemia, lymphoma, and/or multiple myeloma (cancers) – $235 million (8%)
- Chronic/end-stage renal disease (kidneys) – $153 million (5%)
- Congenital anomalies (conditions present at birth) – $115 million (4%)
- Transplant – $103 million (3.5%)
- Septicemia (infection) – $88.5 million (3%)
- Complications of surgical and medical care – $78 million (2.5%)
- Disorders relating to short gestation and low birth weight (premature birth) – $74 million (2.5%)
- Liveborn (short gestation/low birth rate, and congenital anomalies) – $69 million (2%)
- Hemophilia/bleeding disorder – $68 million (2%)
Injectable drug costs
Injectable drugs (which include those delivered by IV or that are self-administered injectable medications) accounted for 8.5% of the total paid out for high-cost claims.
But that’s just the average for the four-year period. Injectable drugs are accounting for a greater share of overall catastrophic claims costs, reaching 9.3% in 2017.
In 2017 alone, 418 drugs contributed to the total $186.3 million that was spent on injectable medications for high-cost claims. But, 62% (or $114.7 million) of the cost was attributed to the top 20. The top five medications accounted for nearly 30%.
Please note that the injectable drugs on the high-cost list are there for different reasons. Some are on the list because of the frequency (how often they are used and how many patients are given the drugs) that they are administered, and others are there because their cost is extremely high.
As an example, the report points to the two top injectable treatments – cancer drugs Yervoy and Neulasta.
Neulasta (used to reduce the chance of infection in patients undergoing chemotherapy) was administered to 354 patients and cost on average $33,800 per dose.
On the other hand, Yervoy, used to treat melanoma that has spread or cannot be removed by surgery, was administered to just 43 patients, but the cost per dose was $323,000.
New Health Savings Account, HDHP limits for 2020
The IRS has announced new health savings account contribution maximums for the 2020 health insurance plan year.
Employees who have an HSA linked to a high-deductible health plan (HDHP) will be able to contribute to their HSA up to a certain level to help pay for health care and pharmaceutical expenses.
Funds going into your employees’ HSA accounts are deducted before taxes during each paycheck and the balance can be carried over from year to year.
Many HSAs also allow employees to invest the funds like they would with a 401(k). Because of this, HSAs have become a savings vehicle of sorts for people who are saving for health care expenses they are expecting in retirement.
HSAs can only be offered with an attached HDHP.
If you as an employer also contribute or partially match your employees’ contributions, they benefit even more, especially when compounding investment returns build up in the long term.
The IRS adjusts contribution limits for HSAs yearly based on inflation. For 2020, those limits will be:
- $3,550 for individual coverage under an attached HDHP (up $50 from 2019).
- $7,100 for family coverage (up $100 from 2019).
Also, remember that individuals who are 55 or older can make an additional $1,000 in catch-up contributions.
Besides the contribution maximum increasing, the deductible requirement for an attached HDHP will also climb for 2020:
- For individual HDHPs, the deductible amount must be between $1,400 and $6,900. That’s compared with $1,350 and $6,750 in 2019.
- For families, the range is $2,800 to $13,800. That’s up from $2,700 and $13,600 in 2019.
Long-term benefits
One of the best benefits from an HSA is the long-term advantage of being able to carry over balances year after year and let it build up for medical expenses in retirement. But, one of the key points that your employees should know is that if they use the funds in their HSAs for purposes other than qualified medical expenses, they have to pay a 20% penalty.
The website Investopedia recommends that your employees:
- Max out their HSA contribution each year. If they do so, the amount they can save over the long term only grows through compounding.
- Hold off on spending contributions now, and try to not use HSA funds for current medical expenses.
- Make sure they only use the money for qualified medical expenses, so they don’t have to pay penalties of 20% plus regular income tax on their withdrawals.
- Invest contributions for the long run. For example, if you’re currently invested in a mix of 80% stocks and 20% bonds, you should probably invest your HSA that way, too.
- Use the account once they’re 65 or older. An added benefit to waiting until you’re at least 65 to spend your HSA balance is that the 20% penalty for withdrawing funds for purposes other than qualified medical expenses doesn’t apply. But, you will have to pay income tax if you don’t use the funds for qualified medical expenses.