Implementation of HDHP coupled with HRA
A Non-profit client was experiencing the compounding impact of double-digit increases in health insurance costs coupled with a reduction of revenues due to funding cuts. Traditionally, the organization had a single Co-pay medical plan offering for its employees.
We prepared financial models showing the impact to the employer and employee of implementing a high deductible health plan (HDHP) coupled with an employer funded Health Reimbursement Arrangement (HRA). The financial models demonstrated the potential savings to the employer under various HRA utilization outcomes. Additionally, employee centric models were developed to show that costs were not simply being shifted to employees.
The client implemented a single HDHP with an HRA covering the first 50% of the deductible. The premium savings realized by moving to the HDHP fully off-set the potential costs to the Employer if the HRA was 100% utilized. Therefore, we implemented a strategy that under a worst case scenario, 100% HRA utilization, still resulted in flat year over year health insurance costs. The actual employee utilization of the HRA was closer to 60%, resulting in significant savings to the employer.
Implementation of Defined Contribution Strategy
Prospect was feeling that they had lost total control of the second largest expense on their P&L, health insurance costs. The employer had slipped into a 12 month process of receiving their health insurance renewal increase and then adjusting/reducing the benefits to get the costs in line with their budget. This revolving 12 month cycle had a negative impact on both the employer and the employees. The employees felt deflated every year as it felt that the employer was “taking benefits away” each year. The employees did not have a grasp on the true premium costs and felt they had no control over their “declining” benefits.
We developed financial models demonstrating how the employer could gain control over this situation by converting to a defined contribution approach to health insurance. We worked with the finance manager to convert the prior “percentage of premium” based employer contribution model to a fixed dollar defined contribution model. We designed a health insurance offering that included a variety of plan types (Co-Pay based plan, HDHP plan, and transitional plan) with a wide range of price points.
The result is the employer now has total control over their cost for health insurance premiums. Using the defined contribution approach, each year they make a budget decision to increase, decrease or flat line their annual contribution amount. Employees are incentivized to get more engaged in the health plan decision process and have more control over the benefit plan they choose.
Implementation of HDHP coupled with HSA funding
A large employer, with multiple labor unions, was funding a large percentage of the health insurance premium costs for a very “expensive” co-pay based medical plan for its 300+ workforce. The rising costs of the medical plan were putting a large financial burden on the employer and there was concern about the “Cadillac” tax component of ACA.
After developing financial models analyzing a number of alternative strategies, it was decided to convert to a HDHP with substantial employer contribution to Health Savings Accounts (HSA’s) for each employee.
This strategy required an extensive education campaign with the employees. We developed a number of educational materials and conducted presentations to educate and inform employees of the change. Once the employee understood how the HDHP and HSA worked, the new strategy was overwhelmingly supported by the labor force.
The result is that the employer has implemented a long-term strategy toward their health insurance program that is allowing them to meet their budget and operational needs. The employees have embraced the move to consumer driven health care and through the employer funded HSA contributions have more control over their health care spending.