Health Reimbursement Accounts - HRAs

[Annika]

Does anyone have any experience with or insight regarding HRA's. Given the rapid increase in health insurance premiums, employers in our area are looking at offering high deductible plans (like $2500 deductible) and the employer is funding an HRA for each of their employees (with ranges between $500 and $2000 funded per year). The employees can dip into the fund to cover out of pocket expenses. Once the fund runs out, they pay their way until they meet the insurance deductible. Then the insured plan starts. The brokers are expecting really low premiums given that it's a $2500 deductible plan. When we price high deductible plans we usually consider the economic and utilization changes associated with higher deductibles. If an employer is funding $2000 of the $2500 deducible plan, I would assume utilization similar to a $500 deductible plan since that is all the employee is liable for. Am I missing something?

Does anyone see any additional risk associated with a plan like this. We would require that all employees receive the same contribution. There is also talk about being able to carry over the balance from year to year. One theory is that this would reduce risk because the "use it or use it" situation causes people to get last-minute unnecessary care. I'm not sure I agree because they will likely only get unnecessary care up to the amount in the account and it wouldn't hit the insurance risk. Also, if they are able to carry it over to the next year, then they could use it for the gap ($500 deductible) and for any other cost sharing. This would encourage more use of the insurance dollars. I would appreciate any input. Even if it's just brainstorming.

Thanks!

[Toll Free]

I agree - the existence of the HRA removes a lot of the utilization savings, but it may/may not be tempered by:

- The fact that the employee often has to pay the doctor, and then get reimbursed for the expenditure, meaning that the employee gets at least some exposure to the true cost, even if it's just funding the float.

- Hopefully, the employer is leaving a corridor between the top of the HRA and the health plan deductible, for precisely this reason. Ditto for not turning this into a $0 deductible, Medical Reimbursement (MedRe) plan.

- If the employer's plan has a 3x deductible family out-of-pocket, and the HRA only funds the employee part of the deductible, the corridor exists, just in a sneakier sort of way (by the way, I think a lot of the "savings" demonstrated by these plans takes advantage of this "basis risk").

- It could be that the cost differences in high deductible plans are due more to positive selection in high deductible plans, and not the utilization-reducing aspects. Assuming healthy employers would be more willing to put their own (HRA) money at risk, this still might be true.

Overall, I think that some utilization will be lost; probably more than is being modeled, and certainly more that the "defined contribution" companies like Definity are advertising. It should be fun to see this play out.

[Kenny]

The following article gives an example of a reduction in utilization.

http://www.aispub.com/Bnow/021003b.html

[The Drunken Actuary]

From the article above:
Taggert says the study provides the first detailed evidence that CDH can have a positive effect on utilization without negatively affecting health of a population. The report is based on claims data from the 835 employees and their families (1,600 individuals) that took part in the firm's CDH pilot project.

As of Jan. 1, most of the company's 28,000 nonunion employees were enrolled in one of three CDH plans from Minneapolis-based Definity Health. Deductibles under the plans range from $1,600 to $3,200. The Definity plans replace more than 200 HMO, PPO and point-of-service options from which employees once had to choose.

Are they saying that the supposed reduction in trend is on the 835 people that selected the Divinity plan in the Pilot year, but the following year almost everyone had to take a Divinity plan? If so, I would assume that the reduction in trend is due to the fact that mostly healthy people opted for that plan in the first year. I would be interested to see what happens when the entire population is forced into this arrangement.

I don't consider these plans to be much more that cost shifting with a web site. Big deal, so someone might skip an office visit or Rx once or twice a year to save that precious HRA rollover. Most of these plans have a limit on the amount you can rollover so usually in the third year you are incented to spend all that HRA money anyway. Good Bye savings.

In the plans I have seen this plan is offered as a choice and the predictible happens: CDH plan saves a few pennies, other plans offered by employer go up a few pennies because of the selection. But companies like Divinity and Lumenos don't even have access to that data anyway so all their savings projections essentially assume complete takeover and very few employers are ready for that. Why not just put in a high deductible plan and seed the employees' FSA a little? You don't get the rollover incentive, but I don't think that accounts for much anyway.

Most carriers coming out with these plans are doing it because it's a fad, not because they think this is the wave of the future. Big waste of time if you ask me.

[mr.c]

We've started offering these types of plans (there must be a dozen three letter acronyms for all the different versions of these thing) pretty recently, and, yes, the question of what happens in future years is a big issue. Savings are lost as accounts build up, but if deductibles continue to increase, it just gets more difficult for the sicker employees. We don't have enough data yet, but my gut feeling is that since most health cost comes from a smaller number of people blowing through their deductibles, a sponsor/insurance company would need to increase deductibles (to keep it "reasonable" relative to account values) more quickly than would be implied by a regular year over year medical trend. One can limit the amount that can be rolled over each year, but, as mentioned before, it encourages end-of-year spending. Some self-insured employers we work with have actually allowed their employees to use the employe money to purchase things like eyeglasses! OK, I think that I would get a new pair of eyeglasses each year if I were healthy and could only roll over so much. Or if not glasses, maybe massage therapy, MMMM......

An important note, not mentioned though likely agreed upon, is that preventative benefits are usually very rich if not covered at 100%. I can just imagine the PR if people covered by an employer sponored plan still "can't afford" a cancer screening or infant vaccination.

I was just talking to our main pricing guy today about utilization savings on these products. Consider a $1000 deductible plan where the employer contributes $250 per member. My point to him was that the utilization would be higher the $750 since there is an encouragement to spend for the first $250. Also, you don't have the same savings for people with less than $750 in claims. He agreed that idea, but he prices (either believes or follows the company line) with the idea that the rollover feature more than compensates for the $250 barrier that members get to push through first. We use utilization somewhere between $750 and $1000 levels.

[The Drunken Actuary]

Some self-insured employers we work with have actually allowed their employees to use the employe money to purchase things like eyeglasses!Actually, Divinity encourages that. I think it's so they get the enrollment. Obviously its more expensive.