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Catastrophic vs Traditional health plans

 

Does anyone have experience with their companies offering catastrophic healthcare policies instead of the traditional policies?

For people who are healthy, it would seem a logical way to go. 

Were the proposed savings, the thresholds (deductibles) and ultimately net savings per year worth it?

Answers

Dabney Wellford
Title: CFO
Company: Wellford Consulting
(CFO, Wellford Consulting) |

Wayne,

I have seen many companies handle this in many different ways. The key thing to remember is that catastrophic coverage will not do much to gain employee loyalty. I know of some strategies to raise the deductible and insure it through another group policy on an indemnity basis. Email me at cdwellfordataol [dot] com if interested.

Dabney Wellford

Anonymous
(CFO) |

We found a few years ago that establishing an HSA plan was a great way to control health insurance expenditures. We found that the premium for the plan was less than the employees contribution so now we hve the employee pay the premium piece and the company pays the full deductible. Is this way our out of pocket is fixed each year with the exception of an employees added and the employees don't have any additional out of pocket expenses.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

Has the HSA plan been stable, in the sense that premiums are skyrocketing every year requiring you to find a new vendor each year to keep expenses under control?

Topic Expert
Brenda Goudey
Title: CFO/VP of Finance
Company: KDR Designer Showrooms
(CFO/VP of Finance, KDR Designer Showrooms) |

A couple of years ago we switched to a high deductible plan and set up an HRA to pay the 2nd half of the employee deductibles. The plan had no copays, meaning the employee had to pay for the full price of the doctor visit, treatment, etc. which was then all applied to the deductible. It seemed like a reasonable plan at the time it was set up, but to say it was unpopular with the staff would be an understatement. Many said they felt like they had 'no insurance', so the following year we switched back to a more traditional plan with copays, but kept the high deductible and partial HRA which has been more popular and still helps keep the costs down somewhat.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

Are there any "Gotch's"? Such as, minimum number of lives, financial stability of company, etc?

Richard Goldfien
Title: Managing Partner
Company: Auxilian Insurance Services
(Managing Partner, Auxilian Insurance Services) |

I'm not aware of any big gotchas, but there are some minor risks to consider - although more with HRAs than HSAs. With an HSA, all costs to the company are known up front, based on the premium for the policy and the contribution, if any, that the company makes to fund the HSAs.

With an HRA, the employee has access to the entire balance of their HRA account at the beginning of the policy year so it is possible that an employee could use the HRA funds early in the year and then leave the company; a small but calculated risk.

Lastly in an HRA the larger the company the more predictable the financial results should be since with many employees the healthcare expense should revert to the mean, but HRA performance can never be guaranteed or know precisely; this means there is both upside and downside to it, although normally within a very manageable range.

Risk to the employees by virtue of financial stability of the company in most cases would be quite small since it limited to any amount due in reimbursement from the HRA (an HSA would not carry any risk other than loss of future funding).

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

So, to explaining this to the most neophyte employee (forget about the companies costs/savings, if any) is it correct to say:

Traditional plan will cost you at most for the year $x (including co-pays and out of pocket).

HRA/HSA will cost you at most the same $x for the year, but you may actually spend less or have extra money in case of an illness next year.

Richard Goldfien
Title: Managing Partner
Company: Auxilian Insurance Services
(Managing Partner, Auxilian Insurance Services) |

Hi Wayne: This can often be the case and sometimes the employee can pay much less out of pocket; it really depends on the alternative plans they are looking at. If you are interested, here is a link to our case study. In this particular case the employee contribution was reduced (they paid less) and the amount contributed to their HSA was much more than their premium contribution so they were actually being "paid" to have coverage. For the 80-90 percent that will not hit their deductible for the year, the total out of pocket cost could be 0 or even a gain. For those that had high medical expense, the bulk could be paid using HSA funds contributed by the company. In spite of this, the company could reduce its costs because its previous plan was much less efficient. Hope this helps.

Rick

http://www.auxilian.com/case%20study/casestudy.htm

Topic Expert
Brenda Goudey
Title: CFO/VP of Finance
Company: KDR Designer Showrooms
(CFO/VP of Finance, KDR Designer Showrooms) |

Richard - thanks for the excellent breakdown.

Wayne - the way our plans are structured in Missouri, employees will not know the total annual cost for a traditional plan because there is no cap on co-pays.

One interesting wrinkle we discovered with our HRA plan was that, as with other employee benefits, COBRA participants are entitled to the same HRA benefits as other employees. We've had several former employees take advantage of that feature.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

Thank you Richard and Brenda

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