Trends in Healthcare

WHAT ARE CONSUMER DIRECTED HEALTH PLANS?

Recognizing that the inevitable trend in healthcare cost increases means continued and increased "cost shifting" to the healthcare consumer, insurers have begun to turn lemons into lemonade by creating healthcare insurance products that recognize the trend and look to provide the consumer with tools to make better healthcare choices. Part of the crisis in spiraling healthcare costs has been the fault of managed care itself by creating the mistaken belief on the part of the consumer that a doctor's visit just costs them a co-pay of $15. The facts are that the costs for these visits are significantly and exponentially higher.

What are those tools that make up a Consumer-Directed Healthcare Product?
  1. A high-deductible catastrophic hospitalization protection feature.
  2. Tax-free dollars in a trustee account, funded by both the employer and employee, used to pay for the out-of-pocket expenses of routine healthcare, optionally utilizing a stored value or debit card.
  3. Discounted physician networks designed to stretch the out-of-pocket dollar of the consumer, further reducing the likelihood of reaching a deductible, thereby limited the financial exposure of the plan.
  4. Member and physician education and clinical management that enable consumers to make better choices that save money for both the member and the plan.

WHAT IS AN HSA?

Health Savings Accounts were fully mandated by the U.S. Government as part of the Medicare Reform Act passed in late 2004. They were designed to eliminate some of the weaknesses in earlier mandated systems such as Flexible Spending Accounts (FSA) and Health Reimbursement Accounts (HRA). Specifically created for individuals and small business, an HSA is designed to replace the PPO co-pay healthcare delivery model with tax-free accounts that are tied to specific high-deductible hospitalization insurance. Monies are contributed into these accounts by both the employer and the employee and are drawn down as needed to cover the "routine" out-of-pocket healthcare expenses of the employee and their families.

Advantages of the product:

In earlier models, unused dollars in these accounts were controlled under a "use it or lose it" policy placing unused dollars at risk. However, HSA dollars above a certain threshold can operate just like an additional IRA for the Member. They contain monies to be invested in mutual funds and the like, remaining tax-free until retirement, immediately available to cover out-of-pocket health related costs.
Responsibility for using the account balances for "eligible" medical purchases has rolled away from the employer/trustee and to the individual account holder, thereby reducing the administrative obstacles with managing these products.

Disadvantages of the product:

Because of confidentiality issues, employers are currently prevented from reviewing the history of medical purchases made by members through their HSA, making some employers hesitant to contribute dollars to the product.

Present rules also prevent any kind of co-pay model for healthcare, creating an impediment to proactive clinically managed initiatives such as a co-pay pharmacy product.

By statute, the "Qualified" HSA must be tied to a high-deductible hospitalization insurance product. These products, when sold to individuals (and to small groups in some circumstances), require underwriting and members may be declined for coverage and disallows their HSA as well.

There are efforts under way to have the rules changed in an attempt to eliminate these disadvantages of the HSA model.

Passage of the mandate for the HSA was a trigger for the recent dramatic growth in consumer-directed healthcare products. Consumer-directed healthcare plans reported an average 300% growth in their membership in the first six months following passage of the HSA system.

WHAT ARE HEALTHCARE SAVINGS CARD PROGRAMS?

Healthcare Savings Card Programs are a ten billion dollar a year industry created in the late 1980s, enabling millions of American families to receive dramatic cash savings of up to 60% or more on important healthcare services, rendered from contracted and pre-qualified discount networks of healthcare providers.

For most of the 1990s, programs experienced significant growth, being primarily driven by large retail and credit card organizations who sold these products to their member bases.

For the most part, these products were sold independently of any considerations of the memberships' existing and changing healthcare needs.

These products are not insurance but grant participating members direct access to contracted network healthcare providers that will render service for payment in cash at the network contracted reductions in Usual & Customary Rates.

Well-managed Healthcare Savings Card Programs develop better healthcare consumers out of American Families by providing access to pre-qualified providers at reductions in fees. When managed effectively, these programs and the networks that they are constituted from, make up the first building block of a new product base for affordable healthcare.

WHAT ARE "LIMITED BENEFITS PRODUCTS"?

Limited Benefits are insurance products that pay specific dollar amounts for certain kinds of healthcare expenses, typically in a couple of different categories. They will reimburse the member a specific dollar amount for a doctor's visit: $20 to $80 based on the design of the plan. The product will often also pay a limited dollar amount for specific wellness testing, lab screening, etc., and the product will usually pay a specific limited amount per day for hospitalization.

Limited benefit plans offer a viable, lower-cost alternative to expensive, comprehensive major medical insurance. They can be used as either primary insurance or supplemental (i.e. "gap-filler) coverage. While it is important to clearly understand that such coverage is not a full replacement for major medical insurance, the fact remains that it can help the working uninsured and under-insured - people who pay all or some of their own healthcare bills.

How do these plans work? Broadly speaking, there are two types: fixed-benefit "indemnity" plans are one version and "mini-med" plans are the other. Fixed benefit indemnity plans pay specified amounts when various healthcare services are used. Unlike typical comprehensive health insurance, these plans do not base their benefits on the actual charges incurred. For example, an indemnity plan might pay $50 for a doctor's office visit (whether it costs $40 or $90), $50 for a lab test, $500 per day hospitalized and $1,500 for a surgery. Payments are often made directly to the insured person ? not to the provider - to help offset the costs of the medical care for which the insured has already paid.

"Mini-med" plans, on the other hand, are scaled-down versions of full major medical policies with the usual deductibles and coinsurance plus caps on what is paid for various services. These plans usually have a low overall maximum benefit - generally under $10,000, to keep premiums affordable. One major disadvantage to the mini-med structure is that it is subject to medical cost inflation, which means that rate increases occur each year, just like with comprehensive medical. The fixed-benefit design produces more stable premiums.