Alphabet Soup -- THE ABCs OF FSAs, HSAs, HRAs A.I.M.’s 2nd Annual Health Fair

1. Alphabet Soup -- THE ABCs OF FSAs, HSAs, HRAs A.I.M.’s 2nd Annual Health Fair

2. The ABCs of FSA, HSAs, HRAs • How did we get here? • Consumer Driven Health Care • The CDHC Tool Box • Q & A

3. The Reality Employers Face • 3 - 4 years of double digit increases • Factors driving cost increases are many • Prescription Drug Costs Rising • Baby Boomers Aging • Medical Technology Advancing • Provider Recontracting

4. Other Litigation, Risk Mgt Drugs, Medical Devices/Advances 5% 7% 22% Increased Consumer Demand 15% Rising Provider Expenses 18% 15% Govt Mandates, Regulations 18% General Inflation Factors Driving National Increases Sources: Pricewaterhouse, 04/02, AAHP

5. . . . the average company pays 3% of revenue for health care benefits – up 50% in five years Health care as percent of revenue CAGR=9% Source: Hewitt Health Value Initiative; United States Census; Bureau of Labor Statistics (2002 Productivity estimated based on first 3 Quarters)

6. Health care costs are growing much faster than productivity (revenue per employee) CAGR=3% CAGR=10% Source: Hewitt Health Value Initiative; United States Census; Bureau of Labor Statistics (2002 Productivity estimated based on first 3 Quarters)

7. Healthcare increases are rapidly consuming the growth in household income 100% =$2957 100%=$2293 100% =$1073 100% =$1093 • Annual increase in household income • Portion used to pay increases in healthcare premiums and out-of-pocket expenditures * 2002 estimate based on 2001 growthSource: U.S. Census Bureau, Kaiser Family Foundation, UHC Analysis

8. What is a CDHC Plan? • ANY health plan, so far as it… • empowers patients • shares economic consequences • rewards good health • promotes consumerism • provides health/healthcare tools • improves healthcare quality

9. What a CDHC Plan DOES • Provides member with Targeted Incentives & Tools: • to stay healthy • to consume health care carefully • to shop for health care prudently • Varies member cost based on health care behavior • Consumer participates in small claims(controllable) • Globally - effects utilization • Rewards members

10. Consumer Driven Consumer Directed Defined Contribution Wrap Around Plan Health Reimbursement Arrangement Health Reimbursement Account Personal Care Account Personal Medical Fund Personal Health Fund Health Savings Account The Lingo

11. The CDHC Tool Box • High Deductible Health Plan (HDHP) • Reduces insurance premium • Creates the “space” for the other tools to work • Flexible Spending Account (FSA) • Health Savings Account (HSA) • Health Reimbursement Arrangement (HRA) • Health, Fitness & Quality of Care Initiatives

13. Some Old • Flexible Spending Account (FSA): employee funds claims costs with pre-tax dollars • Medical Reimbursement Account • Dependent Care Account • Use it or Lose it

14. Some New • HSA (Health Savings Account): • Qualified Health Care Expenses (213d) • Combination of employer/employee money. • Unused balances vested • May be used to fund health care post-retirement • Trustee or custodian required • Contribution maximum = the lesser of annual HDHP deductible or: • $2,600 Individual • $5,150 Family

15. HSA DETAILS • Employer must purchase High Deductible Health Plan (HDHP) • HDHP must have Minimum in-net annual deductible... • Self-only: $1,000 • Family: $2,000 • … and Maximum in-net out-of-pocket cost • Self-only: $5,000 • Family: $10,000

16. HSA • Deductible must apply to most covered services • Preventative Services “Carve Out” • Well patient evaluations & tests • Well-child care/routine pre-natal • Immunizations • Smoking cessation & weight loss programs • Preventative drug therapies such as treatment of heart attack/stroke with ACE inhibitors

17. HSA Highlights • Automatic 100% vesting (employee owns) • Triple Tax Advantage • Funded with pre-tax dollars • Grows tax free (or value declines) • Reimbursement for qualified expenses paid tax free

18. Possible Employer Concerns • HSA (Health Savings Account): • Employer does not have control over plan specifics • cannot limit or direct use of HSA money • Employee has no access to uncontributed funds • vs. FSA & HRA • Employee can use account balance to pay for non-qualified expenses (Plasma TV) • Employee pays State, Federal tax + 10% penalty

19. Some New • HRA (Health Reimbursement Arrangement) • Qualified Health Care Expenses • IRC 213d expenses only • no non-qualified use permitted • Employer can further limit access to HRA funds • Unused Funds can be carried over • “Use it or Keep it” • Employee builds a benefit bank • Vesting provisions may vary with plan design

20. HRA • HRA (Health Reimbursement Arrangement) • Employer funded only! • Claims paid as incurred (not as funded) • Employer can set parameters of the plan (control) • Rollover % • Vesting provisions • Underlying medical plan specifics • Amount of employer contribution flexible year-to-year • HRA/FSA integration common

21. Health, Fitness & Quality of Care • Fitness club subsidy • Smoking cessation & weight loss • Rich preventive care benefits • Health risk assessments • Disease management & lifestyle coaching • Provider report cards • Online 2nd opinions

22. Key to successful CDHC strategy • Organized Health Care Arrangement: Partnering Employer + Insurer + Consumer into single strategic initiative • High Deductible Health Plan (HDHP) • FSA, HSA, HRA • Consumer Incentives • Health, Fitness & Quality of Care Tools