High Deductible Health Plans (HDHP)

With a Health Savings Account (HSA):

A Primer

State Personnel Department

October 10, 2007

Two Components – Definitions

• HDHP is a traditional health insurance plan that provides broad coverage for a wide range of services AFTER the deductible has been met. The deductible is considerably higher than the deductibles in the state’s Trad II or in M-Plan II.

• Health Savings Account – is a special bank account for your health expenses. Contributions to the account remain tax free so long as the money in the account is used only to pay for eligible health care expenses. The account – and everything in it – is yours to keep.

HDHP’s: how do they differ from Trad II?

• A traditional plan requires you to pay now ... or every pay period… whether or not you are using medical services premiums

• A HDHP requires you to pay nothing or only a small amount now, but you will pay if you need services deductible

Compare: Pay now (premium) vs. Pay when you need it (deductible)

Single Family

EE premium Deductible EE premium Deductible

Trad II $1459 $500 $4013 $500

HDHP 1 0 $2500 0 $5000

HDHP 2 $415 $1700 $1,133 $3400

HDHP: How does it work? (prior to meeting deductible)

Seeing an in-network physician

1. As enrollee you will have Anthem ID card

2. Present your Anthem ID card when you go to your doctor

3. Usually you will not pay at time of service

4. Your doctor’s office will file a claim

HDHP: How does it work? (prior to meeting deductible)

5. You and your doctor both will receive from Anthem a paper called an “Explanation of Benefit” showing your cost – network discounts are applied

6. Your provider sends you a bill

7. You pay network cost of service from HSA or other funds

HDHP: How does it work?

Seeing an out-of-network physician

1. Pay at time of service from HSA or other funds

2. File a claim with Anthem to make sure any covered expenses are applied toward your deductible

3. Or if deductible met, to receive reimbursement of 60% of “approved charge.”

In-network vs. Out-of-network

Anthem has a broad network of health care providers that have contracted with Anthem and agreed to accept a certain amount as payment in full for specific covered services.

Out-of-network providers have no contract with Anthem. They may charge more for specific services than what the in-network providers will accept. Anthem only pays 60% of “network amount.”

Go to Provider Finder online directory at www.anthem.com

My doctor is out-of-network

Is this OK? YES!

• You can visit any licensed doctor

• You don’t need a referral to see a specialist

But, it will be more expensive

You may have to file claim yourself

HDHP – how does it work?

Filling a prescription at pharmacy:

1. Present your Anthem card at network pharmacy

2. Pay the full network adjusted amount for your prescription either from your HSA or with other funds

This is typically a lot more

Shop around

Ask for generics

3. If deductible met, pay co-insurance – anywhere from 10% to 40% depending on drug.

HDHP – how does it work?

Using preventive services:

HDHP 1 and 2 cover nationally recommended care at 100% if you use a network provider. Not subject to deductible.

Covered preventive services - children

Office visits for well baby visits and annual physicals.

Screening tests including the following:

• Vision screening

• Hearing screening

• Screening for lead exposure

• Pelvic exam, Pap test and contraceptive management for teens

Covered preventive services - Children

Immunizations:

• Hepatitis A

• Hepatitis B

• Diphtheria, Tetanus, Pertussis (DtaP)

• Varicella (chicken pox)

• Influenza (flu shot)

• Pneumococcal Conjugate (pneumonia)

• Human Papilloma Virus (HPV)

Covered preventive services - Children

Immunizations:

• H. Influenza type b

• Polio

• Measles, Mumps, Rubella (MMR)

• Meningococcal Polysaccharide

• Rotavirus

Covered preventive services - Adults

Office visits for annual physicals

Screening Tests including the following:

• Vision screening

• Hearing screening

• Cholesterol and Lipid level screening

• Blood Glucose test to screen for Type II Diabetes

• Prostate Cancer screenings including Digital Rectal Exam and PSA test

• Breast exam and Mammography screening

Covered preventive services - Adults

• Pelvic exam, Pap test and contraceptive management for females

• Screening for sexually transmitted diseases

• HIV test

• Bone Density test to screen for osteoporosis

• Colorectal Cancer screening including Fecal Occult Blood test, Barium Enema, Flexible Sigmoidoscopy and screening Colonoscopy

• Routine blood and urine screenings

Covered preventive services - Adults

Immunizations:

• Hepatitis A

• Hepatitis B

• Tetanus, Diphtheria (Td)

• Varicella (chicken pox)

• Pneumococcal Conjugate (pneumonia)

Covered preventive services - Adults

Immunizations:

• Human Papilloma Virus (HPV)

• Measles, Mumps, Rubella (MMR)

• Meningococcal Polysaccharide

• Herpes Zoster (shingles)

HDHP – how does the deductible work?

HDHP 1 - $2500 Single coverage

HDHP 2 - $1700

HDHP 1 - $5000 Family coverage

HDHP 2 - $3400

Family must meet entire deductible before coverage applies

Out-of-Pocket expenses

These are expenses you pay yourself for the deductible and the co-insurance you pay after the deductible is met (usually 20% in-network).

The State’s plans put a limit on out-of-pocket expense. Once met, you receive 100% coverage.

Single Family

HDHP 1 $4000 $8000

HDHP 2 $2400 $4800

Trad II $2000 $4000

Family must meet total out-of-pocket expense.

HSA – Important Facts

• This is a real bank account that you open at Tower Bank.

– money in the account belongs to you

– you decide whether and how to spend it

– If you leave state employment, it still belongs to you

• Can only open an HSA if you are enrolled in a qualified HDHP.

HSA – Not a flexible spending account

• Money in FSA is not completely yours

– FSA money is forfeited if not spent within the specified time

– If you leave state employment, FSA money forfeited.

Who can open an HSA?

Eligibility requirements are:

1. Covered by a qualified HDHP.

2. Not covered by any other medical plan, like your spouse’s plan from another employer.

3. Not enrolled in Medicare or Tricare.

4. Not claimed as a dependent on another’s tax return.

How is HSA funded?

1. Pre-tax contributions by the State of Indiana

single - $1375

HDHP 1

family - $2750

single - $935

HDHP 2

family - $1870

2. Pre-tax payroll deductions from your pay – your choice

3. After-tax contributions by you – e.g. you write a check and deposit it in your account.

More on contributions

• Anyone can contribute to your health savings account.

• But, there are limits on how much can be contributed to an account each year:

Single: $2900

Family: $5800

• If 55 or older, can contribute additional $900 in 2008.

Financial Facts about your health savings account

• Accounts held by Tower Bank – you need to open account – it is not automatic

• Checking Accounts with debit cards earn interest (tax – free!)

• Two types of accounts with different interest rates available: e HSA or Premium HSA.

• See TOWER Bank enrollment material for details

• Administrative fees--none for eHSA; $1.99 or $2.99 monthly for Premium HSA

• Investment options

Using funds from your Health Savings Account

• You will receive a debit card

– Can have other authorized signers

• You can request checks

• You can pay provider directly with debit card or check

• Or you can pay provider with other funds and then reimburse yourself from the account.

More info on using funds from your account

• No time restriction on when you use funds, except that the medical service must have occurred after your HSA was opened.

• You can use funds to pay medical expenses for any dependent, even if that person is not covered on your HDHP.

More info on using funds – what types of expenses?– Any expense that is part of your deductible or co-insurance

– Glasses

– Dental services

– Prescription drugs

– Qualified long-term care premiums

– COBRA premiums

– Medicare premiums, but not Medicare supplements

– Health insurance premiums during times of unemployment

More info on using funds

• The money in this account is yours

• It accumulates year to year

• You can roll it over to another HSA

• If you leave state employment, the account remains yours

Recap of tax benefits

• Contributions to account are not taxed (true for state contributions, too)

• Withdrawals from account for qualified medical expenses are tax free

• Interest on account is tax free

Tax Consequences if use funds for other purpose

• Funds incur regular tax + penalty

Important considerations when making a choice

• What is my maximum personal cost [premium plus maximum out of pocket (OOP)]?

Singles Trad II HDHP 1 HDHP 2

Ee Premium 1,459.38 ------- 415.22

Plan OOP 2,000.00 4000.00 2400.00 HSA Contribution ---------- (1375.00) (935.00) ________________________________________ TOTAL 3459.38 2625.00 1880.22

Important considerations when making a choice

• What is my maximum personal cost [premium plus maximum out of pocket (OOP)]?

Family Trad II HDHP 1 HDHP 2

Ee Premium 4013.62 ------- 1133.08

Plan OOP 4,000.00 8000.00 4800.00 HSA Contribution ---------- (2750.00) (1870.00) ________________________________________ TOTAL 8013.62 5250.00 4063.08

Where you stand on your deductible

Your Benefit SnapshotBenefit Amount

Amount Met

Year to Date

Remaining Balance

Family-In-Network Deductible

4,500.00 1,812.19 2,687.81

Family Out-of-Network Deductible

4,500.00 0.00 4,500.00

Dates of Service

Type of Service

Charge Allowable Amount

Provider Responsibility

Deductible Copay/Coinsurance Additional Member

Responsibility

02/07/2007 –02/07/2007

Medical Service

1,699.00 1,030.96 668.04 1,030.96 00.00/

00.00

0.00

TOTALS 1,699.00 1,030.96 668.04 1,030.96 0.00 0.00

Prescriptions – how can I find out what they will cost?

Go to www.subimo.com.  Click on BusinessClick on See a demo.  When demo page comes up type in ID: carecompare@wellpoint.com; password is ssopeng.Click that you accept confidentiality and terms and conditions and click YES that you are 18 or older.Click on Healthcare Advisor under Product AccessSelect Pharma AdvisorSelect Compare and profile drugs by condition.Select condition.  Select drugs to see prices, which are not necessarily the actual network discounted price, but are less than retail price.

Case #1 – The Smiths

Family of 4

• Married couple

• 2 school-age children – Abe and Maria

Mr. Smith had back surgery in April

All family members had annual physicals in January

Abe had strep throat in September and needed an antibiotic

Mary had a wart removed in December

Two additional prescriptions when Mr. Smith had surgery

Which is best plan for the Smiths?

(They use network providers and participate in the non-tobacco incentive and One Care Street incentive)

Case #1 – The Smiths – HDHP 1 vs. Trad IIService Network charge HDHP 1 Trad II

4 annual physicals $400 0 $80

Routine labs w/physicals $250 0 0

Vaccines w/physicals $300 0 0

Out-patient hospital & surgery $14,500 $4,500 deductible $250

$2,000 20% - $10,000

Dr. visit (Abe) $80 $16.00 $20

Antibiotic (generic) $24 ** $2.40 $10

Dr. visit (Maria) $120 $24.00 $20

Prescriptions (2 brand) $150 $30.00 $40

EE premium 0 $4,013

Total cost $6,572.40 $4,433

State’s contribution to HSA - 2750.00 ------

One Care Street - 390.00 -390.00

Net cost to employee $3,432.40 $4,043

Case #1 – The Smiths – HDHP 2 vs. Trad IIService Network charge HDHP 2 Trad II

4 annual physicals $400 0 $80

Routine labs w/physicals $250 0 0

Vaccines w/physicals $300 0 0

Out-patient hospital & surgery $14,500 $2,900 deductible $250

$1900. (hit OOP max

Dr. visit (Abe) $80 $0 $20

Antibiotic (generic) $24 ** $0 $10

Dr. visit (Maria) $120 $0 $20

Prescriptions (2 brand) $150 $0 $40

EE premium #1,133.00 $4,013

Total costs $5933.00 $4,433

State’s contribution to HSA - 1,870.00 ------

One Care Street - 390.00 -390.00

Net cost to employee $3,673.00 $4,043

Case #2 – Jane Fox

25 year old single woman

Uses network providers

Participates in non-tobacco use incentive and One Care Street incentive

Jane has her annual OB/GYN exam and one sick visit

She takes birth control pills and had one additional prescription

Her prescriptions are brand drugs.

Jane Fox - HDHP 1 vs. Trad II

Service Network charge HDHP 1 Trad II

OB/GYN Annual $135 0 $20

OB/GYN Lab $30 0 0

Sick visit $100 $100 $20

Birth Control Rx $360 $360 $240

Rx – brand $90 $90 $20

EE premium 0 1,459

Total cost $550.00 $1,759

State’s contribution to HSA - $1,375.00 - 0

One Care Street - 260.00 - $260

Net cost to employee/ [money ahead/ [$1,085Saved!]

Net cost is Zero

$1,499 spent

Jane Fox - HDHP 2 vs. Trad II

Service Network charge HDHP 2 Trad II

OB/GYN Annual $135 0 $20

OB/GYN Lab $30 0 0

Sick visit $100 $100 $20

Birth Control Rx $360 $360 $240

Rx – brand $90 $90 $20

EE premium $415 !.459

Total cost $965 $1,759

State’s contribution to HSA - $935.00 - 0

One Care Street - $260.00 - $260

Net cost to employee/[money saved] [$230 saved]]

Net cost is zero

$1,499 spent

Cash Flow

When you analyze your potential claim cost, remember that money is deposited in your HSA each pay period

• You cannot spend what isn’t there

• You can use other sources and reimburse yourself when money is in your HSA

• You can contribute to your HSA and the balance will grow more quickly

Question?

website: www.in.gov/jobs/benefits

hotline: (317) 232-1167 (Indianapolis)

(877) 248-0007 (outside Indianapolis)