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Case Study - December 2007

By Richard J. Hughes, CEBS

One Cleveland-based company with about 50 employees has used a unique version of the Health Reimbursement Arrangement (HRA) since 2005. It?s referred to as a ?Split-Funded? plan and it has allowed them to keep their 2008 healthcare costs at 2005 levels. At the inception, the switch to the High-Deductible Health Plan (HDHP) created an immediate premium savings of about $150,000. Then, the company retained the services of a third party administrator (TPA) to administer the Split-Funded portion of the plan.

For plan year 2005, the HDHP was established at $2,000/$4,000 with 100% coinsurance once the deductible was met. The plan had no office visit or prescription drug copayments meaning that all eligible expenses were applied to the deductible. The company established an 80%/20% coinsurance arrangement for all incurred claims which meant that the company paid 80% and the member paid 20% of all eligible claims until the deductible was met?meaning that the out-of-pocket maximum for the Split-Funded portion of the plan was $400 for employee only coverage ($2,000 deductible x 20% coinsurance) or $800 for dependent coverage ($4,000 deductible x 20% coinsurance). Once the deductible was met, then the plan paid at 100% (network) or 60% (non-network).

For plan year 2006, the plan had no increase in premiums so no plan design changes were made.

For plan year 2007, the plan had a 15% premium increase but most of this increase was attributable to the trend (or the overall inflation of the pool)?not to the actual experience of the group. Once the Split-Funded claims were analyzed, it was determined that only 5 employees had even met the deductible in 2006 so it made economic sense to increase the HDHP deductible to $3,000/$6,000 in order to keep the overall costs constant. However, the company didn?t want to shift more costs to the employees so they elected to ?fund? the difference in the new deductible ($1,000/$2,000) at 100%.

For the upcoming 2008 plan year, the plan received a 9% premium increase. Again, most of this increase was attributable to the trend not to the actual experience of the group. Once the Split-Funded claims were analyzed, it was determined that only 3 employees had even met the deductible in 2007 so it again made economic sense to increase the HDHP deductible to $5,000/$10,000 in order to keep the overall costs constant. As they did in 2007, the company elected to ?fund? the difference in the new deductible ($2,000/$4,000) at 100%.

By adopting this approach, this particular company has been able to hold healthcare costs relatively constant for 4 years without reducing benefits or shifting costs to employees.

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