Just seven years ago CareGain was a two-person firm pioneering in the consumer-driven healthcare market. Now, with 85 workers, it helps banks and insurance companies offer the tax-advantaged healthcare plans that help consumers save money.
With a consumer-driven healthcare plan, employers can encourage employees to make certain decisions that may increase the value of their healthcare benefits. For instance, pre-tax dollars can be used to finance a high-deductible plan at significantly lower cost to the consumer. In one kind of plan, a Health Savings Account (HSA), lets consumers bank pre-tax dollars to pay future doctor bills. Unused dollars can be rolled over, year after year, to be spent or saved at will.
This year, according to John Rownd, CareGain’s associate vice president of business development and account management, an individual can bank $2,900 and a family can bank $5,800. By next year your family can bank $5,900s. And when the doctor bills come rolling in, you have a choice about whether or not to dip into the health service accounts.
The HSA. HSAs are almost like an IRA, and in fact you could consider your HSA as a second IRA. Eventually that money must be used for medical bills, but you can choose to wait years before tapping the account. “If you save your healthcare dollars for retirement, you are compounding interest and earning interest tax free,” says Rownd.
The son of a partner at what is now PriceWaterhouseCoopers, Rownd graduated from John Carroll University in Cleveland in 1994 and has an MBA from the University of Wisconsin at Milwaukee. He worked for Assurant Health in Milwaukee for 10 years and joined CareGain in 2006. Because he travels so much, he still lives in Milwaukee.
Two other CareGain products require employer participation. This third plan, the HSA, results from the 2005 Medicare Modernization Act, and is accessible to anyone who has a qualified high deductible health insurance plan.
“Health savings accounts have been criticized incorrectly as being only for the healthy and wealthy,” says Rajiv Mahajan, CEO of Caregain, “but they provide a benefit to any age group or demographic. Those who have gone without insurance, because it has been unaffordable to them, can now afford it.”
More and more large employers are offering HSAs, but individuals can also sign up for an HSA at such major financial institutions as Fidelity or Bank of America. They are also available through banks owned by insurance companies, such as Blue Healthcare Bank and Optum.
The employee owns the HSA. It is portable, so that if you change jobs, you can take it with you. With an HSA you do not have to get your claims substantiated by an insurance firm. “That’s part of the beauty of the HSA,” says Rownd. “The requirement of substantiation requires administrative expense to prove you are using funds properly, that you used the money for qualified medical services. You must submit paperwork from insurance companies or drugstores.”
Though don’t have to submit your receipts, the IRS requires you to keep them.
“It’s a triple threat,” says Rownd. “Contributions go in tax free, they accumulate interest tax free, and they can be invested in money markets, stocks, and mutual funds. If you use them for qualified medical expenses, those funds are again tax free.”
CareGain’s role is to provide technology and servicing solutions for these plans. “Sometimes we integrate with health plans, sometimes with banks. It’s not something that all companies can do. That’s why they need us,” says Rownd.
Founded by Amit Gupta and David Lenihan (U.S. 1, February 27, 2002), CareGain was bought by Fiserv. With Rajiv Mahajan as the CEO it has doubled its size in two years and now has 85 workers in 16,000 square feet on Morgan Lane. (103 Morgan Lane, Suite 300, Plainsboro 08536; 609-275-6555. www.caregain.com).
“We have an expectation of growth and wanted to be in a physical location to support that growth,” says Mahajan. The company is hiring Java programmers and customer service people with a technical background. It also has an office in Amherst, outside of Buffalo, New York.
Any bank can create an HSA program. For instance, United Healthcare created its own platform and its own bank, now called Optum. “We make it easier and do it in combination with other tax advantaged accounts to create a robust CDH program,” says Rownd.
CareGain works with 12 clients of Blue Healthcare Bank, a creation of the Blue Cross and Blue Shield Association and 33 of its member plans. Fiserv provides the servicing for 8 or 9 of those plans, and most of that technology is CareGain’s. Other bank partners include HSA (a niche bank for Health Savings Accounts in Sheboygan, Wisconsin), and UMB Bank in Kansas City. Among CareGain’s competitors are WageWorks, of San Mateo, California, and DST Health Solutions, in Birmingham, Alabama.
CareGain has the platform on which tax-advantaged accounts can sit. As third-party administrator it puts up the websites, administers the accounts, and does claims adjudication and substantiation. “It is a very price sensitive business,” says Rownd, “but we have an end-to-end product that includes a customer service number that members can call. And we have experience. In a relatively young industry, we are one of the founding fathers, and we have great, robust end product. For health insurers and financial institutions today — if you don’t have this capability, you will lose customers.”
The two other kinds of tax-advantaged consumer-directed healthcare financing programs are health reimbursement arrangements and flex spending accounts.
Health reimbursement arrangements. HRAs are made between you and the employer. Typically they are used with a high deductible insurance plan. The employer sets aside a certain amount of money. You use money out of the HRA to pay for healthcare bills. “The value to the employer is that, if you use the money, it’s gone. If you don’t, it still belongs to the employer,” says Rownd. The HRA can be used for copays and any qualified medical expenses, including chiropractic care, as designated by the IRS. A variation on the HRA is the “limited purpose” HRA. For instance, an HRA might be set up to pay only for dental bills.
Flex spending accounts. Employers set them up, but they usually do not contribute to them. Employees contribute pre-tax dollars. “You might deduct $50 from your paycheck to use for qualified medical expenses, tax free,” explains Rownd. The employer holds onto the money and keeps the books, with the help of CareGain’s web-based platform. The employee submits receipts and gets reimbursed.
It can be tricky to estimate the out-of-pocket bills that you anticipate spending. And if you don’t use that money by the end of the year, you lose it. “In years past, I’ve bought $125 worth of saline solution for my contacts, just so I wouldn’t lose the money,” says Rownd. To use up the funds people buy extra prescription pills, or “stop smoking” programs, or they schedule surgery before the end of the year. “I’ve heard ads in December for Lasik surgery urging people to use up their FSA dollars.”
FSA variations include the dependent care FSA (for daycare expenses) or the transportation FSA (for parking).
The cost to the employer for setting up an FSA varies by vendor from $100 to $500, says Rownd. One of CareGain’s clients might charge on the low end, another on the high end. “The variables depend on the contract length and the scope of services. The monthly cost to our client might be from $4 to $7 per employee per month.
Says Rownd: “Caregain is still a relatively young company, and we have a big parent. We are working hard, getting clients, making things happen.”