Medical costs are rising about 1 percent a month, says chartered benefit consultant Frank Petrulla, and this will mean a doubling of insurance premiums every five years. Employers, however, can keep costs in check by moving to high-deductible health insurance plans, he says. Here they may be able to achieve discounts on insurance premiums as high as 40 to 50 percent over their current plans. Yet thus far only 10 percent of plans take advantage of this approach.
Petrulla, a consultant at Oscar & Associates, an insurance agency based in West Caldwell, will speak at the “Health Insurance Boot Camp” on Wednesday, August 13, at 8:30 a.m. at the Holiday Inn in Marlton. The seminar will cover key components of health plans and plan design alternatives, strategies for controlling costs; consumer-driven health care products and programs; employee advocacy programs; and health savings accounts and health reimbursement arrangements. Cost: $339. To register, go to www.lorman.com.
To help employers weigh the possibility of switching to high-deductible plans, Petrulla explains the approach he recommends:
Select a deductible amount. Employers must choose a deductible amount that they feel comfortable presenting to their employees. But they should also keep in mind that if employees are to be eligible for tax-advantaged health savings accounts, the government requires a minimum deductible of $1,100 for a single person and $2,200 for a family.
The individual or family is responsible for paying out the deductible before any reimbursement is made by the insurance carrier. Once the deductible is paid out the plan will cover any individual who is catastrophically ill — with maximum out-of-pocket limits in each calendar year averaging zero to $5,000 for in-network services and $3,000 to $10,000 for out-of-network services. The exact limits depend upon the underlying plan design, which is under the control and discretion of the employer.
Set up a health reimbursement arrangement. Through the savings generated by lower premiums, the employer can help subsidize employee health expenses. Although the reimbursement arrangement can cover any number of out-of-pocket expenses, says Petrulla, it works best when rdealing with the high deductible.
The health reimbursement arrangement is funded by the employer and reimbursed to the employee only when a deductible expense is incurred and documented by the insurance company. “It allows the employer to pay for actual medical costs rather than pay a full premium for benefits that are not being provided to the employees,” explains Petrulla.
Only 10 percent of the general population is hospitalized each year, for example, and the other 90 percent will not use hospitalization coverage even if it is part of their insurance plan. Furthermore, approximately 70 to 75 percent of the general population spends less than $1,000 per person per year on health expenses.
“Rather than pay the insurance company a premium for claims that may never materialize,” says Petrulla, “the employer would reimburse the employee directly rather than paying in advance for the insurance premiums.” As a result, whenever an employee does not use this health reimbursement arrangement, the employer experiences additional savings.
Use health savings accounts to help fund the deductible. These accounts, which are designed to help individuals save for qualified medical and retiree health expenses on a tax-advantaged basis, can be used by employees to offset both the their deductible and out-of-pocket expenses.
Couple the health savings account and health reimbursement arrangement with a health maintenance organization, a point-of-service plan, or a preferred provider organization. A health maintenance organization provides benefits to members who use providers in the managed care network, but provides no benefits or coverage to members seeking treatment outside of the network. A point-of-service plan is similar except that it also offers out-of-network benefits and coverage, subject to deductibles and coinsurance. A preferred provider organization gives the plan holder total freedom to go in or out of network without a referral from a primary care physician.
Petrulla grew up in Brielle. His father was athletic director at Howell High School, and his mother stayed at home with Petrulla and his five siblings. After graduating from the University of Richmond in 1985 with a bachelor’s in economics, Petrulla was hired by Great West Life, a Fortune 500 insurance carrier, as a sales representative. After 12 years he moved to another company, where he stayed several years, and then to John Hancock Financial Services as regional vice president between 2000 and 2004.
From the employee’s perspective, there is one potential downside to these high-deductible plans with health reimbursement arrangements, but only for chronically ill employees who will pay more out of pocket than with a high-coverage plan. But a change to a high-deductible plan will not affect healthy employees at all, says Petrulla, since cost is tied to utilization.
“Is the intent of the insurance to provide catastrophic coverage or pay for every nickel-and-dime claim that an individual has?” asks Petrulla. In his opinion, the goal of an insurance plan is to cover catastrophic illnesses, not reimburse members for routine doctor visits and prescription drugs. Combining a high deductible with a health reimbursement arrangement and health savings account, he says, will protect people from financial ruin while saving money for employers in the face of rising prices for health services.