AMR Case Study #2

Health Reimbursement Arrangement
Helps Client Partially ‘Self-Fund’

Situation: Upon renewal, a growing software engineering client received an 18% increase in their group medical plan premiums. Employee satisfaction with the existing plan design was favorable as the plan had a $10 co-pay for doctor visits and no “out-of-pocket” expenses for hospitalization. AMR determined that a change to a $25 co-pay for doctor visits would reduce this increase from 8% to 2%, a significant savings for the company. However, along with the increased $25 doctor visit co-pay came a $500 hospitalization co-pay as well as a $250 prescription drug deductible (prescription drug co-pays were applicable after reaching the deductible).

Action: AMR introduced the concept of implementing a health reimbursement arrangement (HRA) alongside the new medical plan. By adopting an HRA, the group could selectively reimburse, based on a written plan document, certain “out-of-pocket” medical expenses incurred by employees throughout the year on a pre-tax basis. AMR worked closely with the employer to draft the HRA documents and to include specific language that would reimburse each insured employee (single or family) $500 for the first hospitalization per contract year and would reimburse $100 of the $250 prescription drug deductible. Based upon the calculated assumption that the company would incur approximately three (3) to four (4) employee hospitalization reimbursements and ten (10) to fifteen (15) prescription drug reimbursements, the estimated HRA cost (including document preparation) would most likely be less than $3,500 (increasing gross plan cost by another 2%).

Result: Prior to the actual renewal, AMR provided a presentation to employees and explained the details of the HRA and the new plan design changes. While co-pays for doctor office visits increased, the employees were generally receptive to the new plan, especially since the employer did not change premium contributions. Unless numerous hospitalizations or significant non-maintenance prescription drugs were purchased, the employee’s coverage would remain relatively the same (mail-order prescription drugs did not require fulfilling a deductible before benefits were received). In end, hospital utilization was lower than estimated further supporting the HRA model.

Summary:

• Innovative reimbursement plan reduces rate hike for employees
• Employer carries most of rate hike burden keeping employees content with benefits plans

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