Session 4 Hour 1&2

Question 1

Flexible spending account

Answer 1

• An “approved” spending account that is paid for with pre-tax dollars
• Offered by employers only
• If not used at the end of year, money is lost, only 550 rolled over
• Employee can pledge to contribute during open enrollment only

Question 2

Problems

Answer 2

1. Rising health care costs
2. Increasing premiums
3. Individual’s limited information on price and quality of health services

Question 3

Proposed Solution

Answer 3

Change incentives facing individuals, from

Traditional insurance

• Limited information (on price and quality)
• Few incentives to take price and quality into account in decision making

To

Consumer-directed health plans:

• High deductible + account to pay for out-of-pocket costs with pre-tax dollars
• Individuals will have more skin in the game because they see the spending account as their own money (Incentives to shop for high quality and low cost care)

Question 4

Consumer-directed Health Plans: Anatomy

Answer 4

High deductible health plan

• Individual pays fully out of pocket up to deductible
• Then insurance coverage kicks in

+

Health savings account (HSA)

• Funds can be used to pay all eligible medical related expenses not covered by the health plan
• Owned by individual
• Pre-tax dollar contributions from: employee, employer, both
• “Use it or keep it” –Funds roll over at the end of the year if not used, no limit in time for using funds