The Personal Health Account Opportunity for Brokers

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1 The Personal Health Account Opportunity for Brokers By Catherine Corby Parker There is a new healthcare payment card in the alphabet soup of FSAs, HSAs and HRAs. The new entrant is the PHA, or Personal Health Account. This white paper explains what a PHA is, how it is different from other healthcare payment products, the practical applications for the PHA, and the opportunity it creates for health insurance brokers. The PHA creates a tangible healthcare benefit for small businesses to offer employees that leverages the lower premiums and federal subsidies available on the individual market. What Is a PHA? The Personal Health Account (PHA) was invented following the enactment of the Affordable Care Act (ACA). Executives from a payments company and a health insurance brokerage collaborated to create a new payment mechanism that could only be used to pay insurance premiums and make purchases from medically-related providers. The PHA creates a tangible healthcare benefit for small businesses to offer employees that leverages the lower premiums and federal subsidies available on the individual market. The target market for the PHA is businesses with fewer than 50 FTE where there are no penalties if the business does not offer health insurance benefits to employees. The PHA is also ideally suited to provide dependent coverage as a complement to group health insurance for employees. The PHA is a MasterCard prepaid debit card that employers and/or employees can load funds to via direct deposit from their payroll system. 1 Each PHA card arrives with a pre-filled deposit slip that contains the ACH and account information for the employer to enter into its payroll system. Consistent with labor laws, employers will likely set contributions by category of employee (e.g., full-time, part-time). When the employee is enrolled in an insurance plan, the PHA card or account number are entered into the carrier s system as the form of payment. Unlike with Flexible Spending Accounts (FSAs) where funds are deposited at the beginning of the plan year, employer contributions to the PHA are made monthly to align with premium payments. 1 Employers without direct deposit can use a batch load service from the PHA Administrator to load cards.

2 If the funds deposited by the employer are greater than the employee s premium, the excess funds can be accessed by swiping the card at hospitals, doctor offices or other medically-related providers. In essence, the PHA serves as a rainy day fund for medical expenses when the employer s contribution exceeds the premium. If the funds deposited by the employer are less than the employee s premium, the employee can request additional payroll withholdings to make up the difference. How is the PHA Different from Other Healthcare Payment Cards? While the PHA is similar to other healthcare payment products, it is a separate animal with unique characteristics from FSA, HSA (Health Savings Account) and HRA (Health Reimbursement Account). While the PHA, FSA, HSA and HRA are all intended for the purchase of healthcare-related products and services, there are significant differences between the PHA and other healthcare payment products. A major distinction between the PHA and the other products relates to taxes. The FSA, HSA and HRA are all tax-advantaged products meaning that neither the employer nor employee pay taxes on funds loaded to the card. However, for the most part, funds to the PHA are deposited posttax, subject to employer payroll taxes and employee income tax withholding. 2 As a result, once funds are deposited to the PHA, they are the property of the employee. There is no use it or lose it condition as with an FSA or HRA. The PHA, like the HRA, supports payment of insurance premiums. Insurance premium payments can be made like a debit card purchase using the 16-digit card number, or they can be made via ACH to the bank account number associated with the PHA card. Purchases on PHA cards are limited to those from medical providers including doctors, dentists and hospitals, as well as merchants selling healthcare related products such as optometrists and medical supply stores. However, the PHA does not allow purchases of medical items from stores that sell a broad mix of goods, such as discount stores and pharmacies. The PHA does not currently participate in the network that FSA card programs do that allows separation of FSAeligible items at the check-out lane. (While HSAs are intended for medically-related purchases, there are currently no limitations on where HSA cards are accepted and no reporting requirements.) Unlike the HRA, the PHA does not require consumers to pay in advance and then seek reimbursement for a medical purchase. This expands the market for the PHA to lower income 2 There are some use cases for the PHA where pre-tax funds are deposited to the card, but additional restrictions on card usage may accompany use of the PHA in a pre-tax model. Page 2

3 households who may not have the cash flow to pay for the medical products and services and wait for reimbursement. And while both the HSA and PHA can build a reserve fund for medical expenses, the PHA does not pay interest. The chart below summarizes the differences between the PHA and other healthcare payment products. PHA FSA HSA HRA Funds Expire (Use It or Lose It) No Yes No N/A Tax-Advantaged Funds No Yes Yes Yes Employers & Employees Can Contribute Yes No No No Payroll Deduction Can be Used for Employee Contributions Yes Yes Yes No Can Be Used to Pay Insurance Premiums Yes No No Yes Can Use Card for Purchases at Medical Providers Yes Yes Yes N/A Can Use Card for Healthcare Purchases at General Retailers No Yes Yes N /A Reimbursement or Substantiation Required No Yes No Yes Pays Interest No N/A Yes N/A Practical Applications of the PHA There are several use cases for the PHA. Perhaps the strongest value proposition is for small employers who use the PHA to transition employees to individual coverage while still maintaining a tangible employee healthcare benefit. Because businesses with fewer than 50 full-time equivalent employees are not required to offer health insurance, their employees can purchase individual coverage that is eligible for federal subsidies and the employer will not face any penalties. The PHA is a new option for small employers and their employees that is better than practices many small businesses have adopted in response to rising healthcare costs. Many small businesses post-aca have already cancelled group coverage, raised employee salaries and sent their employees to the individual marketplace. The PHA is a better option than this approach because: o It allows the employer to keep healthcare as a tangible employee benefit; o Only employees interested in healthcare will sign-up for the PHA, whereas every employee would sign-up for a pay increase; and, o Employees receive free consultation and enrollment services from a licensed agent rather than being forced to navigate the healthcare.gov website. To address rising costs of group insurance, many small businesses have opted for less expensive plans or increased employees premium responsibility. The PHA offers a better alternative because: o Rates on the individual market are generally lower than rates offered to small groups, even without taking into consideration federal subsidies; and, Page 3

4 o Each employee can pick the coverage that best meets his or her needs, rather than accepting the employer s one-size-fits-all group plan. The market for the PHA includes both small employers with group coverage today who find the costs of group coverage prohibitive, as well as small employers who do not offer any healthcare benefits today but find the PHA an affordable and valuable new employee benefit. If an employer is dropping a group plan for the PHA, existing employees with insurance would be immediately eligible to obtain coverage on the individual market. New employees hired during the year who did not have coverage from their previous employer, or existing employees who were not enrolled in the group plan, would not be eligible to sign-up for individual coverage until the open enrollment period. However, the employer could still make contributions to the PHA to assist the employee with non-premium healthcare expenses. There are several other applications for the PHA. In fact, the product is flexible enough that each broker can determine where and how the PHA fits into their commercial health insurance offers. For example, the PHA is being used today by brokers to: Complement a group health plan whose participation is limited to employees. The PHA is being offered for dependent coverage. Employers are dropping group dependent coverage, creating a qualifying life change event that allows the dependents to obtain coverage on the individual exchanges outside of the open enrollment period. Create a stand-alone incremental healthcare benefit on top of group coverage to provide a differentiated level of employee benefits. A large employer has provided each employee with a PHA to which the employer makes a quarterly contribution towards employees medically-related expenditures. Since this use of the PHA is not linked to health insurance, the product can be offered to employees without regard to the open enrollment period. Offer a choice for employees between a group plan or individual coverage direct from a carrier. For example, some employers with diverse workforces may find a high deductible plan works best for the majority of employees, but is not a good fit for some employees. In this case, giving the employee the choice of the group plan or an individual plan direct from a carrier, can be a better solution. By restricting individual coverage to plans direct from carriers where federal subsidies are not applicable, even larger employers can use the PHA in this manner. The PHA Opportunity for Brokers Insurance brokers who add the PHA to their commercial health insurance offerings can better meet their clients needs and expand their market to businesses who have previously found Page 4

5 group insurance cost-prohibitive. There are two models under which a broker can offer the PHA, depending upon whether the broker enrolls employees in the individual market, or does not. Broker Role Current Lines of Business Group Health Group Health Individual Health Individual Health - Sells to businesses - Enrolls Individuals Brokers whose business model includes enrolling individuals in health insurance plans, will sell the PHA to business clients and enroll their employees in individual policies. The broker will establish the employer implementation fee for the PHA and retain the difference between the retail price and the wholesale fee charged by the PHA Administrator. Such brokers will receive carrier commissions associated with enrollment of employees in individual plans. Brokers who service groups but do not write individual policies can offer the PHA in conjunction with a broker in the individual market. The group broker sells the PHA to employers and gathers information required to order cards for employees. Employees who receive cards would be instructed to call a specified broker serving the individual market to enroll in coverage. The individual broker to whom the employee was directed would share commissions from the individual coverage with the group broker. Summary - Sells to businesses The Personal Health Account is a flexible healthcare payment product that brokers can use to provide more healthcare benefit options for employers. The primary market for the PHA is servicing small businesses for whom traditional group health benefits are prohibitively expensive. However, applications of the PHA extend into the larger corporate market as a complement to traditional group plans. Brokers offering the PHA can expand their market to include businesses previously priced-out of group plans, and to provide a new incremental benefit companies can offer to employees independent of health insurance coverage. The revenue model for brokers offering the PHA includes employer set-up fees and carrier commissions. For more information on the Personal Health Account, visit Catherine Corby Parker is President of Corby & Company, Inc., a healthcare payments consulting firm headquartered in Jacksonville, Florida. Page 5

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