Complete information critical to new managed care products

Recent Acquisitions of companies specializing in consumer-driven health plans (CDHPs) may lead to further product innovation and competition in the managed care market. Other insurers are seeking to add CDHPs so they are able to offer these models with the more traditional insurance and managed care plans. In an industry already heavily burdened with abstracted terms, CDHPs are ushering in a new set of product terms.

Flexible spending accounts (FSAs) allow employees to set aside pre-tax dollars to pay medical costs not covered by insurance. By using pre-tax dollars, the employee effectively pays these costs at a discount equal to his marginal tax rate. The downside to these accounts is that the employee forfeits any amount in the account that is not used by year-end.

Health reimbursement accounts (HRAs) allow the employer to set up an account for each employee for a certain amount of money. The employee may use it for medical expenses, and it may build up over several years without forfeiture. The contributions by the employer are not taxed; neither are the withdrawals if used for medical expenses. HRAs are typically combined with a high-deductible insurance policy with the money in the account being utilized for the uninsured portion of medical expenses.

Medical savings accounts (MSAs) are a more limited form of HSA. They were utilized in the mid-1990s on an experimental basis and were limited to small businesses or self-employed individuals. HSAs have replaced the MSAs, although existing MSAs may stay in place. New MSAs may not be established.

In addition to the desire to lower costs, one of the factors that appears to be driving this plunge into CDHPs is the assumption that insurer and employer liability will be reduced. The theory is that, by making the employee more responsible for his own healthcare decisions, the insurer will have reduced exposure for undesirable outcomes. Implicit in this assumption is that average employees are capable of making these health benefit decisions for themselves.

DISCLOSURE IS PARAMOUNT When addressing liability concerns arising with respect to CDHPs, insurers and employers will want to focus on the accuracy and completeness of the new information being provided to the employees.

In the managed care world, it has become common for consumers to seek redress from insurers in instances which arguably arose, at least in part, because of the consumer's own mistakes. Consequently, for CDHPs, disclosure will be of paramount importance. When evaluating the completeness of the information, insurers and employers will want to ensure that the information they provide is sufficient to allow the employee to make an adequately informed decision.

Barry Senterfitt is a partner in the insurance industry practice of Akin Gump Strauss Hauer & Feld LLP, and is located in the firm's Austin, Texas, office.

This column is written for informational purposes only and should not be construed as legal advice.