Tax-favored health coverage Featured

8:00pm EDT May 26, 2007

The Health Opportunity Patient Empowerment Act of 2006 provides tax advantages for health care savings. Among its many provisions, it allows consumers with high-deductible health plans (HDHPs) to save pre-tax dollars in Health Savings Accounts (HSAs) for qualified, future medical expenses. The premiums for HDHP/HSAs are less expensive for employers, and employees benefit by building tax-free savings, all while gaining more control over their health care choices.

“When you combine an HDHP with an HSA, you create a triple tax advantage for the employee,” says Javier Mendoza, vice president, Strategic Marketing, Plans & Programs, AvMed Health Plans, Florida. “Employers should not discount these plans because of the words ‘high deductible.’ Instead, the plans should be viewed as tax-favored coverage with attractive ROI.”

Smart Business asked Mendoza how to successfully roll out an HDHP/HSA plan.

Provide an overview of an HDHP/HSA.

A high-deductible health plan is health insurance that meets IRS guidelines that allow it to be combined with an HSA. For 2007, an HDHP must have at least a $1,100 (single) or $2,200 (family) deductible, indexed annually for inflation. Out-of-pocket expenses cannot exceed $5,500 (individual) or $11,000 (family). HDHPs represent a move away from a pre-paid medical plan to one that protects against major financial loss.

HSAs are owned by the individual and are portable, so changing employers is not an issue. HSAs and qualified HDHPs have a triple tax advantage: they provide tax-free contributions, growth and disbursement for qualified medical expenses. If the money is not used, funds roll over from year to year. HDHPs/HSAs are evolving as a way to pay for not only short and mid-term health care costs, but also to save for health care costs during retirement.

Why should employers consider offering HDHP/HSAs?

HDHP/HSAs offer a long-term strategic solution to the continuing high costs of health care coverage and overall costs. HDHP/HSAs 1) reduce health care premium costs, 2) reward responsible employees who undergo preventive care, 3) increase employee awareness of health care costs, 4) motivate employees to change their personal behavior, and 5) give employers another way to contribute to the long-term, well-being of their employees.

Is the employer required to contribute?

No, but the most successful results will occur when both the employer and employee are contributing. There are many ways employers can contribute. They can 1) make flat rate contributions, 2) structure some type of match, 3) contribute based on salary range or tenure, healthy lifestyle choices, etc. All options should be explored with an independent insurance agent and a tax professional.

How can an employer determine whether an HDHP/HSA is a good fit for their organization?

Larger companies are currently testing the waters, introducing HDHP/HSAs as an option. Some larger companies — but more smaller ones — are jumping right in and deciding these are the only plans they are going to offer. It depends on the company’s philosophy as well as how informed and engaged their employees already are. The employer should test for readiness/resistance. Do employees talk ‘wellness,’ or are they still in the ‘$5 copay/$50 doctor visit’ mindset?

How should the employer evaluate potential vendors for a plan?

Partner with an agent that understands and is committed to long-term strategy and that can provide tax-advantage support. In addition to considering all the usual factors such as locality, size of network, cost sharing and client services, consider integration points – factors that will make it easy for individuals to sign-up and self-manage. Is there user-friendly, non-financial-oriented Web support? Are there tools such as hospital and prescription cost estimators online, as well as reliable, personal assistance? Are targeted management programs available to help consumers with specific conditions not only lower their out-of-pocket expenses, but also improve the outcomes of their particular condition?

Once the decision is made to offer a HDHP/HSA how does the employer get buy-in?

Prepare. Prepare. Prepare. Start to build the case for change at least six months ahead of time and communication will be key to gaining acceptance. You are talking about a culture change, and if you spring this on employees, you’ll be met with resistance. Move away from words such as ‘benefits’ and ‘health plan.’ Position HDHP/HSAs as tax-favored health coverage. Know your audience and tailor the message. Target the benefits by knowing the strong points of interest for each group of employees.

JAVIER MENDOZA is vice president, Strategic Marketing, Plans & Programs, AvMed Health Plans, with offices throughout Florida. Reach him at (305) 671-4946 or javier.mendoza@avmed.org.