HSA advantages Featured

8:00pm EDT October 26, 2007

Companies are constantly looking to reduce expenses. A Health Savings Account (HSA) is a cost-saving approach that business owners should consider. A wellness program paired with an HSA can help your company save money on health care costs, according to Sally Stephens, president of Spectrum Health Systems.

Prevention should be a key component of any initiative by providing greater information to consumers because, without an action plan of how to live a healthier lifestyle, information doesn’t improve health outcomes.

An HSA is a high-deductible medical insurance plan bundled with a savings account. Cash contributions made to an HSA are tax-deductible, as are qualified medical expenses. HSA plans have two components: a lower cost, high-deductible health insurance plan and a tax-favored health savings account, says Stephens.

Smart Business spoke with Stephens about how HSAs are utilized and the benefits and details of such accounts.

Why are businesses deciding to use HSAs?

By implementing an HSA, employers are encouraging employees to take control of their own health care decisions. A particularly appealing aspect of the HSA is that it encourages participants to stay healthy. Any money that is not used for medical expenses is the employee’s to keep. The premise is that individuals who use HSAs will shop around for the best value, which will encourage competitive pricing among providers.

This model provides financial incentives for consumers to reduce unnecessary health care utilization by increasing their financial risk. HSAs are designed to give the plan member complete control over health care spending and save for future health care costs with tax-free interest until retirement.

What advantages do HSAs offer employees?

HSA dollars grow tax-deferred and can be withdrawn tax-free to help pay deductibles or other qualified health care expenses like prescriptions, vision or dental care. What is not used will continue to accumulate year after year and is transferable if the participant changes jobs.

You can use the HSA to cover a spouse. It requires that the participant be married at the time the service was received or at the time the service was paid for. You can pay for dependents’ medical expenses as long as they are a qualifying child or a qualifying relative and are a U.S. citizen.

How can employers ensure employees receive the best coverage possible?

One key decision employers face when implementing HSAs is whether to contribute money to employee accounts. While contributions might appear to increase costs, this may not be the case. In dual-option cases, employer contributions can drive enrollment away from the higher-premium PPO or HMO, resulting in client savings. In a full-replacement scenario, employer contributions ease the cultural evolution from paternalism to shared responsibility, encourage employees to open accounts, encourage contributions by employees and enhance the benefit plan to remain competitive.

Communicating with workers about these plans is essential. Health care transparency or the availability of good information on provider cost and quality is critical to the HSA success.

How does one use an HSA?

In 2007, you can contribute up to $2,850 for individual coverage or $5,650 for families (people age 55 and older can make an extra catch-up contribution of $800 in 2007). Legislation approved by Congress on Dec. 9, 2007, will allow you to contribute up to these limits even if your insurance deductible is less. The employer, employee or any other person can make contributions to the HSA.

HSAs pay for ‘qualified medical expenses.’ What is considered a qualified medical expense?

Qualified medical expenses are those that are the cost of diagnosis, cure, mitigation, treatment or prevention of disease, and the cost for treatments affecting the function of the body. They include the cost of equipment, supplies and diagnostic devises needed for these purposes. Medical care expenses are those that are primarily used to alleviate or prevent a physical or mental defect or illness.

HSAs can also be used to pay for other qualified expenses that may not otherwise be covered by the traditional health plan. These include: dental; mental health therapy; physical therapy; aromatherapy or acupuncture; transportation and lodging expenses relative to health care; preventive health programs, such as vaccines; nonprescription medications, such as aspirin or cough syrup; maternity expenses; and insurance premiums.

SALLY STEPHENS is president of Spectrum Health Systems. Reach her at Sally.Stephens@spectrumhs.com.