A health care financing option that potentially provides a solution to the complex challenge of offering affordable health insurance to employees is the health savings account (HSA).
These types of accounts are very popular with employees, says Sandy Coventry, an independent insurance broker with Westland Insurance Brokers. Coventry says that HSAs make health insurance available to a greater number of people and that many professional-level employees recognize the tax advantages and empowerment potential of account ownership.
According to information gathered by America’s Health Insurance Plans, an association representing 1,300 health insurance companies, the number of individuals covered by HSAs increased from 1 million participants in March 2005 to almost 3.2 million in January 2006. The group projects that up to 14 million people will be covered by 2010.
Smart Business spoke with Coventry about the business advantages of offering HSAs and why CEOs might want to include this option as part of his company’s benefits plans.
Why should a CEO consider including HSAs as part of a comprehensive health care benefit plan?
The first thing to consider is the cost savings. HSAs are offered when an employee is covered by a high-deductible insurance plan. These types of plans often offer premium savings to the company and potentially the employee, depending upon how the premium sharing is allocated.
A recent study completed by United Health Group sampled 40,000 workers from 2003 through 2005. It found that the cost to employers per member in a high-deductible plan declined 3 to 5 percent during the period, while increasing 8 to 10 percent when employees were covered by traditional PPO plans.
Why would an employee want an HSA?
The premium savings from a high-deductible insurance plan often enables employees to cover their entire family, or it allows more employees to participate. The employee can ‘bank’ a portion of the premium savings into an HSA and use that money to meet the deductibles of the plan. Additionally, employee contributions to the account are tax deferred.
For many employees, especially those in higher tax brackets, it’s an opportunity to save money on premiums and lower their taxes. Any excess funds earn interest and continue to accumulate until they are needed, and costs at medical provider offices or pharmacies are paid right out of the account with a debit card. It’s like getting a raise for employees who have few medical expenses in a year.
What types of criteria are necessary to offer an HSA to employees?
Employees must meet the following criteria.
- The employee must be covered under a qualified high-deductible health plan. For 2006, the minimum annual deductibles are $1,050 for single coverage and $2,100 for family coverage.
- The employee must not be covered by another health insurance plan, either as an employee or a dependent, unless it is another high-deductible health plan or specific limited-coverage plans such as dental, vision, accident, hospital indemnity or long-term care insurance.
- The employee may not be enrolled in Medicare under Coverage A or B.
- The employee cannot be claimed as a dependent on another person’s tax return.
What are the steps for putting an HSA in place?
The first step is to research the most cost-effective health plan options that can augment or replace the company’s current medical plan offerings. Then decide on a budget for contributions to the employees’ HSA. Most employers use all or some portion of the premium savings as a funding mechanism for their employee’s HSAs. The company contributions act as an incentive for employees to enroll in the high-deductible health plans and the HSAs.
The last and most important step is to educate the employees so that they understand the risks of having a high-deductible health plan and the benefits of having an HSA to pay for out-of-pocket expenses.
Payroll stuffers, educational materials and enrollment meetings are valuable tools to use in successfully implementing a new HSA offering. The key is keeping it simple for employees by providing clear and concise information so that they can make the most informed decision about their health care plan.
SANDY COVENTRY is an independent insurance broker with Westland Insurance Brokers. Reach her at (619) 584-6400 or firstname.lastname@example.org.