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Health Savings Accounts
HEALTH SAVINGS ACCOUNTS (HSA’S)
Americans and their employers can no longer afford the double digit rate increases that have been the norm for the past several years. In order to combat these rising costs employer and insurance companies have been working towards developing a solution to this problem.
As part of the Bush 2003 Medicare Bill, a new concept in healthcare insurance was introduced. It was called the Health Savings Account. It was formed as a replacement for Medical Savings Accounts (MSA’s) such as the Archer MSA.
The bill required that the underlying insurance plan be a “Qualified High Deductible Health Plan (HDHP)”. In laymans terms the insurance needed to have an minimuim in-network deductible and a maximum Out-of-Pocket limit. In addition, and maybe the biggest surprise was that there could be no “First Dollar” coverage which referred to copays, both office and prescription. Those charges all go towards satisfying the deductible. In most cases preventive care is covered 100% not subject to the deductible.
Does it sound like an Indemnity Plan? It should because the concept is the same except in that with the HSA patients are able to take advantage of the discounts the insurance companies had negotiated with providers and insurance companies. The discounts have been there since Managed Care emerged, but nobody had a reason to care what they were, until now. It can be a PPO or an HMO.
Because of the radical plan changes premium savings can be as much as 50% but are typically around 30%. This normally gets employers attention.
In order to help ease the anxiety created by the high deductible the federal government allows a Bank Account to be established normally by the employer on behalf of the employee, hence the name Health Savings Account (The name refers to the banking, not the insurance). The employee however, not the employer owns the account. The account is portable which means there is no “Use-It-Or-Loose-It” rule.
The employer or the employee or a combination of both, may contribute tax free up to $2,900 for a single and $5,800 for a family. The maximum changes every year to keep up with inflation. Because of the significant premium savings employers normally put money into the employee’s bank account.
The money in this Health Savings Account can be used to pay for qualified Medical Expenses (Listed in publication 502 of the IRS code) without ever paying tax on that money. The only time the funds and earned interest are taxed is if they are used to (1) pay for expenses that are not qualified under Publication 502 in which case they are taxed as ordinary income plus a 10% penalty OR (2) for retirement expense after the account holder has reached age 65 in which case the money in the account, including accrued interest is taxed as ordinary income only as it is withdrawn. For all intents and purposes it is a Medical IRA.
When HSA’s were introduced there was a lot of buzz on Capital Hill but very little in the Insurance marketplace. The regulatory wording was very confusing and every answer led to another question. As a result not many companies took them seriously.
To compound the problem insurance companies had no idea how to price them responsibly so they did what insurance companies normally do in situations where the risk is not clear, they overpriced them. Consequently when employers put their existing traditional medical plans next to the HSA, there wasn’t enough savings to introduce such a seemingly confusing plan. All that has changed.
Nearly half a decade later Health Savings Accounts are well entrenched in mainstream health insurance. In fact according to the 2007 Kaiser report, 18% of companies polled (Including those with as few as 3 employees) said it was “Somewhat Likely” that they would introduce a Health Savings Account. The treasury has fine-tuned its regulations regarding the tax implications which eased Corporate Americas concerns. Insurance companies have priced then such that they cannot be ignored.
While Health Savings Accounts can still be a little confusing, the confusion can be mitigated substantially with the proper planning and education. That is where Benefit Service Company comes in. We have confidently recommended Health Savings Accounts to our valued clients and partners for the past several years, well ahead of the pack. We understand their complexities and how to communicate them in such a way that people feel comfortable enrolling in them. When offered as a “Duel Option” (multiple plan choices) we are see as much as 50% to 60% participation in the plans.
Let Benefit Service Company show you how we can structure a Health Savings Account plan that meets both the employee and employer needs.
“If your current insurance broker hasn’t talked to you about a Health Savings Account yet, why not talk to us?”
Call: 908.232.9244