Members Set Up HSAs

With the skyrocketing costs of health insurance, employers are constantly on the lookout for ways to reduce insurance premiums while still retaining effective coverage for employees.

For today's employers, the answer may have arrived in the form of Health Savings Accounts (HSAs), a revolutionary means by which businesses can realize significant savings on health insurance premiums, while employees can save money toward future medical expenses, even after retirement.

MHEDA distributors and other business owners across the country are considering HSAs or planning to implement them at their companies in the coming year. Three MHEDA members, Distributors Wisconsin Lift Truck (Brookfield, WI), Accurate Forklift (Santa Rosa, CA) and Data Key Communications (DeWitt, NY), publisher of The MHEDA Journal, responded to a survey indicating they are examining the possibility of implementing or have already implemented HSAs at their businesses.

For a small business, an HSA is a means of providing affordable health care to employees. For a larger business, it offers employees another option for responsible management of their health-care costs, both in the short and long term.

Advantages for Employers and Employees
HSAs were established in December 2003 with the signing of the Medicare Prescription Drug, Improvement and Modernization Act of 2003. They are designed to help companies save money by allowing them to set up a high-deductible health insurance plan, which significantly reduces the premium. The deductible is funded through special employee savings accounts designated exclusively for medical expenses.

Advantages for employees are that the funds placed in the savings account are pre-tax dollars, and the funds can roll over from year to year and be invested over a period of time, similar to a 401k, so the HSA grows in value. For the employee who spends only a few hundred dollars a year on medical expenses and never meets the deductible, the amount saved in the HSA can be significant. The accounts are portable, so if the employee leaves his or her current place of employment, he or she can walk away with the money in the account, which can be used to pay for COBRA or the health insurance deductible at his or her next place of employment. The funds also can be used to pay for medical expenses after retirement—a valuable benefit for seniors.

There are some disadvantages to consider as well. The employees who would not receive one of the benefits from an HSA plan are those with chronic illnesses, as they likely would reach the health plan's deductible and, thus, not accrue any savings in the account. However, once the deductible is met, the insurer covers 100 percent of the medical costs. The portability of the accounts could prove a disadvantage for employers as well, as any employer contributions to an employee's HSA remain the property of the employee when he or she leaves the business.

Health Savings Accounts are a hot topic in business right now, and it's estimated that within 15 months, close to 60 percent of the business community will be offering HSAs as an insurance plan. However, it's important to know the facts before taking the plunge. Here's how three MHEDA members are taking a close look at HSAs and how they can be implemented successfully for their businesses.

Fewer Limitations for Employees
Wisconsin Lift Truck will implement a plan including an HSA beginning January 1, 2005, says Vice President of Human Resources Sharon Cerny. The HSA plan would be offered in addition to the company's already-existing health plans, which include deductibles ranging from $250 to $2,500 as well as flexible medical savings accounts. About one-quarter of Wisconsin Lift Truck's employees currently participate in the flex plan, and the biggest reason there isn't higher participation is the “use it or lose it” requirement that comes with the flex account. With the HSA, that fear is eliminated, and an employee can keep saving money over the course of years.

Before making a decision, the company issued a survey to its 415 employees to see how much interest was present in establishing an HSA plan. About 20 percent expressed definite interest, and a great many more wanted to learn more about it before making a decision. As such, Cerny will make sure the employees become well-informed at the annual employee education meeting before insurance renewal time. For those who choose it, the HSA will take some getting used to.

“The plan has to have a $1,000 deductible in order to qualify for a Health Savings Account, and it also cannot offer any form of co-pay,” says Cerny. “That's going to be the sticky wicket. Everybody now is used to $20 or $25 doctor's office visits, but with an HSA, all that goes away.” However, for employees who don't spend a lot of money per year on health-related expenses, the HSA can prove a boon in the end because they will be able to amass savings over the course of the year, and from year to year. “The big fear for people reaching retirement is how they can afford health care, and that they might have to keep working to keep health insurance. An HSA might help people rest easier if they've had a few years to put money aside.”

It also allows employers to save money over the long term. “Whenever you're able to make deductions pre-tax, that means the employer isn't paying taxes on its side either, so there are going to be some savings there,” says Cerny. “If the HSA plan is used the way it's supposed to be, I can see us saving $30,000 to $40,000 a year in taxes, easily.”

Wisconsin Lift Truck's insurance provider, United Healthcare, anticipates so much interest in HSAs, it plans to offer bank accounts as well, so the company might be able to streamline operations by going through its insurance provider. But it's important that employees get all the facts before making the decision to switch to an HSA. “People have to study up on this,” Cerny advises. “It's not for everybody.”

A Viable Option for a Small Business
“In 1995,” says Data Key Communications President Judy C. Flanagan, “our premium for a single person was $160 a month, and we paid 100 percent of that. Today, that figure is $411, and next year that number probably will go up 13 or 14 percent.” Today the company pays 80 percent of the cost of health insurance for its employees, but with double-digit increases in premiums every year, that becomes increasingly difficult to maintain. The dilemma becomes, should the company opt to select a health care plan with fewer benefits, or should the extra costs be passed on to the employees? “That choice doesn't make me happy as an employer,” says Flanagan. “But with a Health Savings Account, we can pay 100 percent of the premium.”

Flanagan is considering switching the company's health insurance plan to an HSA plan starting January 1 and so is in the process of researching how such a plan would work and what the advantages would be. The lower premiums of a high-deductible health plan would reduce Data Key's costs by 60 percent, Flanagan says, and administrative costs would total less than one dollar per month. In addition, according to a comparison offered by Data Key's insurance provider, Blue Cross/Blue Shield, the high-deductible health plan actually would offer more coverage to employees than the one the company currently has in place.

At present, New York State requires an insurance policy to carry a $1,300 deductible to be eligible for use with an HSA, though Flanagan anticipates that figure eventually will be reduced. While it seems a large amount, one of the advantages of the HSA would be that employees could use the funds to pay for over-the-counter products, such as cold medicine or contact lens solution, as well as doctor visits and prescription medicines. As such, products previously purchased with after-tax income could be paid for with the pre-tax income in the savings account.

Because Data Key is a small company with fewer than 20 employees, an HSA plan would replace the company's current insurance coverage. Flanagan is aware of the possible drawbacks of the plan for anyone with a chronic illness. However, she points out, the deductible still would be paid with pre-tax income—an immediate savings of 20 to 30 percent—and once the deductible is met, the insurance policy would cover 100 percent of that person's medical bills, whereas the health plan currently in place only covers 80 percent for some health-related expenditures.

HSAs are an especially good benefit for employees at a small company, Flanagan notes, because they provide a way to save for retirement. “Unless a person retires with a health insurance plan—and it's typically only large companies that do that—health insurance is going to be an issue,” she says. “This is a benefit that protects the employees, and it's affordable.”

Individual Responsibility
In the late 1990s, after Congress created Medical Savings Accounts (MSAs), the predecessor of Health Savings Accounts, Accurate Forklift began to offer them as a health insurance option for its employees. The company switched from an HMO to a Blue Cross “choice” program that offered options for employees, including HMOs (Health Maintenance Organizations), PPOs (Preferred Provider Organizations) and EPOs (Exclusive Provider Organizations). The high-deductible EPO policy qualified for the MSA, and 3 of the 25 people in the Accurate Forklift health plan, including President Dennis Christensen, opted to go with an MSA plan.

“I'm very fond of the concept,” says Christensen. “I followed the legislation through Congress in the mid-'90s, because I liked the idea of the individual taking responsibility for deciding what kind of health care he or she gets.” Christensen made a presentation to employees about the possibility of switching entirely to MSAs, but many of the employees feared it wouldn't work in their favor. Of the three people who opted to try the MSA plan, one, a married man with a family, ended up switching to a different plan after a couple of months because his son broke his arm and the family realized the limitations of the MSA. Both Christensen and one other employee stuck with the MSA, however, and now have HSAs since the temporary authorization for MSAs ran out on January 1, 2004.

“The HSA is like a sequel to the MSA plan,” Christensen explains. “Under the old rules, you could only put up to 75 percent of your annual deductible in the medical savings account. Under current legislation, you can put up to 100 percent of your annual deductible in the Health Savings Account, so you can put more money in.” Over the years, Christensen has saved over $20,000 in his account, all of which went into the account pre-tax and, if needed for medical purposes, comes out pre-tax. His insurance policy presently has a deductible of $5,000.

Christensen likens the HSA approach to more traditional methods of insurance. “The way insurance used to be was that it paid for catastrophic expenses,” he explains. “Otherwise, you went to the doctor and paid him. A comparison today would be automobile insurance. If you think about it, the $10 co-pay medical insurance we have today is like expecting your car insurance company to pay for your oil changes, tune-ups and tire rotation.” The MSA and HSA have worked well for Christensen, and he encourages other MHEDA members to take a look at the advantages of the program.

An End to the Nightmare
As Cerny notes, “Health care is everybody's number one nightmare right now, so all distributors are looking to anything to try to ease the burden on us as companies and on our employees.” HSAs may at last be a light in the darkness for employers who are concerned about the rising costs of health insurance.

Health Savings Accounts have the potential to significantly reduce the costs of health insurance premiums for MHEDA members, as well as offer a valuable benefit to employees. With careful consideration, HSAs could prove to be a means of ending the health insurance quagmire, allowing distributors across the nation to rest well at last.

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The MHEDA Journal • Fourth Quarter 2004 • Volume 33, No. 4 • Contents are Copyright © Data Key Communications, Inc.
All rights reserved. • Nothing may be reproduced in whole or part without written permission of the publisher.