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How health savings accounts may help your bottom line

Collette Mckenna Parker

October 3, 2007

If you’ve ever seen NBC’s Thursday night hit “The Office,” you may remember an early episode where Michael Scott, the regional manager, reluctantly selects a new health care plan for his employees. As a cost-cutting measure, the new plan is bare bones, and his employees let him have it.

In the real world, the price for offering health insurance to employees is going up dramatically, with employers forced to tweak their health plans every year because they can’t sustain the costs.

“Small employers are asking, ‘How do we afford these benefits?’” says Andre Demetrius, a principal in Atlanta with Buck Consultants, a national benefits consulting firm. “Even Congress is asking, ‘How do we fund post-65 health care costs?’”

One solution lies in high deductible plans, coupled with health savings accounts (HSAs). Employers can cut monthly premiums in half, and employees can opt to invest the remainder of that premium into an HSA.

 
Here’s how it works:

In the old days, medical savings accounts (MSAs) were established as a way for people to have their own reserve earmarked for health care, to supplement their insurance. MSAs are being phased out and replaced by HSAs. HSAs are basically an expansion of MSAs, but both employees and employers can contribute to it (up to a maximum of $2850 per person this year).

Anyone with a high deductible plan can qualify. The idea is the money you would have spent on a higher premium is invested into an account. For example, say last year your employer had a health plan with a $500 deductible that cost you $100 every month. This year, you have a high deductible plan and pay $50 per month. You can put that extra $50 into a HSA. When you go to the doctor, you can pay out of that account, or you can keep the money in there every year. It rolls over and is triple tax deferred: money you put into the account is tax deferred, the interest earned is tax deferred, and when you pull the money out, it’s tax deferred.

“The HSAs don’t carry a cost to employers, but you have to have a high deductible plan in place,” says Demetrius. “Employers are really looking at these plans.”

Employers often fear employee mutiny if they replace a $250 deductible plan with a plan that has a $1,000; $5,000 or even a $10,000 annual deductible. But monthly premiums will be hundreds of dollars less, and the only people who end up paying more are the people who are sick.

For those who do get sick, insurance companies usually have an annual out-of-pocket maximum per person. So even if your deductible is $5,000, the insurance company may pay 100 percent of costs after that.

And for those who have a healthy year, most well visits and other preventative care is still covered by co-pays. “Typically, preventative care is 100 percent covered,” says Demetrius. “ Insurance companies want you to stay healthy. Immunizations, [ healthy] baby visits – all those guidelines are usually picked up at 100 percent.”

One of the forces behind the federal government encouraging high deductible plans and HSAs is the need for consumer driven health care. HSAs were created in 2003 as an incentive for people to contribute more of their own money for personal health care, especially as they get older. The change is an effort to get people to understand the true costs of health care (a doctor’s visit costs more than a $20 co-pay) and to force people to become better health care consumers.

“Part of the problem with health care today,” says Demetrius, “is some employees think it’s cheaper to go to a doctor than a movie. They’re not managing their health care. They know where to get their oil changed, but not where to find a good heart surgeon. They’re not educated consumers.”

For example, some people use the emergency room as an after-hours doctor; after all, it’s a $25 co-pay. But if it costs $400 to go to the emergency room, you may call the nurse line or look online for solutions first. “No one says don’t go to the hospital for an emergency,” says Demetrius. “But a higher deductible deters frivolous use of health care services. If it’s not a real emergency, now we have to think hard before going.”

Demetrius recommends partnering with a vendor who can give you information. Find an insurance company that has a Web site, offers online assistance, nurse hotlines and pharmacy locators that will tell you where to find your prescription at the lowest cost.

“Small employers should look beyond traditional plans,” he says. “Look at consumer driven plans that offer employees the tools and resources to make informed decisions. You can say to your employees, you have a plan, and it’s $5,000, and we’re all going to be better consumers.”

You may just fend off the employee mutiny, and find you’re all healthier in the end.

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