HSAs Best Suited To Healthy, Wealthy

    HOLLAND — Employers continue to seek ways to pass more responsibility for health care benefits on to their employees, and the option they’re most often adding to the benefit mix is the health savings account.

    Employers are looking for ways to cut the costs of employee health care because it’s one of the largest — if not the largest — of financial concerns that businesses have today, said Attorney Jordan Schreier, a partner in the law firm of Butzel Long.

    A health savings account (HSA) allows consumers to manage their own health care costs, and can be used to cover current as well as future health care expenses. It’s offered to employees in conjunction with a high-deductible health insurance plan, which generally has deductibles of $1,000 or more for an individual plan and $2,000 or more for a family plan.

    In Michigan, contributions to the HSA are deductible from both federal and state taxable income, and distributions for qualified medical expenses are not counted in taxable income. All funds put into an HSA are taken from pre-tax income, grow tax-free, and roll over from year to year. HSAs and high-deductible health plans were established in 2003 by the Medicare Modernization Act.

    A study released by Mellon’s Human Resources & Investor Solutions last spring indicated that while only 7 percent of survey respondents were offering HSAs at the time they were polled, 32 percent said they planned to add them in 2006. The study included more than 360 U.S. employers, averaging 9,000 employees per organization.

    According to Mellon, the study showed that the vast majority of employers who plan to begin offering HSAs this year are adding the accounts as an option for employees. Furthermore, 66 percent of employers surveyed said they expected to contribute to their employee accounts.

    On average, 16 percent of eligible employees were enrolled in an HSA as of the second quarter of 2005. Survey respondents indicated they were targeting an HSA enrollment goal of 24 percent.

    In 2005, small employers and individual consumers led the HSA charge, noted Brad Engel, national health and welfare product leader with Human Resources & Investment Solutions.

    “But 2006 will see an explosion of HSAs, with many more large employers adding them to their benefits package,” he predicted.

    Employers have been gradually implementing employee cost increases for health care over the years, Schreier said. First, employers started charging small premiums of 10 percent, then it went to 25 percent, then co-pays and deductibles were introduced and managed care came into play.

    “Those changes have come over time and this is another one of them,” he said in reference to HSAs.

    Schreier said the heightened interest in HSAs is being driven by employers looking for new ways to save money. His firm is seeing a steady increase in the number of employers that are either adopting HSAs or looking at them to see if they’d be beneficial financially and whether they’d be acceptable from the standpoint of the company’s employer-employee culture.

    “There are a lot of philosophical issues employers have to go through before they decide whether or not to offer an HSA,” said Schreier, who specializes in employee benefits and compensation and works with Butzel Long’s Ann Arbor and Holland offices.

    “I have had clients that have looked at HSAs and said that, philosophically, they just didn’t want to push that direct financial burden onto their employees right now. My sense is that employers are really interested in providing good, cost-effective benefits.”

    HSAs transfer to employees the main responsibility for health care decisions by shifting the financial responsibility to the employee. For the last 25 to 30 years, employers have generally provided employees with a group health plan that covers a broad base of services, Schreier said. With the exception of some premium costs, co-pays and deductibles that employees have to pay, the employer’s insurance company pays for everything else.

    From an economic standpoint, that kind of a plan doesn’t give employees much incentive to be wise health care consumers or to take better care of themselves, because everything is paid for them at relatively minimum cost as a percentage of total cost, Schreier observed.

    HSAs shift that around by establishing a pot of money for employees to use to pay for their own medical care, in conjunction with a high-deductible health plan. The theory is that a high-deductible plan will encourage employees to be wiser consumers because they have to pay starting right from the first dollar.

    “I think typical employees would still rather have the traditional kind of health care that they used to have,” Schreier said. “You see that with the GM-UAW and Ford-UAW controversy that’s going on now.

    “HSAs tend to favor the young, the healthy and the wealthy. If you have a lot of health care claims and you are poor, it’s not a very good deal. But if you have an employer that needs to cut health benefits for financial reasons, it’s better than having no health care at all.”

    HSAs can be advantageous for families that are relatively healthy, make wise decisions on wellness and take care of themselves, he said. In addition, because an HSA is actually invested, the account will grow not just with employee and employer contributions but with earnings returns.

    The Washington D.C.-based Employee Benefit Research Institute, too, has seen a strong and growing interest in HSAs among employers. Yet nationwide survey results released by the research institute and the Commonwealth Fund last month showed that Americans enrolled in high-deductible health plans were significantly less satisfied with their new plans vs. the more traditional, comprehensive health care insurance plans.

    The survey also found that those covered by the new plans — both with and without savings accounts — are more likely than people with comprehensive insurance to avoid or delay needed care because of the larger financial burdens associated with high-deductible plans.

    “These findings provide evidence that high-deductible, consumer-driven plans may undermine the two basic purposes of health insurance: to reduce financial barriers to needed care and to protect against high out-of-pocket cost burdens for patients,” Commonwealth Fund President Karen Davis stated in the report. “Enrollees with low incomes or with health problems are particularly vulnerable to spending a high proportion of income on medical expenses under these types of plans.”    

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