What you must know
now: Health Savings Accounts 2008
Like most young children, the health savings account wonder
child is finding its way in a brave new world of health care. Characterized by
slow but steady growth, health savings accounts (HSA) have a promising future,
and employers have the difficult job of making the right choices about how to
bring them up in their businesses. Fully understanding and educating employees
about HSAs in a transition from traditional health coverage
isn’t easy. But like raising kids, it’s something that can be learned, and the
reward may very well be worth the effort.
To understand health savings accounts, forget the past few
decades of how health care costs have been covered. From the consumer’s
perspective, this basically has meant handing over an insurance card at the
doctor’s office or pharmacy. HSAs and the whole concept
of “consumer-driven health care” take a fundamentally different approach. HSAs place fiscal responsibility on consumers and, in
theory, work to deflate the entitlement mentality that has been fostered since
1973 when the Health Maintenance Organization Act first required employers with
25 or more employees to offer federally certified HMO options. We’ve been spoiled
by employer-provided coverage and herded into managed care ever since.
“I think it is fair to tie the real promise of HSAs with the challenge,” explains Gene Barr, the
Pennsylvania Chamber’s vice president of government and public affairs. “The
challenge I see is getting people to understand exactly what HSAs are all about because it is a shift from what people
traditionally looked at in terms of health coverage. But once you overcome that,
you really do get into the promise, which is the ability to combine health savings,
the ability of a consumer to better manage their health care costs, and quite
honestly, the ability to save for retirement at the
same time.”
The name of this plan is a misnomer as a health savings account—the
funding mechanism— is only one piece of the equation; a high-deductible
health insurance plan—the medical component—is the other.
A health savings account is a bank account that allows an individual, the employer, or both to make tax-favored deposits to be used to cover qualified
medical costs. HSAs have maximum annual contributions
limits of $2,900 for the individual or $5,800 for families in 2008. Catch-up
provisions exist for people reaching age 55 by the end of 2008 to increase
their annual contribution by $900.
Unused funds roll over year after year and grow federal and state tax free. Money withdrawn for non-qualified medical
expenses is taxed, and there is a 10 percent penalty on money withdrawn for non-medical
expenses prior to age 65. After age 65, money can be withdrawn penalty-free for
any reason; however, income tax on the withdrawal is still assessed.
Before an HSA can be funded, a high deductible health plan
(HDHP) that qualifies to partner with an HSA must be in place. HDHPs carry a higher annual deductible than traditional
health plans. In 2008, the minimum deductible is $1,100 for individuals or
$2,200 for families, and annual out-of-pocket expenses, including deductibles and
co-payments but not premiums, cannot exceed $5,600 for an individual or $11,200
for a family. The deductible must be met before plan benefits are paid at
either 100 percent or lower depending on the type of HDHP. Employees experience
the familiar structure of in-network and out-of-network providers, but are now
asked to negotiate treatment options and pay claims. HSA plans are not tied to
the employer (vested). The individual can take the coverage along if one
changes jobs or leaves the workforce, and money in the savings is the
individual’s to keep forever.
The Bottom Line
While often touted as a cost effective solution to
employers’ rising health care costs, HSA’s true financial
picture is still coming into focus. Because HSAs must
be paired with a high-deductible health plan, employers likely will benefit
from the initial cost savings of lower insurance premiums than typical plans.
Approved as part of the Medicare Act of 2003 and only first available in 2004, HSA’s ability to hold costs down over the long term remains
to be seen.
HealthAmerica president and CEO,
Kirk Rothrock, has witnessed promising reports from its
larger HSA accounts that have been in place for 2 to 4 years covering companies
with 6,000 to 7,000 employees.
“Across the board, those companies have reported that their rate
of health care cost increase over time has been less than the cost increase of
traditional plans in the marketplace; about 2
percentage points lower.”
Evaluating HSA costs against your company’s business plan is
the best way to assess its economic viability. While some are finding savings,
others are finding HSAs haven’t financially matured
enough to warrant a switch.
“HSAs are not for everyone, but
pricing is becoming more competitive,” says Paul Rovnak, a chartered benefit
consultant and vice president of Howell Benefit Services. “If you looked at HSAs two years ago and haven’t looked at them recently, you
need to look again because things have changed.”
“Many employers are not finding the discounts robust enough
to move to qualified high deductible plans,” shares Ted Mowery, a partner at
Gunn Mowery LLC. “Those that have taken a bold move in that direction either as
a total replacement of the traditional plan or as an option have found the
administration a challenge at times.”
Mowery also cautions against suggestions of HSAs as retirement vehicles. “I believe employers need to
save in their retirement plans, not their health plans.”
Employers must also make decisions about providing administrative support for employees who now have to track paperwork and
balance savings accounts and about funding employee HSAs with a flat dollar amount per person, matched employee contributions, or
nothing. Many say contributions go a long way in gaining employee support of an
HSA transition.
“The employer that implements an HSA and doesn’t contribute
to it is asking for failure,” Rovnak believes. “If you put in an HSA and employees
who had no deductible before suddenly have this $1,200 deductible, that’s going
to be a problem for them.”
Ted Mowery adds that the big picture of employee perception
must be weighed. “Change for employees can be disruptive, affect productivity and
morale. So employers have to weigh the financial benefit in reduced premium to
the employee productivity and disruption.”
Commonsense Communication
Disruptive effects on morale are somewhat in employers’
control. Employers must invest time and energy in explaining the details of why
the plan is in place, how it works economically, and how the employees can
positively take charge of their own health care.
Kirk Rothrock emphasizes that “you
have to give folks time to get acclimated to it, you have to feed them
information in small doses, and you have to be repetitive about what the plan
is, how it works, how it can benefit them, and what responsibilities they need
to bear going forward.”
People need to get comfortable with this new economic model
of managing health care. They need to understand that this is not a cut in
their benefits. They need to understand the potential for long-term savings and
realize how they directly affect that potential by managing their health and
making cost-conscious medical choices.
They also need their investment expectations managed. While
an HSA does offer a savings vehicle, real savings isn’t immediate. It will take
workers into the second year to meet deductibles, and any unspent contributions in the account earn only savings-account returns. Once
employees’ account balances exceed their deductible, then they can begin to
consider moving the HSA into money market, mutual fund, or other higher-return investment
vehicles.
Why not include your senior public relation or corporate communication
executives as part of your HSA rollout team? These people make a living getting
important messages heard and changing perspectives as a result. If you don’t
have internal communication teams, consider these commonsense communication
principles:
- Achieve credibility by knowing your topic and purpose
- Be genuine and honest
- Communicate a little at a time
- Present information in several ways
- Anticipate objections
- Develop a practical, useful way to get feedback
- Follow through on what you say
And know your audience. For example, Ted Mowery suggests educating
spouses. “Many households have one person who handles insurance-related issues,
and many times that is not the employee that has elected the HSA option.”
Whether other communication channels in addition to the
employer’s are in place to support the consumer-driven health care concept
isn’t apparent. We want consumers to be more engaged, but where do they get the
information and what do they ask their doctors? It seems providers must work on
transparency and commit to being a vehicle for quality and cost data, while
doctors will need to shift focus from serving the insurance companies back to
serving their patients. The Pennsylvania Health Care Cost Containment Council’s
website (www.phc4.org) is good consumer resource, but it isn’t enough.
“Everybody is talking about how you can be more of an
informed consumer, but the reality is there's a limited amount of information,” confirms
Rovnak.
Consider This
An employer’s best defense against an information system catching
up to the consumer-directed health care concept is a well-integrated plan that
offers all the components of HSA delivery and support tools. A seamless HSA
includes medical and pharmacy components, HSA account administration, decision
support tools that allow employees access to cost and quality information, and wellness
resources.
But remember, HSAs aren’t for every
business. Look at all the options for health care change, compare different
carriers, and evaluate these additional suggestions:
- Find an experienced, qualified agent who is knowledgeable
about health insurance and creative with the options. Look for the Chartered
Benefit Consultant (CBC) designation.
- Work with a benefits agency as opposed to a property and
casualty company also doing benefits on the side.
- Choose a local agent because health care tends to be a local
issue. Washington, D.C., Boston, and Philadelphia have different health care
issues than Lancaster County.
- Shop for a plan that is as seamless as you can afford.
The most integrated plan leads to the highest employee satisfaction.
- Compare total annual out-of-pocket expenses—premiums,
deductibles, and coinsurance combined.
- Favor plans that pay 100 percent of costs after
deductible has been met.
- Commit to a significant level of communication to your
employees.
Taking a look at HSAs is worth the
effort. Rothrock points out that even though the
amount of HealthAmerica’s membership in HSAs is about 10 percent, he approximates a 50 percent
increase in commercial accounts implementing HSAs since last year alone.
“I told you about the increase in employers getting these
plans, but I can’t tell you any that have dropped
them,” he emphasizes. “That tells me that it’s either too early or that they
are completely satisfied or they are learning and they like what they are
seeing so far.”
Time Will Tell
Just how comfortably employees and employers will adopt this
new health care progeny remains to be seen. Some business owners feel the HSA
concept is too new and are waiting to hear other employers’ experiences before
offering one to their workforces.
Some believe consumers aren’t going to spend the time and
energy on managing their health and health care dollars; others believe HSAs will lead employees to forego needed health care to save
money. And yet others think HSAs are still maturing and
need a longer time frame for acceptance.
“I like to use the analogy that 20 years ago nobody thought
that consumers could trade stocks on their own,” says Kirk Rothrock.
“It was too complicated, access to information was too difficult, and people
would not trust themselves to invest their own money on a daily, weekly,
monthly basis. You had to go to a third-party expert to do these things for you
and follow their expert advice. Now we see that a pretty significant percent of
the population does this on their own.”
Providers, employers, and consumers alike must recognize a
new generation of consumer directed health care. We must encourage
understanding of the realities employers face with health care decisions and
have a voice in determining our best options in this change. We must educate and
communicate with all stakeholders to shake the managed care mindsets and dispel
HSA misconceptions that largely boil down to fear of the unknown. Like it or
not, one thing is for certain: The HSA wonder child is coming of age.
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