Minnesota Technology Magazine - Summer 2006
Healthy & Wealthy
Health Savings Accounts promise lower health insurance costs and greater consumer control. Are they right for you?
Beyond HSAs
PRACTICAL WAYS TO KEEP A LID ON RISING HEALTH CARE COSTS.
If there’s one thing that nearly everyone can agree upon these days, it’s this: Health care costs are too expensive. Unfortunately, there appears to be little end in sight. According to a recent survey by the Watson Wyatt consulting and research firm, U.S. employers expect health care
benefit costs to increase by a median of 8 percent this year. While that’s not particularly good news, it’s at least an improvement on the 10 percent increase that U.S. employers expected in 2005.
What’s the solution? Well, HAs are one option—and U.S. firms are jumping on the bandwagon. The Watson Wyatt survey (which queried 585 large employers that employ more than 13 million full-time workers) notes that 8 percent of surveyed organizations are currently offering HAs, 18 percent are planning to offer them in 2006, and 47 percent are considering offering them. But what about other options?
1. Offer carrots
The Watson Wyatt survey also points out that employers are using incentives to encourage employees to complete health risk appraisals (53 percent), improve their personal health (43 percent) and use lower-cost providers (21 percent).
2. Set limits
Another option is to adjust the company contribution health insurance benefit for employees’ families. Alternatively, you can reduce the amount of your contributions toward the premiums of each employee’s family members.
3. Cap contributions
It might not go over well with employees, but capping your contribution when premiums rise is an efficient way to rein in your company’s costs. For example, if you pay 75 percent ($150) of a $200 premium, and the premium rises to $250, you can continue to pay the $150 amount and make the employee cover the rest.
4. Shop around—and find the right broker
As with any big purchase, it pays to comparison shop. By the same token, it also pays to find a broker who will get to know your business and its financial goals—and actively look for ways to help you cut costs. |
Dan Schmidt was fed up. Health care costs for his small business, St. Paul-based Mercury Office Supply, were rising 20 percent each year. Not only were the costs cutting into raises for his 14 employees, but they also weren’t providing greater benefits. “I thought we had a rich plan,” Schmidt says. “But people were still complaining about how many things weren’t covered. They were still paying out-of-pocket expenses.”
As soon as he was able, Schmidt took advantage of the 2003 Medicare bill provision that created health savings accounts (HSAs), an IRA-like approach to health care which allows consumers to assume a higher deductible as a trade off for cheaper premiums. In 2004, Mercury Office Supply became one of the first companies in the country to offer HSAs. The move saved it $12,000 in 2004, and has continued to hold down costs since. “Last year my insurance went down by 2 percent,” he says. “That’s the first time I can remember, as a small employer, my rates going down.”
HSA BASICS
In a nutshell, HSAs are tax-sheltered investment accounts that accumulate money earmarked for medical expenses. Consumers take the money saved from the cheaper premiums and funnel that into their plan, where it grows tax free. When they need to pay for a doctor visit not covered under preventive care, they’re free to spend it anywhere. Because consumers need to be able to compare costs and quality to make these decisions, proponents of so-called consumer-driven care hope HSAs will help prod the system to become more transparent and patient-centered.
Since they’re attached to high-deductible health plans, HSAs save employers money
by exempting them from paying out a lot of money for unused care.
Only 10 to 15 percent of employees tend to generate the bulk of a company’s medical claims, says Stephen Parente, an associate professor of finance at the University of Minnesota’s Carlson School of Management, who studies consumer-driven health care plans.
“The health insurance part of this is paying out for a smaller portion of care, and since the outlay directly determines what the premiums are for the next year, that’s why the premiums are less,” he says, noting that a Kaiser Family Foundation study shows that HAS premiums are 30 percent lower than traditional plans. “For many smaller employers especially, this makes a lot more sense than their standard indemnity plan.”
GROWING ACCEPTANCE
Studies show HSAs are catching on fast. “The studies we’re seeing predict that by 2010, 24 percent of the market is going to consumer-driven plans of one kind or another,” says Melinda
Pederson, product manager for the consumer-driven division of Blue Cross and Blue Shield of Minnesota. “Health savings accounts are our fastest-growing product line.”
WHERE TO TURN FOR MORE INFORMATION ON HEALTH SAVINGS ACCOUNTS.
U.S.Treasury Department
The Treasury Department’s site provides a wealth of information of HSAs, including basic details, IRS forms, management tips, and much more. www.treasury.gov/offices/public-affairs/hsa/faq.shtml
HSA Insider
Published by Canopy Financial, a New York City financial services and technology firm,HSA Insider features HSA information, a comprehensive FAQ section, and an online tool that allows users to compare HSA-eligible insurance plans, among other features. www.hsainsider.com
HSAfinder.com
A site that bills itself as a “complete guide to Health Savings Accounts for families, individuals and employers,”HSAfinder.com offers an HSA primer, HSA selection tips, and a cost-comparison calculator. www.hsafinder.com |
About a quarter of Minnesota businesses already offer HSAs, according to the Minnesota Chamber of Commerce, and a quarter more are expected to offer them soon. Some big firms, including the Target Corp., are on that list of HSA adopters.
Yet Parente says the number of businesses offering only this kind of plan is still quite small. “That trend is picking up, but it’s still a small proportion of the overall business population,” he says.
Companies are still cautious because of some unanswered questions. Because HSAs are still so new, it’s hard to know whether they can continue to hold down health care costs, as well as what their long-term effects will be on the health outcomes of those who hold them. Will they make it less likely for consumers to seek out care they otherwise would have? Critics charge that HSAs help only the healthiest and wealthiest.
With cost and billing structures still geared for insurance companies, and reliable quality yardsticks still in their infancy, they also point out that it’s tough for HSA holders to comparison shop. But no one is writing off consumer-driven care and HSAs as fads anymore, either. And while most observers say it will take more than this one tool to change the health care system, many feel HSAs could prove to be a powerful factor. “All the incentives are set the right way if you want to lower costs,” Parente says. “You have me thinking about prices and about the cost of our prescriptions—I’m looking at what I’m doing in a way I wasn’t doing before with other health plans. If that’s how this is moving, I don’t see that as a problem. The major things are covered and the rest of the time we’re on a vigil for ourselves.”
Sara Aase is a Minneapolis-based freelance writer.
PROS |
CONS |
Freedom of choice
This aspect tops the pro column for HSAs. “When many of my colleagues signed up [for an HSA], it was because we all thought, ‘If I need something serious, I want to go to the Mayo Clinic.’ Choice of physicians was a big deal in our surveys,” says Stephen Parente, associate professor of finance at the U of M’s Carlson School of Management. He adds that, so far at least, his studies show that even people with chronic conditions who typically need to see the doctor more often are more likely to pick HSAs for
this reason.
Potentially bigger benefits
Judell Anderson, executive director of the Minneapolis-based Alliance of Automotive Service Providers of Minnesota, likes that the fact that, thanks to an HSA, her vision and dental exams are reimbursed by pretax dollars she’s saved through her account. “Before I didn’t have dental and vision insurance, so I actually gained coverages,” she says, adding that, unlike with most traditional benefit plans, new employees with HSAs are covered for 100 percent of their preventive care costs, such as well visits and immunizations, from day one.“ A lot of people don’t understand that preventive care is covered if you get the right plan.”
Savvier shopping
Dan Schmidt of St. Paul-based Mercury Office Supply believes every consumer is better served by knowing what medical services cost. “People think their drug costs $20 because of the copay, but it doesn’t,” he says. “Ultimately that costs all of us in lost wages and more expenses to employers.”
My money, myself
Parente likes the fact that his annual contribution limit to his HSA is about twice that of an IRA, that unused contributions continue to grow, and that he can take the money with him if he changes jobs. “The HSA has created a de facto retirement savings account,” he says. “If you
don’t need that money now, you know as you get older you’re going to spend it for medical expenses.” Any tax sheltered investment tool naturally attracts investors, and Parente is seeing many major banks and investment firms jumping in to manage HSAs. He’s also considering investing his HSA in the stock market. “If I put it into equity accounts,” he notes, “I’ll beat the rate of my family’s personal medial inflation. I’m sure I can do that.” |
Deductible shock
While low HSA premiums are usually attractive, the high deductibles initially make people nervous. For example, Mercury Office Supply’s deductible is $2,000 for singles and $5,000 for families. (By law, individual deductibles must be at least $1,050 and no more than $5,250; for families, the figure is $2,100 minimum and $10,500 maximum.) Covering such expenses can be daunting for consumers who are already paying mortgages, student loans, or day care and credit card bills, as well as saving for their own retirement or children’s college tuition. To lower the savings hurdle for his employees, Schmidt funded half of each employee’s HSA for the first year. He reminds them that the old plan wasn’t free, either. “I tell my employees to put $100 in from their check every month,” he says. “Most companies are charging that for copays and premiums when you add it up. That adds up to $1,200 in the first year—and if you stay healthy, you’ve got that in your account permanently.”
Getting the runaround
HSA shopping can be frustrating, with insurance contracts dictating reimbursement rates—and hence the amount of cost—that clinics pass on to patients. “My wife needed an MRI, and they wouldn’t even give her the price until she told them what insurance she had, because they’ve all negotiated these contracts,” Schmidt says, who adds that so far, quality ratings tools also aren’t as robust as what he envisions. “I want to know how many staph infections were in a particular hospital and how many people got the right procedure and had successful outcomes.”
Deciphering claims jargon
A related problem is learning to decipher long, jargon-riddled explanation-of-benefits statements from clinics and hospitals. Schmidt advises others to seek out a reputable third-party HSA administrator with experience in pursuing billing errors.
Risk or reward?
Nobody knows what long-term effects HSAs might have on people’s access to medical care, or the quality of that care. There’s also the risk of investing the account in the stock market, only to watch it vanish in an economic downturn.
—S.A. |
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