IntroductionThe rising prices of gasoline and food have forced people to review their expenses and become a more cost conscious consumer. This has also extended into health insurance. In the last few years, the cost for companies to provide employees with health insurance has risen dramatically. According to the Kaiser Family Foundation’s Employer Benefits Annual Survey 2007, from the Spring of 2006 to the Spring of 2007 the cost of premium increased on average 6.1%. Ten percent of companies experienced an increase of greater than 15%.
What actions can employers take to keep the health insurance affordable for both themselves and the employee? Many companies are implementing a High Deductible Health plan with a Health Savings Account.
A High Deductible Health Plan with a Health Savings Account was developed by the government to combat the rising cost of health care. The Health Savings Account allows employees to set aside pre-tax dollars to pay for expenses incurred toward the mandatory high deductible and other out of pocket eligible expenses.
Eligible expenses include office visit copays, deductibles, coinsurance, prescription drug copays, dental claims, vision care expenses, and certain over the counter items. A complete list of eligible expenses can be found in IRS Publication 502 (
http://www.irs.gov/publications/p502/index.html). Members should keep their receipts from purchases in the event of an audit.
A Health Savings Account differs from a Flexible Spending Account, which is “use it or lose it.” The HSA is a personal bank account in which unused funds can roll over on an annual basis. The account is portable, so an employee may keep their HSA if they leave the company. There are also investment options, which will vary depending on the HSA vendor.
Besides an account used to pay for current eligible expenses, the HSA functions as a retirement savings vehicle. At the age of 65, an HSA can again be used to pay for eligible expenses or purchase a supplemental insurance plan (not Medigap) even if you do not participate in a HDHP.
It is important to note an employee cannot open a Health Savings Account if:
1. They are enrolled in another health insurance plan that is not a HDHP.
2. They participate in a medical Flexible Spending Account.
3. They are enrolled on Medicare.
How does a High Deductible Health Plan work?Mary is enrolled in ABC Company’s High Deductible Health Plan, which has a $1,200 deductible for single coverage and $2,400 for family. After the deductible is met, most services (with the exception of prescription drugs) are covered at 100% (please note this plan design is for example purposes only- benefits can vary).
Mary visits her in network primary care provider due to illness. She has not incurred any expenses toward the deductible yet. Since she is enrolled in a HDHP, the provider charges her the contract rate of $100 for the service provided. Mary had opened a Health Savings Account, so she used $100 from her account to pay for the visit.
Note: When a member uses an in network provider, they are paying the discounted charge for the service. There are no discounts when utilizing out of network providers.
There are often several options in which to access the funds, the most popular being a debit card. Members can also use checks or an automatic debit feature. Like any other bank account, the funds must be in the account in order to make a payment or deduction. For instance, a member cannot deduct $400 to pay a claim if there is only $300 in the account. Also to be noted- there are banking fees associated with an H SA, which will vary by vendor.
Health Savings Account FundingThe most common way to fund a Health Savings Account is through pre-tax deductions via payroll. Unlike a Flexible Spending Account, employees can increase or decrease the amount of their election throughout the year. In addition, an employee can make a post tax lump sum contribution and claim it as pre-tax at the end of the year.
Companies often choose to fund the account as well. This can range from covering the entire deductible, half the deductible, or another set amount.
How can I make a High Deductible Health Plan attractive to my employees? First and foremost, EDUCATE! High Deductible Health Plans initially seem overwhelming and require education on how to use them. Holding enrollment meetings with a knowledgeable representative is crucial. This gives the employees the opportunity to review the plan in detail and ask important questions.
If you have more than one plan design option, pricing is the key. Formulate the contribution structure to make the HDHP contributions significantly less than the HMO, POS, or PPO option. As mentioned previously, funding the Health Savings Account also provides an incentive to enroll in the HDHP.
ConsumerismA High Deductible Health Plan drives members to think about how they are using the plan, since their out of pocket costs are higher. This should in no way discourage members from seeking necessary care, but to research the cost of a procedure or prescription to find the most economical option. Most carriers have cost comparison tools that members can utilize to compare procedures at different facilities or the price of a prescription and various pharmacies.
High Deductible Health Plans also encourages members to seek preventive care, not making it subject to the deductible. Hopefully, this catches any conditions early, making them treatable and manageable.
Implementing a High Deductible Health Plan will assist in controlling the costs of benefits and also make employees more savvy consumers. To find out more about High Deductible Health Plans or to request a HDHP/HSA quote, contact your Account Manager, who will be happy to discuss the plans with you.
Sources:
The Kaiser Family Foundation and Health Research and Educational Trust.
Employer Health Benefits 2007 Annual Survey
Internal Revenue Service United States Department of Treasury. Publication 969 (2007), Health Savings Accounts and Other Tax-Favored Health plans. <
http://www.irs.gov/publications/p969/>
