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Brown Bagger

This section is set up to provide a ready-made Brown Bag Session for you to use with employees and/or managers. Use as is, or adapt this information for a general employee group. You may reproduce as many copies as needed.

Health Savings Accounts: An Affordable Insurance Option ealth insurance is simply not affordable for many small and mid-sized companies.

Consider: According to a 2007 Kaiser family Foundation report, less than half (45%) of companies with fewer than 10 employees offer health insurance, while more than half (55%) of firms with less than 200 employees, but more than 10, offer it. In the past, these numbers were as high as 58% and 68%, respectively. Moreover, an overwhelming 99% of companies with more than 200 employees offered health insurance.

However, a Health Savings Account (HSA) is one type of plan that is providing smaller companies and their employees an alternative to traditional health insurance. HSAs provide companies and individuals with the opportunity to purchase health insurance that is less expensive than traditional comprehensive health insurance, as well as the chance to save money tax-free to fund future medical costs.

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How it Works Funds from the HSA can be spent on qualified medical expenses like doctor or dentist fees, prescription and non-prescription (e.g. over the counter) medications, eyeglasses or contact lenses, as well as hospital costs not covered by insurance.

Unlike other investments, funds go in tax-free, they can grow tax-free, and they are spent tax-free (on appropriate medical expenses), so that more of an individual’s dollars are available to pay for medical expenses.

Conversely, other investment accounts, like 401(k)s or dependent care accounts, which are always taxed at some point, are not allowed to be invested, or do not carry over the following year (a “use it or lose it” provision). Using pre-tax dollars, an employee’s overall taxable gross income is also lowered, resulting in less tax owed to the government at the end of the year.

One catch of HSAs is that they must be linked to a high-deductible health insurance plan as required by IRS regulations. In 2005, the January 2009

minimum deductible was $1,000 for an individual and $2,000 for a family. In addition, individuals and families could only defer to the lesser of the two: the deductible or the maximum amount listed by the IRS. However, legislation passed in 2007 allowed individual employees to defer to the maximum amount allowed, regardless of the deductible. For example, in 2007 the maximum amount was $2,850 for an individual and $5,650 for a family. This meant that someone with a $1,000 deductible could still defer up to $2,850 — rather than only being able to deduct the lower ($1,000) amount. (Editor’s note: Consult an insurance or other financial professional as specific amounts may have changed since the author wrote this article.)

Employees Want Health Insurance Why should companies, particularly small to mid-sized companies, consider adding or changing to an HSA? For one thing, there’s no doubt that employees value health insurance. In fact, a 2007 Employee Benefits Research Institute survey found that:  Three-quarters of workers with employerprovided health coverage preferred $7,500 in health benefits to an additional $7,500 in taxable income. For those who preferred health-insurance coverage to income, they would require an additional taxable income of $12,000 on average before giving up the benefit.  Fewer than one in five workers with employer-based health insurance were extremely or very confident they could find affordable health insurance on their own if their company stopped offering benefits — even if their employer gave them money to help pay for it!

Trend Toward Employee-Funded Health Care The employer trend is to shift more health care costs to employees through health-insurance plans EA Report Brown Bagger 1

Brown Bagger with more cost sharing and more deductibles. This is the same trend that occurred several years ago when more firms were moving from providing defined benefit retirement plans (company funded) to defined contribution plans (employee funded).

Certainly, the health-care trend isn’t exactly new either. Medical Savings Accounts (MSAs) have been around for a while, but not only do they have an incredibly high deductible, but they had a “use it or lose it” provision. In other words, MSA money not used by the end of the year was lost and could not be carried over into the new year.

Because of these restrictions, many employees disliked MSAs and actually became fearful of contributing to one.

Even today, fewer than 7% of companies currently offer Health Savings Account highdeductible insurance plans. However, this number is expected to grow due to their advantages over MSAs, and as traditional health insurance plans become increasingly unaffordable.

Research has shown that workers without health insurance often delay necessary and needed care, which not only is a detriment to the individual’s family but also the company. Starbucks CEO Howard Schultz had this experience at age 7 when his father, a deliveryman, not only broke his ankle but also was without a job and health insurance.

Consequently, Schultz vowed that he would build “the kind of company my father never got a chance to work for.” Much of the loyal employee following at Starbucks has been due to the fact that it offers comprehensive benefits to part-time employees.

Benefits of HSAs Some benefits of HSAs were listed previously in the “How it Works” section, but there are other advantages as well. In a nutshell, benefits of HSAs include: 5 Lower monthly health-insurance premiums: Because you have a higher deductible on your health-insurance policy, you pay a lower monthly premium. Let’s say you have a policy with a $1,000 deductible that costs you $500 each month. By opting for a plan with $5,000 deductible, for instance, your monthly premium is

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only $300. You can take that $200 savings and deposit it into your HSA. This is an account that earns interest that you can draw from at any time.

So in a sense, you’re paying part of the healthinsurance premium to yourself.

5 Immediate tax savings: Just like an IRA or 401(k), every dollar deposited into an HSA is pretax, which lowers an individual’s annual taxable income. As stated previously, employees may defer, for tax purposes, to the maximum amount allowed by the IRS. That isn’t all. People 55 and older are allowed a special “catch-up” feature, which enables them to put an extra amount into their accounts each year.

In addition, when you take the money out to pay for covered medical expenses, the money is still not taxed. Even better yet, HSAs are a great way to pay for medical expenses that are often not covered by an insurance policy — things such as eyeglasses, acupuncture treatments, vitamins, or health-care premiums while unemployed.

5 Long-term growth potential: Unlike “use it or lose it” provisions, if you stop putting money in or don’t use the money you contributed, it still stays in your account and builds interest indefinitely. You may even invest the money in the stock market or annuities. In essence, while many people are used to paying a lot of money each month for health-insurance premiums and never see that money again, HSAs provide an opportunity for people to have their money “grow.”

5 Greater flexibility when Medicare kicks in: An HSA is still a good choice even if you’re nearing retirement. Since you don’t lose the funds if you don’t use them, you have the potential to save quite a bit of money over time. When you turn 65 and join Medicare, you may withdraw any unused HSA contributions and use the money for other things, such as a vacation or college money for grandkids. The only restriction is that since you’re withdrawing the money for non-medical expenses, you have to report the money as income on your taxes.

5 Puts you in control: Employees with an HSA plan may choose any doctor they’d like — networks or referrals do not restrict you. In addition, you aren’t obligated to always put a set January 2009

amount of money into the plan each month. If you’ve contributed enough to meet your deductible, or if you simply don’t want to contribute for a few months for other reasons, you may do so and resume contributions at a later time. This means you have greater control over health-care decisions.

5 Fewer restrictions: At one time, only companies with 50 or more employees were eligible to offer an MSA plan. Today, HSAs are much less restrictive and available to virtually anyone with an HSA-qualified policy. They are also completely portable, so if you leave your job and move to a company that does not offer an HSA, you can still draw from your previous account to pay medical expenses. However, you may only do this until the account is depleted since you cannot contribute to the account anymore.

What Employers & Employees Need to Know about HSAs The challenge of employers offering HSAs is to educate employees on how to make wise choices.

Research currently suggests that participants: • Ask doctors for more cost-effective care (such as generic medications); • Do more research prior to office visits; and • Try to take better care of their health.

However, many employees with HSAs also delay seeing doctors, and are not filling prescriptions or skipping doses of medication they do have. Compared to workers with comprehensive health insurance, those with deductible plans like HSAs are less satisfied. However, this may be due to the inadequate information available to participants on how to get not only cost-effective care — but also the right care. This is where the EAP can step in to help…

• Educate employees about how an HSA works; • Assist management in starting them if the employer doesn’t currently offer this benefit (check with an insurance carrier to be sure that an HSA-qualified policy is available); and/or • Educate managers and employees on how to get the most out of this benefit if it is presently offered.

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Brown Bagger As stated previously, employees may focus too much on getting inexpensive care, at the risk of not getting the right care. Employers can help upfront by choosing a health-insurance plan that is ranked highly on the quality of care it provides to its members. This could be even more important than the individual doctors that are available, as research shows that the right preventive care is delivered consistently only 55% of the time! And yet, with high-quality health-insurance plans, which may not be more expensive, individuals and families will get intervention-focused coverage (regular health checkups, screenings, etc.) more often because these insurers provide incentives for doctors to do so.

Start with the National Committee for Quality Assurance (www.ncqa.org). Once there, go to the “Report Cards” link and then look for “NCQA’s Health Plan Report Card.” Look for plans accredited by NCQA as excellent, and ask your insurance broker to narrow your search to these plans. If a corporate client decides to invest money on its employees in keeping them healthy, or to use a health-insurance benefit (such as an HSA) as a way to attract new hires, then it is important for the EAP to help them find a high-quality plan.

Summary If you, as the employer, are paying the premiums for your employees’ insurance, you and your employees should have a say in what coverage they would prefer. If you’ve avoided starting an HSA plan because you think it’s too much like the old MSA plans (restrictive and not consumerfocused), think again. When used correctly, an HSA could be just the solution you’ve been looking for to combat rising health-insurance costs.

Additional sources: Peter J. D’Arruda, author of “Make Money from Your Health Care Plan: An HSA is the Key,” and “Financial Safari.” He has been teaching investors how to preserve their assets, increase income, and reduce income taxes for more than 15 years; and Davis Liu, MD, a board-certified family physician with the Permanente Medical Group in California, and author of “Stay Healthy, Live Longer, Spend Wisely: Making Intelligent Choices in America’s Healthcare System.” Editor’s note: This article is for educational purposes and is not to be construed as an endorsement of a specific health-care benefit, or as a substitute for medical or insurance-related advice. Consult an health-care provider or other professional regarding the applicability of recommendations appearing in this article.

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Brown Bagger H A N D O U T Consider Health Care Options Carefully mployees nationwide have been troubled by economic uncertainties. As more and more families watch their pocketbooks, health-care spending is one area where many people are looking to make budget cuts. Certainly, the increasing cost of health care should encourage people to examine health-benefit options (one of which was described at-length in this month’s Brown Bagger).

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However, despite rough economic times, opting out of health-insurance plans can prove to be a costly mistake when unexpected health issues and medical emergencies arise. The good news is that today’s consumers are in a better position than ever to make informed choices about which health plan is best for them. Health care is complicated, but it’s important to understand what you need and can afford.

 What are my out-of-pocket expenses and monthly premium costs? Does it make sense to pay a higher premium for lower out-of-pocket fees, or vice versa?  Are my current prescriptions covered and at what level? Does this meet current needs?  Are there less costly but equally effective medication alternatives that a doctor could suggest?

According to WellPoint’s Institute of Health Care Knowledge, the following questions should help in choosing the health plan that’s right for you:

 How much will it cost if an emergency occurs?

 What is my household’s current and anticipated health-care usage? What are the kinds of things we will need?

Ask questions, access resources (such as an EAP), and arm yourself with the information needed to navigate what can be a complicated health-care system.

Additional source: Steve Martenet, president of Anthem Blue Cross and Blue Shield in Wisconsin. Editor’s note: This article is for educational purposes and is not to be construed as an endorsement of a specific organization or health-care benefit.

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