The very thought of health insurance has many business owners reaching for the Pepto-Bismol. In 2006, employer-based health insurance premiums rose an average of 7.7 percent. Small employers’ premiums went up an average of 8.8 percent. And the worst increase went to the smallest employers, those with less than 24 employees. They saw their premiums increase an average of 10.5 percent!
Most employers I talk to are sitting down with the insurance salespeople and trying to decide how to keep costs down or at least more stable. What confounds me is that most solutions involve some combination of lessening benefits and increasing the cost for the employee. I do not see this as a viable solution. If you increase healthcare costs for the employee, he or she will see a decrease in take-home pay which will feel like a pay-cut. Talk about a de-motivator! Lessening benefits accomplishes the same thing, since now when they go to the doctors it will cost more, though the de-motivation will be a delayed reaction. The solution is simple: A high-deductible health plan (HDHP) in conjunction with an HSA (health savings account) plans. Now, before you send me an email telling me you “ran the numbers and it doesn’t make sense,” let me tell you: you probably ran the wrong numbers. Here is how it works. You pick an HDHP with a deductible of, for example, $4,000. The premiums for a plan with a deductible that high are typically lower than you would pay for a conventional plan. With the high deductible plans, there are no co-pays or coinsurance. The employee simply pays for everything until the deductible is met. Now, let’s talk about that $4,000 deductible; it obviously has to come from somewhere. If the employee has to pay it, the plan would only benefit the employer and really healthy people. The HDHP needs to be used in conjunction with an HSA. The HSA should be funded by both the employer and the employee with the same percentage as the health plan premium. If you pay 75% of the plan premium and the employee pays 25%, then the HSA should be funded (in the amount of the deductible) using the same rate. If the deductible is $4,000, then the employer pays $3,000 and the employee pays $1,000. Both the premium and the HSA contribution can be paid pre-tax. Now come the real benefits. When the employee goes to the doctor, there are no out-of-pocket expenses at the office. The doctor, hospital, or urgent care facility will bill the insurance. The insurance company will adjust the prices, and then the employee will get the bill. The employee will then pay the bill, using a check or debit card, straight from the HSA account. No approval is needed; just write the check and send the payment. Better still, there are no referrals necessary to see a specialist. It is all up to the doctor and the patient. Once the deductible is met, the insurance pays for everything, including prescriptions. There are no more costs to the employee for healthcare. If the deductible is not met, the extra money in the HSA stays right where it is, and can accumulate year after year. The accumulated money can still be used penalty-free for retirement! If the money is used for something other than allowable medical expenses or retirement, the employee would be subject to the taxes and a 10 percent penalty. The employer, however, has no liability regarding the employees' use of their HSA. What are the drawbacks, you ask? The first would be that the employee will have to be much more involved in the healthcare process. This means paying close attention to all bills and making sure things are paid on time. It also means another checking account to balance. For the employer, once everything is set up, there are no drawbacks. The HSA/HDHP plans are the hottest thing in health insurance. As such, there are some great changes to the rules just this year. It used to be that the amount of money you were allowed to add to your HSA each year was limited by the HDHP deductible. Now, that is no longer the case. There is a maximum allowed contribution, but it doesn't take the deductible into consideration. Also, one time in your life you will be allowed to roll over your IRA, up to the maximum amount that year, into your HSA account. Make sure when you do your research that you take into consideration, the total cost of the program as well as the cost to you and the cost to your employees. Also be sure to compare the health benefits that your employee will receive. It's very likely that using an HSA/HDHP combination could provide 100% coverage for your employee, where in traditional plans 100% coverage is far beyond expensive. You may find, after doing your own research, that the HSA Plan will not really save your company any money. Many times, the cost savings to the company is negligible or the HSA plan is even marginally more. It should still be considered, though, because of the huge benefit to employees. They will no longer have to pay for any medical expenses out of their take home pay and they get the chance to build more money for retirement. Plus, you don’t have to worry about the insurance guy coming to you next year with a new plan for your employees and even less benefits. Year after year, the HSA plan premiums will probably rise, but they are likely to be much more stable than traditional plans. No one has commented on this article. J! Reactions • General Site LicenseCopyright © 2006 S. A. DeCaro |
