Small Biz View: Are health care spending accounts for you?
Should your company invest in the new healthcare spending accounts? The accounts are catching on among small businesses according to a survey of 21 HSA administrators conducted by Inside Consumer-Directed Care, a Washington-based newsletter focusing on managed healthcare. The account administrators, which range from banks like JPMorgan Chase to startups such as Alpharetta, Georgia-based Pilot HSA Systems, say that most of the new accounts are being opened by employees of small businesses. "A lot of companies who previously offered no coverage to employees at all are embracing these plans," says Steve Davis, managing editor of Inside Consumer Directed Healthcare. The new plans differ from medical reimbursement accounts in that they are portable and move with an employee when he or she switches jobs. They can also be passed onto heirs if the employee dies. In retirement, funds in the account can be used for nonmedical purposes, but taxes will apply.
Some businesses see them as a way to help employees handlerising healthcare costs. "We kept having to increase our deductible to offset rising premiums, so it was a no-brainer to adopt a high-deductible insurance plan with health savings accounts," says Frank Ciotola, owner of Da Vinci's Ristorante in Columbus, Ohio. He implemented HSA plans for about a dozen employees last October. He also helps other small businesses implement HSAs.
The accounts, signed into law by President Bush in December 2003, offer a tax advantage to people paying medical expenses. Employees put pre-tax money into an investment account to pay for medical expenses; employers can also contribute. HSA accounts are divided between a cash account, which employees use to pay medical expenses, and an investment account. HSA Bank, a Sheyboygan, Wis., bank that administers 120,000 HSA accounts, offers account holders the ability to invest in stocks, bonds, and more than 8,000 mutual funds through its relationship with PFIC Corp. HSA Bank President Kirk Hoewisch says his firm advises account holders to keep enough in the cash account (which earns between 0 and 4 percent, depending on the balance) to pay for expenses up to the deductible on their health insurance plan, and invest the rest.
HSAs must be coupled with a high-deductible health insurance plan. Premiums for such insurance plans are typically 30 percent to 60 percent the price of those for traditional health plans.
For the first year of their existence, HSA's were slow to catch on, says Davis, while the federal government developed the necessary information and help for potential account holders and employers. Also, only a handful of insurers offered the high-deductible plans necessary to open an HSA. "But the supply side has caught up in the small-group market," says Ray Herschman, an HSA consultant at Mercer Human Resource Consulting. Now, he says, virtually every major insurance company offers the plans. And some of them, United Healthcare and Aetna are two, offer packages—a high deductible insurance plan together with an HSA account—that make implementing HSAs a lot easier.
More information about HSA plans can be found at the Treasury Department's site: www.treas.gov.