Published in Dealer Magazine, December, 2007

Health Saving Accounts (HSA’s) do seem to be a topic of great discussion and interest amongst dealers. Although, I must say we have not seen HSA’s live up to all the hype or usually achieve their financial objectives.

It has been an interesting twelve months since the Insurance Warriors at Austin Consulting Group, Inc. took on the world of health insurance. The questions have come fast and furiously by dealers who are trying to hold the cost of health insurance in check while providing a competitive benefit package for their employees. Often we are asking about dealing directly with insurers, without a broker. In some cases we have been able to set up a direct dealer/insurer relationship net of any commissions. In many other cases we find, as we suspected, that a competitive bid process not controlled by one broker can result in more competitive rating than just renewing with one broker.

Health Saving Accounts (HSA’s) do seem to be a topic of great discussion and interest amongst dealers. Although, I must say we have not seen HSA’s live up to all the hype or usually achieve their financial objectives. A quick primer on HSA’s is in order. HSA’s are used in conjunction with a high deductible health insurance plan which does not include any first dollar coverage such as co-pays or drug cards. Often the deductible for these high deductible plans start at $2,000 for the employee only and $4,000 for a family and may go higher. The dealer then arranges with a custodial bank to handle the employee accounts. Once the deductible is met, these plans may have a 20% co-pay up to a much higher limit, then there is 100% coverage after that. It is not difficult to see that the employee could be saddled with significant and possibly unaffordable out of pocket expenses until the HSA has been funded for many years.

Once set up, the dealer has a number of issues to contend with. Not the least of which is the decision of how much money, if any at all, the dealer will seed into the employee’s HSA account. Many employees will not have enough disposable income to fund their account immediately and may find themselves with a claim and a deductible they can not afford. The account can be funded with pre-tax dollars paid by the dealer, the employee, and relatives of the employee or any combination of these. The maximum that can be funded is an amount equal to the deductible, each year. The account is owned by the employee he can take it to any other employer with a similar HSA plan.

The employee covered by an HSA would carry both an insurance card for the large deductible plan and a debit card to pay medical expenses out of his account. It works like this. The employee needs to see a doctor so he goes to one on the approved list. Assuming his deductibles have not been met, when it comes time to pay, he presents his insurance card along with a debit card from his HSA account. He is charged the rate that has been negotiated by the health plan carrier by paying with his HSA debit card, assuming there is money in the account. To keep from incurring a tax penalty the funds in the HSA can only be used for health care costs beyond the scope of the large deductible plan.

So these programs present a lot of challenges to the dealer who wants to provide a competitive employee benefits plan. HSA’s often result in low enrollment and employee frustration. Though there many details I am not able to include in one article, it is not hard to appreviate that educating your employees about the HSA plan, how it works, how to fund, etc. may be difficult and confusing. This alone may prompt employees not to participate. The loss of doctor visit co-pays, drug cards and the increased out-of-pocket expenses may cause employees not to seek necessary medical care. Low enrollment usually results in adverse selection meaning those with the worst health stay with the plan, causing premiums to increase even more than usual.

But the $64,000 question has to do with the cost of the plan. Will it save you money even if you help your employees fund their accounts? The answer today is usually, no. Insurance companies simply do not grant enough premium reduction for large deductible plans to reflect the risk they have successfully shifted to the dealer and their employees. So until the cost of these plans drop, HSA’s should be entered into with caution.