Processing Your Payment

Please do not leave this page until complete. This can take a few moments.

September 13, 2004

Commentary: A viable alternative | Recently created health savings accounts, or HSAs, are helping some Mainers deal with the increasing cost of health care

By Linda Varrell
Vice president, sales and marketing, Northeast Bank, Auburn

"We were facing a 57% increase in our company's health care premium costs."

Sound familiar? It's what Linda Guerette, general manager and CFO for Lewiston's Jones & Vining plant, confronted when the company's health plan came up for renewal this spring.

Jones & Vining Inc., headquartered in Brockton, Mass., is a leader in the custom-molded products industry. It operates plants worldwide and serves the health care equipment, office furniture, consumer, electronic media and footwear industries. Like any business, Jones & Vining is continually concerned with managing costs ˆ— especially those related to health care.

In the past, companies like Jones & Vining could offer health plans with little or no deductible. Today, the costs of these plans are too high for many companies to absorb, which has forced them to re-evaluate their benefit packages.

That 57% increase provided Guerette with plenty of incentive to research options with insurance carriers. She became interested in incorporating health savings accounts, or HSAs, in a new health benefit plan with a higher deductible.

The Medicare bill signed by President Bush last year created HSAs to help individuals save for qualified medical expenses on a tax-free basis. Beginning last January, individuals under age 65 became eligible to contribute to an HSA if they have a high-deductible health plan, or HDHP. The intent of the new bill was to stimulate savings and provide consumers with a new level of control over their medical spending practices.

Simply put, an HSA allows employees to put money aside for future medical expenses. Employers can now structure an employee benefit plan to include a HDHP to reduce premiums and combine that with an HSA. Some companies may offer employees a choice between, for example, a low-deductible health plan with a higher out-of-pocket cost for employees or an HDHP with lower out-of-pocket cost and contributions to an HSA.

Individual employees can open their own HSAs ˆ— just as they might open an IRA ˆ— but the accounts also can be established by a company on behalf of its employees. Funds can be deposited by the employer, the employee or both. Accounts can be established through insurance companies, investment firms and banks.

Once funds start accumulating, the account is owned by the employee, who has complete control of the use of the funds. Participants can access their accounts by withdrawal, check or a specially designed debit card, and they can use the funds for qualified medical expenses, such as prescription drugs, office visits and lab tests.

"Once we understood how HSAs could be used to supplement our plan," says Guerette, "we moved forward, adopted a higher-deductible plan and provided the health savings account as an option for our employees."

By moving to an HDHP, Jones & Vining was able to keep out-of-pocket costs to employees at a reasonable level without having to pass on huge increases. The HSA is an added benefit for employees, allowing them to put money aside tax-free. At least initially, Jones & Vining isn't contributing to employees' accounts, but the company will have that option once it realizes the full benefit of switching to the HDHP. The company does pay the initial HSA setup fee for its employees and, to date, 18% of the company's eligible employees have set up accounts.

Health savings accounts are a new concept, and they're still largely misunderstood ˆ— by the general public and by many employers. Companies are confused as to what constitutes a HDHP, and which insurers offer them. Despite the confusion, employees are starting to ask about HSAs, and business owners are starting to investigate them. After all, no employer wants to pass on a 57% cost increase to employees, and few can absorb that type of rate hike and remain competitive. The employers coming to Northeast Bank inquiring about HSAs represent many types of businesses, but all are seeking ways to lower their health care premiums and soften the blow for employees as soaring costs force them into higher deductible plans.

HSAs can provide companies ˆ— and employees ˆ— with a workable compromise by utilizing a reasonably priced higher deductible health plan that saves on premiums, coupled with a health savings account that can be used to take up some of the slack on out-of-pocket costs.

HSA basics

Eligibility requirements: People under age 65 who are insured by a high-deductible health plan. Individuals must have a deductible of at least $1,000; for families, the deductible must be at least $2,000.

Tax status: Deposits are tax-deductible; employer contributions to an employee's account are made on a pre-tax basis. Withdrawals for qualified medical expenses are tax-free.
Qualified expenses: Traditional services (prescription drugs, office visits, lab tests); nontraditional services (acupuncture, healing); travel related to medical services

Resources:

IRS Publication 502, Medical and Dental Expenses

IRS Publication 553, Highlights of the 2003 Tax Changes

www.treas.gov/offices/public-affairs/hsa

www.hsainsider.com

www.irs.gov

Sign up for Enews

Most Recent

Most Recent

Comments

Order a PDF