Accountants are fidgeting, employers are stressed, plan administrators are frustrated and employees are feeling helpless. It,Aeos all about the state of health insurance ,Aei rapidly rising premiums, limited resources, network restrictions, unyielding underwriters, liability and the ever-increasing pressure for companies to provide a competitive benefit package.
And then along comes health savings accounts.
,AeuThe combination of three key factors ,Aei four consecutive years of double-digit rate hikes for health coverage, the IRS,Aeos 2002 landmark ruling regarding the tax treatment of employer-funded HRAs (health reimbursement arrangements) and the HSA provision of last year,Aeos Medicare reform law ,Aei have contributed to what can best be described as a perfect storm in the health insurance industry,,Aeu says Steve Davis, managing editor for Inside Consumer-Directed Care, an independent industry newsletter published by Atlantic Information Services Inc., Washington, D.C.
What,Aeos it all about?
HSAs are much like the weather ,Aei everyone talks about them, but few understand them. The reasons for this are varied, but the simple fact is that HSAs are new, and employers and the public are not yet familiar with how they operate.
HSAs are designed to foster consumer-driven health plans, arrangements that place greater responsibility on health plan participants to pay for minor or routine health care by increasing deductibles and co-pays. The idea is that if participants pay more for services received, they will spend health care dollars more responsibly and not incur unnecessary expenses.
Theoretically, this consumer awareness will drive down health plan usage and the overall cost of health care.
HSAs are a big step toward consumer-driven benefits because contributions to an HSA can only be made on behalf of an individual who participates in a ,Aeuhigh-deductible health plan.,Aeu High deductible health plans are arrangements that require participants to pay significant out-of-pocket amounts. The minimum deductibles for 2005 remain unchanged at $1,000 annually for self-only coverage and $2,000 annually for a family. The maximum out-of-pocket limits cannot exceed $5,100 (individual) and $10,200 (family).
An HSA is a tax-preferred savings account, similar to a 401(k). Either the employer or the employee, or both, can contribute money to an HSA. The account holder then draws it down to pay medical expenses. After the deductible is reached the plan,Aeos coverage kicks in and works like any other health insurance. Money left over in an HSA builds up tax deferred and can roll over from year to year.
A major concern from consumer advocates is that HSAs will attract primarily healthy people whose money will roll over from year to year, building for retirement. That could leave less-healthy people pooled together in more traditional plans, driving premiums up still faster. Time will tell.
It is predicted by Inside Consumer-Directed Care that as of Jan. 1, 2005, more than 3.2 million people will be covered by an account-based, consumer-directed health plan.
The greatest attraction for employers is less costly premiums based on higher deductibles, and the idea that employees will be more cognizant of health care expenses. There are, however, rules and restrictions tied to an HSA. It,Aeos not a panacea for every employee group. Employers should make informed choices. Seek out as much information as possible before it,Aeos time to sign renewal paperwork. A high-deductible plan with an HSA option may very well be an excellent strategy.
Julee Drennan, SPHR, is an account executive for The Wilson Agency located in Anchorage. She can be reached at 907-277-1616 or by e-mail at juleed@thewilsonagency.com.
