John Swansinger's health insurance was making him queasy. In 2004, his Cleveland law firm, Ritzler, Coughlin & Swansinger, shelled out nearly $100,000 to cover its 16-person group. Yet most employees incurred few medical expenses. "We were throwing those benefit dollars into the wind," says Swansinger.
Enter the health savings account, designed to help business owners like Swansinger get more for their healthcare dollar. HSAs allow employees to put aside money for health expenses in an interest-bearing, tax-free account. Employers can contribute, too. The accounts are coupled with high-deductible health plans. For employees, that means deductibles of at least $1,000 for individuals and $2,000 for families. For employers, it can mean premium savings of 20% to 60%.
Such plans are now available in most states. They're hardly a cure-all: Businesses that don't contribute to employees' HSAs are mostly cost-shifting, and may alienate workers. But some employers who contribute to the HSAs can still save money, while offering their workers a better benefit. (How any particular business fares depends in part on how healthy its employees are.) A few insurers even offer so-called dual-option plans, which let employees choose either HSAs or traditional coverage.
Swansinger and his partners switched to HSAs this year, halving their premiums. The old plan had no deductible, while the new one has a $2,500 deductible for individuals and $5,000 for families. The firm is giving employees with individual coverage $1,050 a year toward their HSA; those with family coverage get $3,250. Employee contributions to the accounts -- up to $2,650 for singles and $5,250 for families -- are tax-deductible. Unused money rolls over at yearend.
And like most high-deductible plans, this one covers 100% of all medical expenses once the deductible has been reached. There are no co-payments. "It took a little while to educate everyone about HSAs," says Swansinger, "but the initial reaction of fear and suspicion has largely been replaced by excitement about a better benefit."
So far, small employers have not warmed up to high-deductible plans. In 2004, just 10% of businesses with fewer than 200 employees offered a high-deductible plan vs. 20% of larger companies, according to the Henry J. Kaiser Family Foundation. That's because small companies, unlike large ones, can't easily make a high-deductible plan one of several options.
The response: dual-option plans. AM Engineering, a Sarasota (Fla.) civil engineering and consulting firm, was able to give its 21 workers a choice between UnitedHealth's point-of-service plan and its high-deductible plan. The premium for the high-deductible plan is just 20% less than the POS plan because the deductible is relatively low -- $1,100 for individuals and twice that for families. But those savings are more than enough for the company to make substantial HSA contributions -- $500 for individuals and $1,000 for families.
Two-thirds of AM Engineering's staff are trying the HSA. In a worst-case scenario, they might still pay less than their colleagues. The POS has no deductible, but out-of-pocket maximums are $1,000 for individuals and $3,000 for families. Because the firm contributes to workers' accounts, the out-of-pocket max with the HSA is just $600 for individuals and $1,200 for families. The high-deductible plan also gives $300 in first-dollar coverage for preventive care.
A few employees cited an unwillingness to tinker with their insurance as a reason not to try the HSAs. "I suspect that they will switch over next year once they see how it works," says AM Engineering's office manager, Gail Halmi. With luck, that will result in significant savings for everyone involved.
By Joshua Kendall