Companies are constantly looking to
reduce expenses. A Health Savings
Account (HSA) is a cost-saving approach that business owners should
consider. A wellness program paired with
an HSA can help your company save
money on health care costs, according to
Sally Stephens, president of Spectrum
Health Systems.
Prevention should be a key component of
any initiative by providing greater information to consumers because, without an
action plan of how to live a healthier
lifestyle, information doesn’t improve
health outcomes.
An HSA is a high-deductible medical
insurance plan bundled with a savings
account. Cash contributions made to an
HSA are tax-deductible, as are qualified
medical expenses. HSA plans have two
components: a lower cost, high-deductible
health insurance plan and a tax-favored
health savings account, says Stephens.
Smart Business spoke with Stephens
about how HSAs are utilized and the benefits and details of such accounts.
Why are businesses deciding to use HSAs?
By implementing an HSA, employers are
encouraging employees to take control of
their own health care decisions. A particularly appealing aspect of the HSA is that it
encourages participants to stay healthy.
Any money that is not used for medical
expenses is the employee’s to keep. The
premise is that individuals who use HSAs
will shop around for the best value, which
will encourage competitive pricing among
providers.
This model provides financial incentives
for consumers to reduce unnecessary
health care utilization by increasing their
financial risk. HSAs are designed to give
the plan member complete control over
health care spending and save for future
health care costs with tax-free interest
until retirement.
What advantages do HSAs offer employees?
HSA dollars grow tax-deferred and can
be withdrawn tax-free to help pay deductibles or other qualified health care
expenses like prescriptions, vision or dental care. What is not used will continue to
accumulate year after year and is transferable if the participant changes jobs.
You can use the HSA to cover a spouse. It
requires that the participant be married at
the time the service was received or at the
time the service was paid for. You can pay
for dependents’ medical expenses as long
as they are a qualifying child or a qualifying
relative and are a U.S. citizen.
How can employers ensure employees
receive the best coverage possible?
One key decision employers face when
implementing HSAs is whether to contribute money to employee accounts.
While contributions might appear to
increase costs, this may not be the case. In
dual-option cases, employer contributions
can drive enrollment away from the higher-premium PPO or HMO, resulting in client
savings. In a full-replacement scenario,
employer contributions ease the cultural
evolution from paternalism to shared
responsibility, encourage employees to
open accounts, encourage contributions
by employees and enhance the benefit plan to remain competitive.
Communicating with workers about
these plans is essential. Health care transparency or the availability of good information on provider cost and quality is critical to the HSA success.
How does one use an HSA?
In 2007, you can contribute up to $2,850
for individual coverage or $5,650 for families (people age 55 and older can make an
extra catch-up contribution of $800 in
2007). Legislation approved by Congress
on Dec. 9, 2007, will allow you to contribute up to these limits even if your insurance deductible is less. The employer,
employee or any other person can make
contributions to the HSA.
HSAs pay for ‘qualified medical expenses.’
What is considered a qualified medical
expense?
Qualified medical expenses are those
that are the cost of diagnosis, cure, mitigation, treatment or prevention of disease,
and the cost for treatments affecting the
function of the body. They include the cost
of equipment, supplies and diagnostic
devises needed for these purposes.
Medical care expenses are those that are
primarily used to alleviate or prevent a
physical or mental defect or illness.
HSAs can also be used to pay for other
qualified expenses that may not otherwise
be covered by the traditional health plan.
These include: dental; mental health therapy; physical therapy; aromatherapy or
acupuncture; transportation and lodging
expenses relative to health care; preventive
health programs, such as vaccines; nonprescription medications, such as aspirin or
cough syrup; maternity expenses; and
insurance premiums.
SALLY STEPHENS is president of Spectrum Health Systems.
Reach her at [email protected].