Has anyone made the transition from traditional health plans to a Health Savings Account (HSA)? I have always been under the belief that a rate is a rate, and you basically get what you pay for when selecting a plan, I.E. cheaper coverage is just that...coverage that costs less because it covers less. I have been asked to seriously look into HSA for my company (I have the feeling its more than just looking) and while I understand the basic concept behind HSA's I am struggling with how to present and compare the impact on our employees and our budget. Its easy to show how this will cut costs to benefits, but its much harder to predict how this will impact salary negotiations, etc. I have talked to brokers who say how wonderful HSA's are and how the employees will come out ahead, but I cant get my hands around it, I cant connect the dots to see how it all fits as a win win. I guess my gut tells me the costs don't go away, they just get shifted to the employees with the offsetting benefit of control...the employee becomes more personally responsible for their healthcare choices. Not to stray off topic, but if HSA's are the solution, I.E. personal responsibility resulting in reduced costs for all, would this then be the same model to help fix social security? I am struggling with this, is it one way, the other way, or even both ways???
Health Savings Account
Answers
Yes...we saved big bags of money the first year, and then it leveled out.
As far as "did it save the health provider money?" (personal responsibility and all that). No clue, but it felt like that was probably the case in some circumstances as you were definitely incented not to spend money if you didn't need to.
Service: Same as if you had a PPO. Exactly the same.
Issues: Well, you need a banking relationship, which is still in its infancy. We had Mellon, which gave marginal service at best. Not wholly incompetent, but they shouldn't feel any pride in how well they did. We were an early adopter, however, so it may have improved since then.
Benefits: Many of our employees took advantage of the amount of money you could put away pre-
Summary: Big fan. It doesn't slay the "Health care costs too much." It does, for an equivalent expenditure, provide a serious cash benefit to employees.
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Yes, HDHP with HSA saves the company money. And since our workforce is paid well, it's perceived as a benefit -- because employees get health insurance and a growing HSA. Our employees can afford the health care they require so they don't neglect preventive doctor visits or skimp on prescriptions. Some are unable to save year on year because of chronic conditions. But most are accumulating a nice nest egg for health care needs in retirement. HSA's are not appropriate as a replacement for Medicare or as a model for social security, because most citizens do not have adequate income to self manage health care or other basic needs.
I highly recommend the change. We are under pressue as plan costs increase every year and employees complain if and as we shift more of the premium costs onto their backs. HSA premiums are much lower because the deductibles are much higher (we had two tiers $2500 and $5000) and hence the insurers outgoings are lower until the deductible has been met.
We took the savings in HSA premiums, and paid them into the employees' HSA accounts, and employees were also able to contribute tax deductible amounts into their plans up to the annual tax limit, thereby building up a fund for long term future payments and health care. The reason HSAs work is that people tend to buy unlimited heathcare when it is free or subsidised by insurance, whereas they are much more careful if there is a personal incentive for them as a result of not going to the doctors for a runny nose, etc.
Of course there will always be some people who do not want to take the
I like and as a
Health Insurance is such an emotional issue.
As an independent consultant and CFO, I have my own personal policy. I went through a detailed review of 6 different policies a couple of years ago. My personal plan was costing me <>$500/month. AND for 2 years, my actual medical expenses were <$500 TOTAL! I treated this to as if I were doing a review for a client. So I reviewed polices for coverage and cost for all the options available-- LINE by Line, Item by Item. It was very, very hard work. I actually had to buy coverage to get copies of the polices to review (and what other business to I have to pay to read the contract????) I finally found a broker to run down policies for me and even he had a hard time. He claimed that he had never had a client that reviewed polices so closely. I did a detailed comparison of each policy (not the shallow superficial ones that you find on the interenet).
My findings:
Coverage: HSA policies at the time were actually better than a regular policy.
Cost: my premium went down to about $200. Enough to fund my account and save money. [Well naturally, I blew out my shoulder and my rehab expenses have just about matched my deductible for the last 3 years. Expenses that would have only been paid up to $1,000 in my policy, the remainder would have had to be paid out of pocket. I paid out of my HSA with pretax $$]
And the premiums have gone up. BUT they have gone up for all policies.
So, here is my take away - They were as good, if not better than PPO plans and they are less expensive.
However, you are going to get screwed by insurance companies any way you look at it. That is their job. My premiums went up and the insurance company left the Texas market and now I am stuck with a bad blue cross/blue shield policy that I rejected years before!
I have tried to get 2 different clients to go on the HSA plans in order to save money, BUT even Executive
Making the change to an HSA is not just about the money that a company will save, it is about fear related to health insurance issues that is not based in reality. Think about it – it won’t cost you more money out of pocket than a regular plan and there is a chance, a very good chance that you AND your employee will save money. What is not to like?
I agree. One other thing to consider for anyone who was contemplated contributing pre tax dollars to a 125 Cafeteria plan,you can get the same, or more pre tax dollars contributed into a HSA, and be able to carry it forward for life rather than suffer the use it or lose it rules of 125 plans!
Hi Kim,
Thank you for your post, thank all of your for your posts. I decided to dig into this sort of like Kim had and I feel like an idiot! Basically I am being asked to choose between various HSA compatible plans, but I cant get a real listing of what the related costs are for services, tests, x-rays etc. I was provided plan summaries and rate quotes and a sample price list where there are about 12 listings for different types of doctor visits, a huge section on eye care, hearing, and allergy shots, but NOTHING on lab work, testing, hospital care, basically no big costs listed anywhere. So 95+% of the sample costs in my opinion are not things the average user would be concerned about, and the things the average user would find of interest will not be disclosed until after you use them. I understand they need to protect their contracted rates and proprietary information but there should be some sort of tool to measure and compare plans.
I do smell the money in this, and I am now starting to think this can be a win win situation for both employee and employer. I am thinking the savings may not have anything to do with personal responsibility choices, but rather a 3 card monte game that is played with the traditional HMO coverage. The costs of an HMO may be greater overall because it is conveniently packaged and feels like a safe option, where as the HSA compatible plans are more complex, and as Kim indicated....scary
I will let you know how things turn out for us.
Full disclosure, I am an insurance broker, although I began my career as an actuary and was a
I hope I can put this in perspective for you, but please feel free to ask for clarification or contact me offline if I can help further.
Pricing – HSA’s are still a good value relative to other policies but a little history is important: when HSA-compatible plans were introduced, the designs were unbelievably generous; you could get a policy with a $1,500 deductible which covered absolutely everything covered by a traditional PPO or HMO copay plan and still save $200-$300 per month. Furthermore once you reached your deductible these plans covered EVERYTHING at 100%. As many of you know the copays and coinsurance on traditional plans can add up too, so in addition to the higher premiums, total out of pocket cost could be much higher. Actuaries and underwriters priced the policies very aggressively, not because they wanted to screw anyone or lure them into a trap, but because they assumed that people with a high deductible and savings would pay much more attention to the cost of care. I won’t get into the reasons that this assumption did not hold up as well as they hoped, but it did not, so now the plan designs and pricing have gone through a period of rapid adjustment. The plans are still a good value but not the screaming bargain they were previously. My personal observation is that the adjustments they have made are beginning to work and HSA-compatible plans (especially the higher deductibles and newer plan designs) are starting to show price increases in line with traditional plans.
Financial versus employee perspective – many employee are used to traditional plans and very low contributions (the company pays most or all of the cost) so the only part they see is their small portion of the premium and the out of pocket expenses under their plan. Even if an HSA-based strategy can save 25%-50% on total healthcare expenses, the employees may only understand that they used to pay $10 when they went to the doctor or got a prescription and now they have a $3000 deductible. In a transition such as this, many companies will share some of the savings by contributing to an HSA or HRA. Since an HSA is the employees' money to keep and most people spend less than $1000 per year on health care expenses, the bulk of the employees will come out way ahead if the company can manage a contribution of as little as $50-$100 per month. When explained properly, most employees will choose this over a traditional plan because they will have money in their HSA at the end of the year – they are essentially getting paid to have insurance! Finally if the company has the option to offer more than one plan, they can let employees choose.
For example let’s say that the company offers 2 options that have the same total cost to the company: one option is an HSA-compatible plan with a $3000 deductible; the employees do not contribute to the premiums and the company funds $100 per month in an HSA; the second option is a traditional plan with a $500 deductible and 30% copay for most services; the employees can “buy-up” to that by contributing $75 per month to the premium. Our experience is that most employees will choose the high-deductible plan and at the end of the year they will have money in the bank, and they will be the biggest advocates for HSA’s going forward.
OK, I’m just scratching the surface here, but I am constantly amazed at the level of misinformation and misunderstanding people have about this subject, so I hope this helps a little.
Last year my company introduced a HDHP with an HSA (the company contributed to the HSA). Out of 250+ lives only 5 individuals chose to switch to the HDHP.
These plans are often referred to as consumer driven health plans since you have more skin in the game, it is believed you will not go to a doctor for any willy/nilly illness. I don't think the majority of people use the healthcare system this way. Being educated about your own health needs is the key to determining if a HDHP with HSA savings is the best choice for you. The young immortals (those who never see a doctor) could certainly benefit from a HDHP since wellness checkups are usually paid at 100% and combined with an ER contribution to an HSA account,employees could reduce their overall expense for healthcare coverage. On the flip side, if your HDHP provides for 100% coverage after meeting the deductible, then an individual with known medical costs (including prescriptions) exceeding the deductible amount, would also benefit from a HDHP.
It should be clear that this plan might not be best for indivdiuals who do not have access to funds to cover a high deductible. Participants need to fund the HSA account appropriately.
Educating both the pros/cons of a HDHP and HSA is crucial for participant involvement and understanding.
Last year (Aug 2010) I read several articles in the NY Times dealing with consumer driven health plans that explored the issues well.
Good Luck.
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We experienced a similar savings in the year we switched from Comprehensive Plan to HMO/HDHP with HSA. The biggest differences were much higher deductible on the HDHP plan and the restriction of network within the state instead of nationwide. The latter was a problem for one employee, so we retained our Comprehensive Plan as an option and asked employees who chose that Plan to pay the difference in premium. We found no surprises after implementation.
I would love to hear more about the HRA plan. Any suggestions? I work for a not-for-profit organization and many of our employees are on a lower pay scale. We need to look for creative ways to mitigate the out of control rise in health care costs without creating too much of a burden on our employees. Can an HRA do that for us?
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Hi Dianne:
An HRA (Healthcare Reimbursement Arrangement) is a benefit plan set up and funded by the organization. It can be very limited in scope or very broad – the organization has a great amount of flexibility in how it works.
IRS publication 969 has a lot of details and rules about HRA’s (www.irs.gov/pub/irs-pdf/p969.pdf) but a few key points are:
The HRA plan creates an “account” for each employee, however, it does not necessarily have to be funded in advance by the organization.
The organization defines how much it will pay out for reimbursement and exactly what expenses are eligible for reimbursement.
Any unused benefit remains the property of the organization, and reverts to the organization if the employee leaves or otherwise becomes ineligible.
The plan can be designed so that any unused benefit can roll over from year to year, but most plans are designed to reset at the beginning of each year. For example a company could designate a maximum benefit of $1,500 per year. In a standard plan each account is credited with $1,500 at the beginning of the year and any unused benefit is forfeited; if the plan has a roll-over feature, $1,500 is added to each account at the beginning of the year and the balance can grow over time. In either case the account balance belongs to the company if the employee leaves.
This is a very high-level description but one way that an HRA can be used is to reimburse employees for some of the additional out-of pocket expenses if the organization decides to go to a higher-deductible or otherwise less generous health plan (or dental, vision, etc. for that matter). For example if the organization goes from a $0 deductible to a $2000 deductible plan it might set up an HRA to reimburse employees for some portion of the $2000 - if they have expenses.
A couple of other key things to know about:
• Insurers are very specific about which of their plans can be used in conjunction with an HRA (they refer to this as a Wrap Plan) so you need to make sure you comply with any of their requirements
• An HRA in many cases cannot be combined with an HSA – this is an oversimplification, but you need to understand that there can be a conflict.
• They can be made very user friendly using things like debit cards so the employees can automatically access their account for authorized expenses.
• The organization will probably want to use a Third-Party Administrator (TPA) to help set up the plan and administer all of the activity and claims.
• In our experience it is best to structure an HRA to retain some employee cost sharing, or the employees do tend to look at it as an opportunity to use someone else’s money and find ways to spend it – they are referred to as “use-it-or-lose-it plans” after all.
• If set up properly the company can save money on its health plan while still giving the employees a good benefit.
If you need more information feel free to contact me off line.
In a
I pressed insurance company A for an answer to my original question and did receive a reply that also stated the carve-out issue as the reason. I found it odd both companies used the term carve-out to describe the reason when the government site never stated that, it leaves you to conclude that.
In summary, if anyone is concerned about losing their grandfathered plans status, it would probably only effect those that have a two tiered system where management or one group is highly benefited compared to the rest.
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Grandfathered plans are exempt from some of PPACA's requirements. For example, grandfathered plans are exempt from:
1) The requirement that all plans offer certain free preventive health services -- note: virtually all plans have adopted this at this point so it would mainly be applicable to self-funded plans that choose not to cover this;
2) The prohibition on discrimination in favor of highly compensated employees to insured plans -- this allows for different benefit levels for different classes of employees (sometimes called a "carve-out"), such as salaried versus hourly, but the rules under the new law have not been finalized so some insurers are still allowing new groups to do this;
3) Requirement to cover adult dependent children who can secure other employer-sponsored group health care coverage (until 2014) -- again virtually all plans have adopted this anyway so it would mainly be applicable to self-funded.
4) The establishment of an external review process for benefit claim appeals;
5) The prohibition against pre-authorization requirements for OB/GYN and emergency services;
6) New Department of Health and Human Services ("HHS") reporting requirements regarding plan efforts to improve participant health, safety and wellness;
7) New HHS reporting requirements regarding claim payment policies, enrollment/disenrollment, claim denials and cost sharing;
8) Certain cost-sharing restrictions. In addition, grandfathered plans have delayed compliance deadlines for several of the Act's requirements (e.g., limitations on elimination of annual benefit limits).
There are also significant requirements to maintain grandfathered status including:
a) Coinsurance percentage paid by participants cannot be increased.
b) Co-payments can increase only by limited amounts or percentages.
c) Increases in deductibles and out-of-pocket maximums are limited to medical inflation plus 15 percent from the March 23, 2010 level.
d) Employers cannot decrease premium contribution percentage by more than five percentage points from the March 23, 2010 level.
Grandfathered plans will also have additional administrative requirements for employers:
a) Employer must maintain records documenting terms of plan in effect March 23, 2010, including costs and contributions.
b) Multiple new notices regarding health plans are required by PPACA.
c) All benefit materials must clearly provide the “Grandfathered Status Model Notice”.
A couple of final points in case it is not clear:
You cannot gain grandfathered status at this point -- if you were not in a grandfathered plan as of March 23rd 2010 AND had at least one person covered under that plan continuously since then, you can not have grandfathered status (both the plan itself must be grandfathered and the company must qualify)
There is some possibility to switch from one grandfathered plan to another as long as the coverage and employee contribution remain essentially as good or better than the current grandfathered plan. This would not rule out switching to an HSA Plan in particular but it would have to meet those conditions.
To be perfectly honest, there are some situations where a grandfathered plan can be an advantage, but for most companies this is not a big advantage and the restrictions on changes to the plan to maintain grandfathered status will generally make it much less attractive to maintain grandfathered status over time for most companies.
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A small employer without a healthcare plan has offered a tax-free stipend to certain employees for health care. Is this legal, the employee puts the amount in to a personal HSA account?
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There are several ways an employer can provide a tax-advantaged or tax-free benefit and you would have to check with an
Hi Everyone,
I wanted to give you an update on what switching to an HSA will do for our company. Overall benefit costs will be reduced by 14.57%. Overall benefits to employees are significantly increased, specifically a large cash benefit to each employee. In certain family coverage the savings are as much as 23.14%. In another postings on this topic it was stated that very few people elected the HSA option when compared side by side, in our case 100% of employees opted for the HSA option, and this was with two different carriers and two different HSA plans. The challenge to educating people as to how an HSA works and how this can become a win win scenario for both the employee and the employer is challenging. I made a small power point presentation with a few visual slides to plant the seeds of exactly how this can be done, I would be happy to share it with any of you its available in PDF as well. I then followed it up with a face to face meeting along with additional materials about HSA. Then end result is 100% employee participation netting in a minimum of 14.57% lower costs on our companies second largest line item expense. The actual savings should be a bit higher since many employees are electing to place additional amounts into their HSA.
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And thanks for bringing that back to us here. Very useful.
Yes, thanks Saul for the updated. My company is also in the process of reviewing an HSA for our next renewal. I would love if you could share your powerpoint/PDF presentation with me.
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Hi Sally,
I sent you a private message through Proformative, but I couldnt figure out how to add any attachments to it. If anyone sends me a real world e-mail to [email protected] with HSA file in the subject, I will gladly reply with the files I used (they are pretty basic). I also have a link to a flash presentation that the bank administering the HSA gave me thats pretty informative about HSA's as well that I think is useful that I will send you.
Our company went to HSA accounts. The company funds the deductible, and employees are able to add their own funds above the deductible up to the maximum contribution allowed. Employees like the ability to roll their funds year to year if they can maintain their health without spending the funds. I really don't see anyone putting off checkups or preventative care. Rather, employees group care into the same year to maximize the benefits once the deductible is used. I think it fosters better health care management with the savings bonus to the employee.
Hello Saul,
As an HR Manager that has led the transition from traditional to HSA plans a few times I can tell you that no matter what you do the real magic comes from HOW ITS COMMUNICATED to employees.
HSAs do save initial premium dollars. But that money ultimately gets spent else where. Like Kim said, the insurance companies ARE going to get their money some way, some how. So its not a question of IF your going to pay; it's a question of WHEN you and/or your employees are going to pay. Having an HSA option gives employees more control of the WHEN they are going to pay.
What worked well for the companies I installed HSA for was offering two choices, an HDHP and a non HDHP. We encouraged employees to move to the HSA by contributing a higher percentage of the premium, seeding the HSA accounts to help them get started and massive amounts of education and communication. Employees could still pick the more expensive traditional plan if they wanted.
Remember benefits are not just a financial thing. Benefits are a big piece of attracting and retaining talent for the company.
Hope that helps with the employee perspective.
Amanda McKisson-Kijek, PHR