Flexibility & Cost Savings on Benefits Through HSA's

Rob O'Regan -- Expert Business Source, 1/16/2007 11:36:00 AM

Health savings accounts, or HSAs, are generating a lot of buzz among the business and healthcare communities. And with new HSA-friendly legislation that kicked off on Jan. 1, the time may be right for business owners to consider making the switch to an HSA as part of a high-deductible health plan for their employees.

HSAs are appealing to employers because they can reduce premium costs by 30-40 percent and lessen administration overhead. For employees, the plans offer more flexibility – and better options for savings accrual – than alternatives such as flexible spending accounts (FSAs) or health retirement accounts (HRAs). (Click here for a comparison of the three types of plans from M-Care.) And Congress has made it more attractive to move to an HSA, enacting legislation that allows rollovers from existing FSAs and HRAs and onetime contributions from IRAs, and also allows greater employer contributions for lower-paid employees.

The trick for business owners is convincing employees that the combination of an HSA and a high-deductible health plan is more than a cost-containment move. Employees may balk at the higher deductible – a minimum of $1,100 for an individual and $2,200 for family coverage – so employers will have to educate their staff about the benefits of an HSA. And they must be willing to put some skin in the game by contributing a portion of the deductible – possibly at least 50% – for each covered employee.

“If you don’t contribute anything, it’s like upgrading your employees’ computers but telling them they have to buy their own mice and keyboard and monitors before they can use them,” says Vik Kashyap, chairman and founder of Canopy Financial, a Chicago-based provider of technology solutions for the healthcare industry and publisher of HSA Insider, a portal of HSA-related resources. “Either contribute to the HSA or don’t offer it.”

Kashyap offers these additional tips for business owners considering an HSA:

• Don’t worry if you do not have a cafeteria plan to do pre-tax payroll deductions for HSA members. Employees can still take a tax deduction for their HSA contributions at the end of the year.
• For employers with limited (or non-existent) HR departments, one simple and effective approach is to provide employees with a fixed monthly dollar amount that is earmarked for healthcare. This enables employees to make their own insurance decisions while reducing administration for the employer.
• Find a reliable banking partner to manage the accounts. HSAs are fairly new and fairly complex, so you’ll want a bank that has some experience with these types of accounts and provides top-notch customer service for both you and your employees.

HSAfinder.com, another website dedicated to HSA issues, suggests that employers look for the following features when choosing a bank or other HSA custodian for employees:

• Easy deposits — in person, by mail, by electronic transfer, or through an automatic payroll deposit mechanism.
• Easy withdrawals with a checkbook or debit card.
• An attractive daily compound interest rate on your deposits (2% APR is the current norm).
• Reasonable charges for administering the account (annual fees of $3 per month are reported as the norm, although some vendors offer “no fee” accounts).
• Ability to check balances and recent account action at any time, by phone, by web and by monthly printed account summaries.
• A yearly printed statement of all deposits and detailed data on all debits or expenses, to satisfy the IRS requirements for reporting.
• FDIC insurance.

Rob O’Regan is a freelance writer based in Londonderry, N.H.