Health Savings Accounts

Note: My one reader outside of the US might have issues understanding the “purchase” of health care insurance and should probably skip this post.

I can remember how happy we were in March of 2005 to finally be able to offer health care as a benefit.

The OpenNMS Group is a company focused on the happiness of its employees since they are responsible for all of our revenue, and we don’t want anyone worrying about being sick or whether or not they should go to the doctor. We cover 100% of the employee’s insurance premium: medical, dental, disability, etc.

There is also the benefit of having a group plan so that the premiums for family plans (which we don’t cover) can come out of pre-tax dollars.

This has worked fine for over five years, and I’ve been happy with our provider, Blue Cross Blue Shield of North Carolina. Well, as happy as one can expect to be when dealing with an insurance company (I’m also happy with our lawyer, if you can believe that).

However, this year our premiums went up nearly 27%. This is more than twice what we usually see and it was strange since no one hit an age barrier (30-34, 35-39, 40-44, etc.) or had (as far as I know) a catastrophic illness. Think about it – the premiums would double every four years if this was a constant rate.

That’s about as bad as some of those open core license fees (grin).

Anyway, our options were to either pay more, consider having the employee shoulder some of the burden, or change plans. All of which are a bit of a pain.

But then our broker suggested a Health Savings Account (HSA) combined with a High Deductible Health Plan (HDHP).

An HSA is basically a savings plan, similar to a 401(k) retirement plan, that can only be used for health expenses. The HDHP is similar to a standard health plan with one main catch – no co-payments. This means if you go to the doctor, you play the insurance company’s negotiated rate in full. The same thing goes for prescription drugs. You pay everything up to the deductible, and then after that the insurance company covers 100% (or possibly less, but we’re looking at a 100% plan).

The HDHP premiums can be significantly less than the “normal” premiums.

The way this is supposed to work is the higher deductible means lower premiums, for both the company’s individual coverage and the employee’s family coverage. Both the company and the employee can fund the HSA, and the goal would be to put enough in the HSA to cover the deductible.

For example: supposed you have an HDHP with a $2500 deductible for an individual, and the company puts in $200 a month toward that account for $2400 a year. Any expenses up to $2400 are paid for, and the employee would only be responsible for the last $100 up to the deductible. Any expenses after that are fully covered.

Better yet, say you use only $500 of it, then there’d be $1900 left over for the future. And, while it isn’t much these days, these accounts can earn interest.

With families it is a little different, as the deductible tends to be doubled. In this case, the added savings of having a reduced premium can be applied to the HSA to cover that difference.

My favorite part is that there is nothing preventing you from contributing just the amount of your expenses to the HSA at the end of the year and immediately withdrawing it, tax free.

In the short term, an HSA that is funded by the company does not save much, if any, money for the company. But over time, as premiums increase, it could be possible to raise the deductible so that eventually it does, or is at least at parity.

The (small “L”) libertarian in me loves the idea. I like the fact that people can use as much or as little healthcare as they choose. Plus, any funds that have been accrued can be taken out at retirement age similar to an IRA (and also, hardship withdrawals with tax penalties are also available).

We’re still investigating whether this option is for us, but my current take on it is that most of the guys are for it.

Having a decent healthcare plan is important for any business in the United States, so I thought I’d share.

3 thoughts on “Health Savings Accounts

  1. Hi Tarus,

    I think that these kinds of plans can be a good idea, but unfortunately, my experience over the last year has been that implementation is not always a smooth road. I’ve been on just this kind of account from my work (administered through Cigna) since April 1. Unfortunately, Cigna and Duke Medical cannot seem to get their T’s completely crossed and so as a result, every single time I or my family has gone to a doctor, what happens is that Cigna pays the negotiated rates and then Duke bills me for the difference between that and the retail rates!!! I then have to call both Cigna and Duke and get them to fix it. I and my wife have literally spent hours on the phone trying to fix this problem for good and we have not been able to. At this point, even though it will likely cost me $1000 more/year, I will probably move back to a more traditional plan when our plan year rolls over. My time is worth that much to me.

    So, I wish you MUCH good luck in this and hope that if you do this you won’t have the same experience we have had. If you want to know more, please feel free to send me a private email and I’ll answer any questions you want.

  2. Starting my second year with a HDHP and HSA, and I’ve been pretty happy so far. The only big surprise was prescription medication. One of the allergy medications my doctor and I decided to try is horribly expensive, so late this past year, I switched back to cheap over the counter meds (Claritin and Benadryl, the latter works better than everything else prescription or not, aside from having to be taken 4x as often).

    Haven’t had any problems getting negotiated rates. In fact, my medical insurance ID card was the same last year and the year before, aside from the copay, etc. amounts being different.

    Lovelace, it sounds like Duke Medical center might be doing “balance billing.” You might want to check if it is illegal in your state and contact the appropriate parties, if needed.

  3. I had an HSA when self employed about 12 years ago. My son’s hernia surgery was specifically not covered (I got that done after starting at NCSU), but other than that, the HSA worked well.

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