A 401(k) for Health Care Costs
Finally, a way to trim health insurance costs without sticking it to your employees: health savings accounts.
Keeping a lid on soaring health care costs almost always means passing the pain on to employees. But finally there's a way to control costs without sticking it to your staffers--HSAs, or health savings accounts.
Passed as part of last year's big Medicare overhaul, the accounts are a kind of 401(k) for health care expenses. Pretax dollars are contributed by employer and/or employee to an account, which the employee controls and decides how to invest. The funds can only be withdrawn to pay for medical expenses.
HSAs represent another step in the shift to so-called "consumer-driven" health care plans, which aim to transfer cost-managing responsibility to health care consumers themselves. But HSAs differ from other such plans. Unlike flexible spending accounts, unused balances roll over at year-end. And unlike health reimbursement arrangements, or HRAs, they allow both employers and employees to contribute and let employees keep the money if they switch jobs.
HSAs can help save employers money because they must be offered in conjunction with a high-deductible insurance plan. (For 2004, the minimum annual deductibles are $1,000 for an individual and $2,000 for a family.) Just ask Dave Limberg, controller of Standard Dynamics, a Bloomington, Minn., printing-equipment distributor with eight employees. After years of double-digit premium hikes, Limberg increased deductibles to $1,750 for individuals and $3,500 for families. To remove some of the sting, the company puts 55% of the amount into each employee's HSA. The result: Standard Dynamics' overall health care costs remained flat, compared with a 10.2% increase had it stuck to its previous plan, and some employees have even seen their own expenses drop, Limberg says.
Such plans are new, but experts expect them to catch on fast. In a 2003 survey by the National Small Business Association, 73% of small-business owners found the concept appealing. Says New York health care strategist Joe Martingale: "The hope is that if people are spending their own dollars, they will become better consumers of health care." And employers will be able to go to bed without feeling guilty.
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