Health Care and Insurance and Small Business

HSAs picking up steam: Enrollment tops 1 million; biz tax breaks proposed

May 30, 2005

Earlier this year, employees of Indianapolis-based N.K. Hurst Co. became part of the growing fraternity of workers in the United States who are eligible for health savings accounts as part of their benefits package.

As of March, the membership in HSAs numbered more than 1 million people, twice as many as the estimated 438,000 in September, according to a study by America's Health Insurance Plans. The Washington, D.C.-based trade association for insurers said enrollment numbers are growing because more companies are making the accounts available.

"It's fair to say this is a market that is off to a fast start that is gaining momentum," said Larry Akey, spokesman for the AHIP. "We would anticipate that employers and individuals would continue to look at it as one of the options available to them."

Created by the Medicare Reform Act signed by President Bush in December 2003, the interest-bearing accounts are similar to flexible spending plans, which allow employees and employers to put pretax money into an account that can be used to pay for medical expenses not covered by health insurance plans.

The plans are coupled with a low-cost, high-deductible HMO, PPO or indemnity insurance plan to cover catastrophic medical costs. The plans typically carry annual deductibles of at least $1,000 for individuals and $2,000 for families, and maximum out-of-pocket spending caps of $5,000 for individuals and $10,000 for families.

But unlike flexible spending plans, funds saved in the accounts draw interest, roll over from year to year, and can be taken along when an employee leaves a job. There also are no income limits on who can contribute to an HSA.

Now, federal legislators want to make the plans even more attractive by introducing House Resolution 1872, which would provide tax credits to small businesses that offer HSAs.

That's welcome news to Jim Hurst, vice president of N.K. Hurst, which began offering an HSA-backed insurance option Jan. 1. The 68-year-old, dry-bean packaging company employs nearly 50 workers in its downtown facility during its busy season in the fall and winter months.

The company previously offered insurance to its salaried staff, but could not afford to make it available to its fulltime hourly workers.

"For years, we have been looking at options to get all of our employees insurance," Hurst said. "But every year the expense kept going up and up and up."

Hurst, a grandson of company founder Needham K. Hurst, had some knowledge of HSAs but said he might not have taken a serious look at the option without the assistance of his insurance broker, locally based Benefit Associates Inc.

Hurst employees already insured had the option of staying with the traditional plan or changing to the higher-deductible insurance coupled with an HSA. Of those who never had insurance, about half signed up for the HSA-supported coverage.

Hurst was better able to afford the coverage because the accounts under its plan are employee-funded.

The company struggled a bit explaining the plan to employees who had never had insurance, Hurst said. He expects more workers might choose the option once they are more comfortable with the details.

The same may be true for many company executives, who are not quite willing to embrace the plans, said Bryan Brenner, CEO of Benefit Associates. But he expects that will begin to change early next year, when companies normally address their benefits.

Six of Benefit Associates' 80 clients have elected to initiate an HSA plan, Brenner said.

Insurance companies that offer the plans partner with a bank that tracks the accounts. Anthem Inc., for instance, has hooked up with JP Morgan Chase Bank.

"Those who have taken away [benefits], or that have not offered benefits at all, this is their opportunity to offer something that has some benefit to the employee," Brenner said. "We talk to every single customer about it. Sometimes it's a very long conversation; sometimes it's a short conversation."

Many health policy analysts consider HSAs the first major step toward consumer-driven health care. The theory is that employees will spend their health care dollars more wisely when they are directly responsible for them.

But congressional opponents claimed allowing HSAs in the Federal Employees Health Benefit Program would cause healthier and wealthier federal employees to gravitate to the plans, leaving only poor and sick patients in the traditional plans the FEHBP offers.

The comprehensive plans, they argued, would be stuck with only high-cost patients and have no choice but to raise premiums. That, in turn, would squeeze the people who need health insurance coverage the most out of the market. Attempts to defeat a measure allowing federal workers access to HSA-backed plans failed in December.

HSAs have far outpaced earlier experiences with other account-based highdeductible plans. Only 40,000 medical savings accounts-the precursor to HSAs-were established the first year they became available, according to the AHIP. And they failed to ever reach the same level of market penetration in 10 years that HSAs have already achieved, the AHIP said.

MSAs were discontinued Jan. 1, 2004, in favor of the more flexible HSAs that all employers can offer instead of only small companies. Still, HSAs received strong backing from the National Federation of Independent Business, the largest smallbusiness advocate in the nation. Health care insurance remains the top concern for its members, as only half are able to offer coverage, the NFIB said.

Louisville-based Humana Inc., which offers policies in 19 states, including Indiana, will begin rolling out its HSA-backed plan July 1. For insurers such as Humana, HSAs offer the chance to crack a barely tapped market.

"There is a significant interest on behalf of small employers," said Veronica Martin, president of Humana Indiana. "I think it will be an increased opportunity to provide insurance in the small-business arena."

Hurst predicted many businesses would embrace the HSAs. Before they were offered, he said, "[Insurance] was unaffordable without it."
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