The following is a compendium of revised and updated articles published by KsSmallBiz.com on the subject of Health Savings Accounts.   

NEW TOOL FOR SMALL BUSINESS HEALTH INSURANCE  By Kenneth Daniel,  3/31/04 (Updated September 2006) 

A new and valuable health insurance option for Kansas small businesses will be available within a few weeks. It will make health insurance affordable for many small businesses that don't have it now, and will help employees afford their share of the costs.  The new Medicare bill signed into law in December by President Bush contained provisions for Health Savings Accounts (HSAs).  The Kansas legislature, Insurance Commissioner Sandy Praeger, and the Governor are working to fix minor conflicts between Kansas law and the new federal law.    

HSAs combine a high-deductible insurance policy with a tax-free health savings account. The deductibles on the insurance policy must be at least $1,050 for an individual or $2,100 for a family, but can be higher. Businesses and employees can both contribute tax-free to the savings account up to the lesser of the deductible or $2,750 per year for an individual or $5,450 for a family. Those over 55 can contribute even more. 

The HSA can be used to pay for any medical expenses not covered by health plans. Any money not used can be carried over to future years. The money belongs to the employee, and those who switch jobs can take the account with them.  HSAs will be especially helpful to sole proprietors and small family businesses for whom obtaining health insurance coverage is difficult.  Healthy and younger workers who presently opt out of health insurance may become insured because funds building up in the HSA will be theirs, even if they don't need it until far into the future. 

Employees of small businesses that don't offer health insurance will be able to set up their own HSAs even if the employer doesn't participate.  Retirees can take their HSA account with them, and as long as the money is used for medical expenses, it is never taxable. After retirement, the money can be withdrawn without penalty for other purposes, in which case it is taxable for income tax purposes.  Savings are obtained in several ways. High-deductible policies are less expensive. Both employer and employee contributions to the savings account are tax-free. The account will earn interest on any balances held in the account. Deductibles and charges that the employee previously paid with after-tax money will now be paid with tax-free money. Insureds receive the insurance company's negotiated discounts from providers instead of paying the higher rates charged to uninsured walk-ins. 

Employees will have a big stake in making sure the money in the HSA is carefully spent because it is their money. A major weakness of the health insurance industry is that consumers are often unaware of the costs of their health care. Consumers focus only on their own out-of-pocket costs but are unaware of the portion paid by others. HSAs will provide the incentive for consumers to manage those costs.  The money in an HSA can be used for a wide range of medical costs including dental care, nursing home care, Medicare premiums, COBRA insurance, medications, and much more. It cannot be used for cosmetic surgery.  Unlike Medical Savings Accounts (MSAs), which were so bound up in limitations and red tape as to be unattractive, HSAs show great promise. Their ultimate success will depend upon the actual policy offerings and the promotion efforts of the industry. 

HSAs MORE THAN DOUBLE IN SIX MONTHS  By AHIP (America's Health Insurance Plans),  May 4, 2005  Lower Premium Health Insurance Plans Attract Employers, Uninsured and Older Purchasers  (Washington, DC) -- More than a million people currently receive health coverage through lower-premium, high deductible health insurance plans offered in conjunction with health saving accounts, twice as many as six months ago, a study by America's Health Insurance Plans shows.  According to the study, the new insurance policies eligible for health savings accounts (HSAs) now cover 1,031,000 people, up from 438,000 last September, with much of the recent growth coming from employers offering HSAs to their employees. 

These lower-premium plans are an important option, especially for those who might not otherwise be able to afford coverage, Ignagni said, noting that among the companies tracking the information, previously uninsured people purchased 37% of the individual policies. Twenty-seven percent of the policies in the small group market have been sold to employers who did not previously offer coverage to their employees. 

Shattering the myth that these new products only attract young and healthy individuals, the census indicates that nearly half of people covered by HSA-eligible insurance are over the age of 40.  An HSA is an account to which employers and individuals can contribute pre-tax dollars for future medical expenses. The accounts belong to the individuals, and unused contributions can roll over from year to year. "Most of these plans rely on networks of doctors and hospitals to give consumers access to the same kinds of negotiated discounts available to participants in other health insurance plans, stretching the consumers' health care dollar and increasing the value of the HSA-eligible plan," Ignagni said. 

KANSAS HEALTH INSURANCE CONCERNS  By Kenneth Daniel,  August 16, 2005, (Updated September 2006)  Recently, the state had Mercer Consulting, its consultant for small business health care, provide an evaluation of Health Savings Accounts (HSAs). Mercer's evaluation was glowing. Nonetheless, that information was immediately shelved and is apparently not going to be used by the state.  Health Savings Accounts  Before one can have a HSA, one must have a special high-deductible health insurance policy. Without this policy, there can be no HSA. If the policy is dropped, one can no longer add money to the HSA, although any money in the savings account can still be spent for health care.  In general, this special policy cannot pay for anything other than preventative care until the insured meets (pays) the deductible of $1000 to $5000. 

The state has been analyzing a possible low-deductible major medical policy that will cost $300 per month for a single insured. HSA experts estimate that a $5000 deductible HSA policy should cost about $160 per month, 40% less.  Small businesses that can afford the $160 but not the $300 should consider providing employees with the HSA-compatible policy. Instead of Medicaid, state government should consider vouchers, tax credits, or subsidies to help businesses or individuals buy the HSA-compatible health insurance policy.  Without the policy, funds cannot be added to the savings account, period. The policy has to be the top priority. 

If the employee's cost for the basic policy is zero, there is no reason for the employee to opt out unless they have coverage elsewhere.  Even if the cost to the employee is not zero, a low cost will increase the number that take up the insurance.  

Until HSAs were enacted, the 401K was by far the best place for employee savings. The HSA is even better. Americans should first put their money into an HSA up to the maximum they can contribute, then put the rest of their savings into a 401K.   Even if no money ever goes into a health savings account, the policy itself is of great benefit: 

• It enables the employee to obtain provider discounts for their health care and drugs.

• It will save most from being wiped out financially by health events.

• If they have an account with little or no money in it, they can put money into the account when health care is needed, then pay for the care from the account, resulting in the care being tax-free. This works even for very low-income people, because they will save the FICA and Medicare taxes they would have paid on the income.

• The insurer will monitor the employee's health care and its costs.

• For hospitals, it lowers the maximum risk of unpaid care to the amount of the deductible. In other words, for a patient with a $5000 deductible policy, instead of providing $100,000 in unpaid care, the hospital would receive $95,000.

• Kansas government is pretty much off the risk for catastrophic care.

• There are no restrictions against an insured taking money out of an HSA account and spending it for something else, but they can't do that with money paid for the policy. Putting government and employer money into the policy insures that the money goes for its intended purpose.

Other Considerations

As a Mercer consultant said in his presentation to the state, "the key is to get employers into the game". Once they are in, they will work hard to keep offering insurance.  Employers will be extremely hard-pressed to stop offering HSAs once they have had them for a couple of years -- employees will have money built up in them, and will have started looking at them like 401Ks.  

Hospitals will love HSAs because they will limit exposure to high-cost unpaid care.  Small business owners are extremely negative about Medicaid and subsidies. Any successful effort will almost certainly have to be marketed through traditional insurance agents. Those agents can already sell HSA policies, although not all of them are yet competitively-priced.  

HSAs are exploding nationally. They appear to be the best new solution available to small businesses at this time.   

AFL-CIO TO ATTACK HSAsFebruary, 2006 (Updated September 2006)  Nationally and in Kansas, the number of people insured under Health Savings Account arrangements continues to grow exponentially. Kansas leads the nation in removing all barriers to HSAs. 

There are two parts to an HSA arrangement. First, a special type of catastrophic insurance policy is required. Second, the insured opens a special Health Savings Account, completely owned by the person, at a bank, insurance company, mutual fund company, or other financial entity. The account belongs to the insured, and will continue to be theirs even if they change jobs. 

HSAs solve a number of health insurance problems. The insured once again has an incentive to make sure providers are giving good value for the money. The catastrophic policy is true insurance and not an all-encompassing health maintenance plan. HSAs will eventually eliminate a huge part of the red tape in the industry. They provide an excellent solution for individual policy holders, who previously had few good choices. Unlike most other types of policies, there is a fixed annual cap on the amount the insured has to pay. There are numerous other advantages.  From the beginning, the boo-birds have claimed that HSAs were only for the wealthy, that they would not help solve the uninsured problem, and that employers would force their employees to downgrade from better plans or drop company-paid insurance entirely. 

The boo-birds were entirely wrong. A large percentage of those opting for HSAs are people with below-average incomes. A large percentage of them were previously uninsured. Employers are offering HSAs as an option, not forcing them on anyone. And, HSAs have allowed many employers to continue to offer health insurance by slowing the growth in premiums. 

The State of Kansas has at least looked at the possibility of using HSAs as an alternate vehicle for providing insurance to low-income Kansans, perhaps even Medicaid recipients. And, it provides an HSA option to state employees.  In his State of the Union address, President Bush proposed building upon the early success of HSAs by expanding their tax-free benefits to individuals who don't get their insurance through an employer. 

Amazingly, labor unions and some congressional Democrats immediately announced plans to try to kill HSAs. They are comparing them to the proposed partial privatization of Social Security, and paint HSAs as nothing but a giveaway to the banking industry. 

Rep. Charles Rangel, Democrat of New York, contends that HSAs, like private Social Security accounts, have little or no benefit for those with low incomes.  Rangel apparently doesn't consider it important that the accounts are very similar to IRAs, that there are tax benefits for even the lowest-paid of workers, that most employers are putting all or part of the money into the accounts on behalf of the employees, or that having a catastrophic policy is far better than no policy at all.  The AFL-CIO is rolling out its brawn and money in an attempt to kill HSAs. Most union employees have generous health benefits. In the past unions have fought on behalf of the non-union working poor. Apparently the AFL-CIO has decided that trying to kill a Bush proposal is more important than allowing low-income workers to have affordable health insurance. 

Union members get their health benefits tax-free. It is ridiculous to argue that millions of working Americans who make less than union wages should not have their health benefits tax-free, too.  The argument about the banking industry is a red herring. The money that is going into HSAs would have gone into banks and other private investments anyway, not into the federal government as Social Security money does.  Furthermore, as the amounts in these accounts grow, they will be diversified into all types of investments, the same as IRAs have. Banks do not hold most IRA money, and they won't hold most HSA money, either. 

The President of the American Bankers Association recently said "We think HSAs are a good idea, and we've seen that they will help small businesses afford healthcare plans when they otherwise might not be doing it."    

STATISTICS ON HSA PARTICIPANTS, April 2006  Health Savings Accounts (HSAs) are the most common of the “Consumer-Directed Health Plans” (CDHPs) offered by the insurance industry in response to the spiraling costs of health care and health insurance.   

An HSA is an account to which employers and individuals can contribute pre-tax dollars for future medical expenses. The accounts belong to the individuals, and unused contributions can roll over from year to year. HSAs must be used in conjunction with a high-deductible health insurance policy.  A report released in June of 2005 on research done by McKinsey & Company showed that the CDHP participants, compared to the traditionally insured, were 

• 50 percent more likely to ask about the cost of health care treatments
• 33 percent more likely to independently identify treatment alternatives
• 3 times more likely to choose a less expensive treatment
• 25 percent more likely to engage in healthful behaviors
• over 20 percent more likely to say they would participate in company-sponsored wellness programs
• over 30 percent more likely to get an annual check-up because they thought it would save them money in the long run

KANSAS HSA EXPERT, April 2006  Beverly Gossage, regarded by many as the top expert in Kansas on HSAs, was a key participant this month (April 2006) in a White House roundtable discussion on HSAs. Gossage is Co-Director of the Health Division of Olympic Financial Marketing of Overland Park, an independent insurance agency licensed in 35 states. 

President Bush participated in the roundtable. The ten participants in the discussion included leaders in the insurance and banking industries, as well as businesses that have implemented HSAs. Gossage attended at the invitation of the White House. 

In his remarks to the press about the meeting, President Bush said, "America needs a health care system that empowers patients to make rational and smart decisions for themselves and their families, a health care system in which the relationship between the patient and the provider is central, not a health care system where decisions are made by the federal government.  HSAs are good for the uninsured, they're good for small businesses, they're good for larger corporations."