Workforce retention relies on the ability of the small business to treat their staff well. With the skyrocketing costs of medical care, the company benefit plan can largely influence opportunity decisions of good employees.
Small business owners quickly realize that smaller groups of individuals are more expensive to insure than larger groups. Insurers base their rates on statistics showing that the health cost per person in larger groups is less, thereby making smaller groups riskier to insure.
Health insurance premiums can be lowered by switching the business health insurance to a higher deductible coverage and supplementing with a Health Savings Account.
The Medicare Prescription Drug Improvement and Modernization Act of 2003 brought the HSA into being. An expansion of the 1990’s program of Medical Savings Accounts (MSA), it is also identified as a Consumer-Directed Health Plan.
Bringing Down Medical Costs
Health Savings Accounts work on the theory of making the consumer more accountable in the choices they make for health care. Because of the substantially higher deductable, the free market based premise is that the patient will comparison shop for medication and office visits while forcing the medical field to become more competitive, reducing costs while increasing quality.
With more responsibility on the individual, lifestyle choice will also be changed as prevention is prioritized when standard insurance policy payment dependence is reduced.
How the HSA Works
Once deposited in an account, qualified medical expenses can be paid tax free even if health coverage changes. Medical expenses incurred before the account is set up, however, do not qualify. There is no time limit on using the funds.
- Because the accounts are self owned, a change of employment, medical coverage or even unemployment will keep this account in effect
- Tax free interest from a HSA helps employees cushion against future medical expenses
- The contribution, accounting holding company and decision of which medical expenses to pay are all under the account holder’s control
The employer does not own the employees HSA, nor are they required to contribute to the fund. It is important to remember if the decision to contribute is made, however, that any employer contributions must be ‘comparable’ for each employee.
Section 125 plans are different from HSA’s. Also known as salary reduction or cafeteria plans, Section 125 has non-discrimination rules to eliminate any favor to higher compensated employees.
Employers can set up the HSA, but it is also possible for a qualified individual to do so at banks, credit unions or through insurance companies.
While Health Savings Accounts work well for healthy people, it is not a replacement for conventional health insurance coverage. In fact, to establish this health plan the employee must be covered by a high-deductible health insurance program. In 2008, the guideline is $1,100 for an individual and $2,200 for a family.
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