In the current economy, Human Resources Professionals are looking for creative alternatives to layoffs. One area to consider for cost-savings is your health insurance plans. Coupling a money saving High Deductible Health Plan (HDHP) with a tax savings Health Savings Account (HSA) can help employers realize on-going savings in their annual renewal while encouraging employees to save for their future medical costs. At Danone Simpson Insurance Services LLC we helped one of our clients transition all of their employees to an HDHP/HSA and they were able to save over $300,000 in their annual premium.
High Deductible Health Plans/Health Savings Accounts
According to the 2008 Kaiser Family Foundation Employer Health Benefits Survey, there has been “an increase in the percentage of workers enrolled in high deductible health plans.”
HDHP’s are PPO plans with high deductibles. They offer participants the flexibility to use health care providers both in and out of the carrier’s network. Most importantly they usually come with a cheaper price tag than traditional HMO’s, and lower deductible PPO’s. According to the Kaiser Family Foundation Survey, “average premiums for HDHP’s are lower than the overall average for all plan types for both single and family coverage.”
The higher deductible provides an incentive for the health care consumer to shop for the best prices on prescriptions as well as encourage negotiations with their doctors since the first dollars spent come directly from the participant’s pocket. With an HDHP, participants are more likely to go in-network for their health care since the cost is less. Participants pay only the carrier’s negotiated price for services rendered. Shopping around and using in-network providers help to keep costs in check – and the carriers respond with lower renewal rates on average.
These plans not only encourage participants to shop around, but when they are coupled with Health Savings Accounts (HSA’s), they offer the opportunity to save for future health care costs. In short, HSA’s offer participants a triple tax incentive.
When coupled with the employer’s Section 125 Premium Only Plan, employees can contribute to HSA’s on a pre-tax basis. The funds, which always remain with the participant (no “use it or lose it” rules apply), grow in the account tax-free. When used for qualified medical expenses, funds are withdrawn from the account tax free.
Of course, there are some basic rules that apply to that the employer should consider before offering HSA’s to their employees:
- The employee must be enrolled in an HSA compatible HDHP – they can not be enrolled in any other plan at the same time.
- They may not be claimed as a dependent on someone else’s tax return.
- They may not be receiving Medicare.
Health Savings Accounts are intended to work alongside HDHP’s by providing tax savings when using the health plans first dollar deductibles.
Considering the savings on the HDHP and the tax savings employers can realize, these plans can be a viable long term cost savings tool.
For more information, please contact Valerie Antillon, HR Consultant/Account Manager, Montage Insurance – (818) 676-0044.