Over the next 12 to 24 months, small business owners will hear a lot about Health Savings Accounts (HSAs) as “the solution” to lowering health insurance costs. HSAs will even be a compelling, extra option for large companies to consider. Besides short-term tactical insurance cost relief, some companies will figure out how to use HSAs as a tool for recruiting and keeping better employees to achieve better service and continuous improvement capability.
WHAT ARE HSAs?For the full answer and lots more, go to www.hsafinder.com and/or buy “The Small Business Guide to HSAs” by JoAnn Mills Laing (Brick Tower Press, September, 2004). The short answer for now is that HSAs can only be set up when an employee has a qualifying high-deductible, low monthly premium health insurance policy. HSAs are then similar to IRAs in that both employees and companies can put pretax contributions into them on a regular basis to be invested tax free. The employees own the account and take it wherever they might work. A big difference is that individuals can withdraw money from HSAs with both debit cards and checks to pay for a wider range of medical expenses than most insurance policies cover.
WHY HAVE THEY BECOME A BIG DEAL NOW?From a legal and tax point of view, HSAs are still rapidly evolving. A U.S. Congressional law made HSAs possible in December 2003. Then, the IRS published tax guidelines for HSAs in mid-2004. Most states must comply with federal legal and tax guidelines by the end of 2005. And finally, the Bush administration is currently pushing for additional tax credit benefits for both companies and employees who make contributions to HSAs.
WHO'S USING THEM SO FAR?About one million individuals were covered by HSAs in 2004. These people were mostly self-employed or with small firms that did not previously offer health insurance coverage. A consensus forecast from the private sector predicts about 20 million people will be covered by HSAs by 2010, while the latest proposed federal budget is forecasting only 6.3 million for perhaps three reasons:
- To understate the budget deficits, because HSAs reduce tax revenues.
- To not wave a red flag in front of the medical establishment that correctly sees HSAs as being subversive to total insurance pool economics. Smart, healthy people and companies will use HSAs in order to stop cross-subsidizing the heavy users of traditional health insurance.
- To continue to legislate even richer terms for HSAs in order to cause the current, dysfunctional health system to collapse so some form of non-government reform can emerge based on consumer choices that will inject free market economics into both well-care and sick-care.
INITIAL QUESTIONS TO ASK:If 20 million people are covered by HSAs in 2010, what percent of service companies that believe in “high-performance service economics” (best total pay gets/keeps best people who execute best total service value which delivers best growth and profits) will be using HSAs?
If a distribution company needs industrial athletes for drivers and warehouse people, couldn't they recruit and retain better employees with a good wage plus a $1,000 to $3,000 per year tax-free contribution into these employees' HSAs and still save on total health insurance costs?
Wouldn't firms that figured out how to use HSAs as a strategic recruiting and retention tool for healthy people (and perhaps a negative recruiting and retention one for heavy health service users) be able to poach best employees from firms that were offering traditional coverage? Wouldn't this be a first-mover, strategic advantage for a company that believed in high-performance distribution economics?
Although high-deductible policies will give all employees big new incentives to improve wellness habits and then shop aggressively for health care when needed, will the bottom 80% of the payroll do anything different? Many have not, to date, shown much interest in or aptitude for improving their personal health or been disciplined savers in their IRAs or 401K plans.
What role could and should companies play in further educating, stimulating and supporting wellness and long-term saving? What are the simplest, most effective wellness programs and methods that a small company can effectively pursue?
If a company wants to react faster than competitors to opportunities and change through innovation, where does the energy to act come from? Do too many employees act like it is all they can do to get through their daily chores? If many employees improved their health, energy levels and self-esteem, wouldn't that add up to more energy for change for the company?
WHAT STEPS SHOULD EVERY FIRM DO?Every (small) business should:
- Research HSAs and stay on top of the ongoing tax legislation and case studies that will start to emerge.
- Do the math for what the firm is currently spending on health insurance and what it might spend on different scenarios involving HSAs. If the results are compelling, then….
- Engage discussion groups of employees about the pros, cons, and how to's of moving from the traditional health insurance plan to one centered on HSAs. Pre-identify the different subgroups of employees who will: love it, not be sure and have big doubts. Make sure that each group is represented. Each will need to understand different sets of benefits.
Every firm has employees with unhealthy habits that are costing both the company and the healthy employees serious money at today's insurance rate premiums. The unhealthy need help and pressure from a health culture to literally shape up. There are a number of simple, low-cost ideas that companies can use for wellness programs, but local leadership is critical for long-term success.