How to provide an HSA: Are they right for your practice?

Year after year, Steven Delaveris, DO, and his colleagues at the Millhon Clinic in Columbus, Ohio, faced double-digit increases on the health insurance premiums they paid for themselves and their employees. They were pinched between paying a soaring expense and offering a key benefit for their employees. It was a painful predicament that provoked a sharp reaction.

"Trying to take care of the staff here in light of the premium pressures we were experiencing as an employer really made us aggressive in terms of exploring the options," said Dr. Delaveris, a family physician.

After a short experiment with flexible spending accounts, the practice began offering health savings accounts -- high-deductible insurance plans paired with tax-advantaged health spending accounts -- to its employees about a year ago. And in January 2006, everyone was moved into that insurance vehicle.

The practice agreed to spend the same amount per employee as it had the year before on health insurance, but the conversion enabled it to afford to pay the full basic premium amount for individual employees and made their election for family coverage more affordable. And it helped the practice shield itself from the premium increases of traditional insurance.

The idea of offering health savings accounts is catching on at lightning pace at businesses nationwide. According to America's Health Insurance Plans, the insurance industry trade group, at least 3 million people now receive health coverage through high-deductible insurance plans that are offered, or could be offered, in conjunction with health savings accounts. That's nearly three times the enrollment a year ago.

HSAs are becoming more appealing to small businesses, and medical practices are helping advance this trend. "Health insurance costs have gotten so crazy they're looking for anything that can save them money," said Jason Beyrouty, president of Benefit Advisors LLC, a company in Salem, Ore., that consults on benefits packages for employees.

Still, these insurance vehicles are not right for every practice.

Experts say the size of a practice and its employee demographics could affect whether HSAs are an advantageous strategy. And practices that do decide to use HSAs will need to shop around to ensure that they find the right plan.

"Before you start one of these things, ask your employees if it's of interest. Maybe they've already got it taken care of. That way, you'll be able to come up with something that's going to fit their needs and your needs," said Nan Andrews Amish, a management consultant in El Grenada, Calif.

She said physicians also might want to consider if offering HSAs would help attract and retain employees -- or keep them away.

Martha Bethea, an accountant with CBIZ Accounting Tax & Advisory Services in Akron, Ohio, said it might be necessary to do a little research before springing the idea on employees so they know exactly what the change in benefits will be. "What's important is how you structure the benefit so your employees don't perceive, 'You've taken something away from me,' " she said.

Important to understand

It can be confusing. On their face, the high-deductible plans might seem like a disadvantage to employees because of the deductibles, which must be at least $1,050 per person or $2,100 per family.

But paired with them is the actual health savings account, which allows people to sock away up to the lesser amount of either their deductible or $2,700 for individuals and $5,450 for families. Then that money grows tax-deferred, can be invested and can be rolled over year to year if desired.

Helping employees understand the option was important to Dr. Delaveris and his colleagues. So the practice brought in speakers from the insurance and banking industries to explain how HSAs work.

The practice has eight physicians and about 50 employees, with a wide range of beneficiaries in terms of age, health and earnings.

Dr. Delaveris said it was those employee demographics that had been contributing to premium increases for years.

But some observers say HSAs are best suited to businesses composed of the young and healthy. That's because the young have time to take full advantage of the tax-deferred accounts, and the healthy can save more money because they won't have to spend as much on medical costs. Some argue that the higher the income, the more attractive an HSA, because a lower-income employee might not be able spare the cash to fund it to its maximum.

So in medical practices, as with any business, there is a risk that the HSAs will be attractive to some people but not everyone.

"A manager of a medical office needs to have a sense of whether the staff -- who are going to be saddled with the high deductible -- are going to be able to pay and have the discipline to put the money into an HSA," said Richard Spohn, a San Francisco-based health law attorney with Nossaman, Guthner, Knox & Elliott LLP.

David H. Schwartz, president of First Capital Equities, an investment advisory and financial planning firm in Great Neck, N.Y., said physicians even might want to consider a transition period in which they start out paying the premiums and funding the accounts and then gradually reduce what they add to the accounts.

Larger practices might be able to offer HSAs as one option in a suite of health plans. "A doctor's office that has maybe 12 employees, they're not going to do that," Amish said.

In general, she said, the more enrollees there are in a plan, the lower the price per person will be. So in this sense, it could be more cost effective for slightly larger practices. But other factors such as employee demographics also can affect premiums.

Besides, the smallest practices that previously were unable to offer any health benefits because of the costs might find HSAs to be a more affordable option. "This is at least something that's better than nothing," Schwartz said.

In general, premiums for the high-deductible plans used with HSAs should be about one-third less than premiums on traditional insurance plans, Amish and Bethea said.

Not a simple choice

But Beyrouty said the choice can be much more complex than simple premium savings.

He consulted for a medical practice with 98 employees that had been spending $44,000 a month in premiums for a PPO. The group found an HSA option with a premium that cost about half that much, translating into nearly $264,000 in savings per year.

The group decided to calculate what it would cost to contribute a reasonable sum into each employee's account to make up for the difference in the deductibles. It found that such contributions would have pretty much nullified the premium savings. The practice ultimately decided it was not worthwhile, because "you can't go from a $500 deductible to a $2,500 deductible without giving your employees something back," Beyrouty said.

Insurance brokers or agents might be able to break out the numbers and do cost modeling with different types of health plans. Bethea said many medical practices already have an insurance broker and can use that person as "the first stop" when shopping around for HSAs.

Most major insurers now are offering high-deductible plans that can be used for HSAs, and plenty of smaller insurers are in the game as well. Most have established relationships with banks to handle the savings account portion, though the practice doesn't have to choose the bank the insurer might choose.

Some institutions will offer different investment options from mutual funds to CDs, and some may have small annual fees. Beyrouty said physicians might want to find out if they can pick their own investments or if they are limited to what the institution chooses.

Schwartz said it could be in the employer's best interest to ask that all of the employees' accounts be held at the same institution. That could cut down on paperwork if they are making contributions or diverting part of the payroll into the accounts.

Employees can take the funds in those accounts when they retire. After retirement, the money can be withdrawn tax-free for long-term care, prescription drugs, as a supplement to Medicare or for other qualified medical expenses. For this reason, some physicians may seek HSAs to supplement their retirement savings. But because they are so new, it is unclear if HSAs will deliver on all of their promise in the future.

For Diagnostic Imaging Associates, a radiology practice with five physicians and about 45 employees in Salem, Ore., the uncertainty surrounding HSAs was part of what made them unattractive. The practice considered switching to HSAs when it undertook a review of its health benefits but ultimately decided against it.

"It was apparent very early on that it was confusing to the employees. Here we were a medical group with people used to dealing with health plans, and they were having trouble grasping how this whole thing would work," said Roger Hoy, the practice administrator.

The practice also determined that some employees with prescription drug needs would end up spending more out of pocket than they would have under the former plan.

In the end, the practice went with an HMO.

"I think the concept is a good one," Hoy said. "But it takes more looking into."