Contributed Column

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Bank on It

by Sue Wainer

The Road to Health Savings Accounts

I’ve racked up a lot of miles in the past year crisscrossing Vermont’s roads, paved and unpaved, and meeting with organizations and individuals to share news of the benefits of health savings accounts, also known as HSAs. 

However, the numbers that really matter to me are not the ones on my spiraling odometer, but the incredible legions of Vermonters who have found an alternative way to save money, cover their health care expenses and control their future. With more than 6,000 Vermont health savings accounts opened just at Chittenden in one year, there’s definitely a lot of interest around the state in HSAs. Some financial experts predict that 15 million Americans will have HSA accounts by 2010.

Vermont is home to many small and midsize businesses. After switching to HSAs, some can offer health insurance to their employees for the first time, and others can fully cover health insurance costs.

There are lots of additional reasons to be excited about HSAs:

• HSAs have a triple tax savings benefit — tax-free contributions up to the allowable annual limit, tax-free earnings while funds are on deposit and tax-free withdrawals for qualified medical expenses.

• Anyone — employee, employer, spouse/partner or others — can contribute to an established HSA up to the funding limits.

• HSAs can be used to pay for any “qualified medical expense,” including over-the-counter medications, even if the expense is not covered by a high-deductible health plan (more on that later). 

• Dental care and vision care, in most cases, are considered qualified medical expenses, but employees may wish to refer to the IRS rules first.

• Contributions remain in the employee’s account from year to year until used and are transferable when employees change jobs or leave the work force.

Once signed up, employees own and control their HSA money. The account is like a regular debit or checking account – a debit card and checks are provided to cover medical expenses – and most sponsoring organizations offer payroll deductions, automatic transfers and even online banking.

HSAs are owned in tandem with a high-deductible health plan, or HDHP. An HDHP is a lower-cost health insurance plan that generally doesn’t pay for the first several thousand dollars of health care expenses (the deductible) but will generally provide coverage after that threshold is met. The HSA helps pay for the expenses the HDHP does not cover, such as over-the-counter medications. So: Big-ticket medical expenses are covered by the HDHP, but smaller expenses are paid out-of-pocket instead of being masked by a low co-pay fee and higher cost overall.

Before using the HSA, it’s always a good idea to make sure the item or service is a qualified medical expense. In general, that means the expense has to be primarily for the prevention or alleviation of a physical or mental defect or illness, with “primarily” being the word most subject to interpretation. If unsure, check the IRS website at www.irs.gov for more details.

The potential benefits of HSAs for employees and employers are substantial; however, both need to look closely at the details before signing on. HSAs are not a cure-all for everyone’s health care woes.

HSAs are most attractive to companies (and obviously to employees) when the savings realized from lower overall costs and higher deductibles are passed on to the work force. I’ve found that the majority of organizations in Vermont fund 50 percent to 90 percent of the deductible. Employees realize these employer-sponsored savings while they’re banking funds in their own HSAs that they can also roll over at year-end.

Organizations with relatively young, relatively healthy employees continue to be particularly interested in HSAs. The logic is hard to dispute. Why pay exorbitant costs for health care that won’t be used? If something significant happens, employees are covered, and in the meantime they can manage their other health care expenses. Organizations with large numbers of employees who live out of state should tread carefully, though, because state regulations may dictate that they sponsor a PPO and an HMO.

Insurance premium costs have been skyrocketing, and it comes as no surprise that they will only continue to rise.

To see whether HSAs will help slow down this rising-premium trend, let’s look at two Vermont businesses. A large organization with 400 employees that pays $3 million a year for employee health care plans could bring that annual cost down to $2 million by moving to the HSA model. Another business, with 18 employees — more typical in size for Vermont — pays more than $153,000 in annual premiums. A switch to HSAs would reduce the premium cost by one-third to roughly $106,000. •

Sue Wainer is vice president/community banking division at Chittenden and heads up the bank’s HSA initiative from her offices in Essex Junction and from her car driving around the state.

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