Wondering what HSA’s really are and how they can impact your business? Art Brooks, vice president of BeneTrac, shares his expertise in this exclusive American Small Business News interview. Benetrac is a Paychex company and provider of powerful, web-based electronic enrollment and employee benefits administration software online at www.BeneTrac.com.

1. What is an HSA?
Health Savings Accounts or HSAs are accounts that enable individuals to save money, and pay, for health expenses on a tax free basis.  The accounts require that plan owners also have a low-cost high deductible health plan (HDHP).  HDHPs are less expensive than other types of health plans because of the high deductibles, such as $1,000 for individuals or more, that require that individuals pay the first portion of a medical expense before the insurance kicks in.

Some individuals like the idea of having an HSA and HDHP, because they are able to spend less up-front on health insurance and can, potentially, save money tax-free to pay for health expenses.  They can also save any money they do not use on healthcare costs from the HSA for retirement.  In 2009, up to $3,000 can be contributed to an HSA before tax for individuals and $5,950 for families for premiums.  Employers may also contribute on behalf of an eligible individual.

2. Who is eligible for an HSA?
Businesses interested in pursuing HSAs and HDHPs should meet with a broker to assess the feasibility of these plans and eligibility for their employees, themselves and their organizations.  Several factors should be considered.

HSAs can offer many benefits, such as greater affordability, flexibility, and control over traditional plans, including the ability to save for retirement or to use pre-tax money for healthcare expenses, mentioned earlier.  HSAs can also encourage greater awareness about healthcare costs and initial out-of-pocket expenses, which may help reduce reliance on unnecessary services.  The plans may be especially well-liked by healthier, younger employees, who may be less concerned with coverage and going to the doctor on a more regular basis over receiving greater compensation or being able to save money.

HSAs and HDHPs may not be as beneficial to older or less fit employees or those with preexisting medical conditions that may have to pay higher out-of-pocket costs for regular doctor visits, testing and medical procedures.  Employees looking for a high level of service or coverage from their health plans may also be disappointed.  Should employees opt to forgo routine visits, tests and procedures, this may work against wellness programs and other company initiatives aimed at maintaining healthier, more productive employees.  The plans may also not make sense for low wage earners who cannot afford the initial out-of-pocket expense.

Finally, companies may encounter a greater level of responsibility in managing these plans. This can include having to set up a health savings account with a separate financial institution and making regular concerted effort to deposit the money required for premiums, or ensuring that employees do it. Offering an HSA may require additional procedures and paperwork, and, hence, a greater need to work with an expert, such as a broker, or to use benefits management systems to keep track of all of the information.

3. Do HSA’s make it feasible for more small businesses to offer health insurance benefits to their employees?
The cost-effective nature of HDHPs, combined with the potential ability to grow money tax-free for medical expenses or retirement, can be an illusive draw.  In 2008, employer health insurance premiums increased by 5.0 percent – two times the rate of inflation, and the annual premium for an employer health plan covering a family of four averaged nearly $12,700, according to The Henry J. Kaiser Family Foundation (Employee Health Benefits: 2008 Annual Survey. September 2008)

About twenty percent of businesses with fewer than 100 employees do not offer health insurance, according to Employee Benefit Research Institute. And, 77 percent of small business owners that employ fewer than five employees do not offer health insurance to their employees, according to Discover Small Business Watch, a monthly index polling small business owners conducted by Rasmussen Reports. For those companies that do offer insurance, switching to HSA-linked benefit plans can lower costs.

Going with HSAs and HDHPs can also be more cost-effective for some companies that already offer HMOs and PPOs.  However, all factors and costs (hard and soft, such as with employee satisfaction) should be considered and weighed.

4. What should small business owners look for when choosing an HSA and corresponding high deductible health plan?

Businesses can gain a wealth of knowledge about the best plans to go with by looking at the composition and preferences of their existing employee base and audiences that they are trying to attract.  All of these factors can be weighed against costs and other considerations.  Working with a broker, knowledgeable in all types of plans and options, can be extremely helpful in this process.  Additionally, benefits management software can offer companies access to reporting on existing healthcare costs and employee and benefits management demographics to help companies to make the best decisions.

5. How can small business owners help employees who are accustomed to PPO coverage understand the benefits of HSAs?

Education can be an important element in helping employees to understand new benefit plans and options during open enrollment and throughout the year as details change.  This information can be communicated in person as well as through technology with targeted emails and other features of benefits management software that let employees see the complete cost of his or her compensation to the organization.  As healthcare costs only continue to rise, providing the employee with insight into these growing costs can often be an eye-opening experience.  Many individuals, especially those for which the company has traditionally paid the full cost of insurance, may not be familiar with the rising costs to keep him or her and their family insured.  A knowledgeable broker that has worked with companies in similar situations can also provide insight in to the best methods for communicating changes to employees.