cost savings

Use it or Lose it? Not with HSAs

Heath savings accounts (HSAs) and flexible spending accounts (FSAs) both provide tax-free ways to pay for all your medically eligible expenses. But they are often unfairly lumped together in people’s minds when it comes to the perceived drawbacks associated with the accounts.

It’s true that with an FSA, if you can’t use up invested money by the end of the year, you lose it. So, people scramble around, buying eyeglasses they don’t really need and finding any way possible to exhaust their account … or they’re left in the lurch when the account runs dry early. That experience leaves a bad impression on many people, which creates resistance around the idea of putting in place the HSA associated with high-deductible plans.

But HSAs are getting a bad rap.

HSAs are truly flexible, portable and in your name (not the employer’s). You have the control over when you put money in and when you take money out. You have control over the amount of those funds. You don’t have to take an educated guess at how much you’ll spend because the money isn’t vanishing into thin air at midnight on Dec. 31.

Not only is an HSA a retirement account, but whatever you don’t spend, you keep. The amount left over just rolls over into next year and continues to accrue. If you leave your employer, you take that account with you. It’s established and opened in your personal name, so the employer has nothing to do with it and the money doesn’t roll back to the employer. So, with an HSA you’re getting a medical IRA. You can actually make money on it if you’re a savvy investor and take that money wherever you go. It is a legitimate addition to your financial portfolio.

Used wisely, an HSA is an investment tool that will save you money and continue to grow. If you have big expenses later in life (braces for your kids, a big and unexpected medical expense, etc.), you have money saved up to deal with that.

This All Sounds Good … How Do I Get Started?

Starting an HSA is a pretty simple process-especially if you have your health insurance broker walk you through it. HSAs can be opened through essentially any bank or HSA administrator. You have to have a high-deductible, HSA-compatible health plan to open and contribute to one. What’s important to know is that if you later switch health plans, you won’t lose your HSA; you just can’t continue to contribute to it.

You can put in whatever amount of money you want at the outset. In fact, you can either prefund it or wait till you have a medically eligible expense. That means you can put in money ahead of time or pay out of pocket, fund the account after the fact and reimburse yourself out of the HSA account.

What’s Considered a ‘Medically Eligible’ Expense?

The book detailing what IS covered is an inch thick. You’ll only run into trouble with “elective” medical expenses such as cosmetic surgery, so no Botox injections or augmentation. Complementary medicine such as chiropractic care and acupuncture is eligible if you can validate that it’s needed. You also cannot pay medical premiums or insurance premiums with the funds. Otherwise, it covers most things that come up. Ask your broker if you’re not sure about a specific medical expense.

It’s Not Too Good To Be True

People often figure there must be “a catch” with HSAs since FSAs, while still quite valuable, are full of rules an exceptions. The reality is that HSAs are highly flexible, portable, carry over into the next calendar year and can grow over time. Talk to your broker or contact us with any questions you have or to get started.

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How to Trim Ancillary Benefits While Protecting Employee Morale

In tough economic times, sometimes annual reviews reveal a pressing need for benefit cuts. When companies are forced to scale back the benefits employees enjoy, ancillary products are always the first to be affected. It’s in dental or disability or life insurance that employers first look to make reductions. And in just about every case, there’s a deep concern that “taking anything away” from employees will be perceived as a harsh negative that can have widespread ramifications.

Our job as brokers is to help groups figure out where they save money—while still keeping employees satisfied.

Sometimes it’s as simple as doing a review and switching carriers to get a better rate. Sometimes, it’s changing contribution amounts to be able to keep the benefit. The reality is there are a number of things a broker can do to help a company not lose an ancillary benefit entirely even when facing severe budget restrictions.

A lot of it just comes down to strategy.

It comes down to having a good relationship with your broker where you can sit down and truly be honest about the situation. That can be a tough conversation for people to have—to admit it’s a tight time where they need to save money. But those are the conversations you need to be able to have with your broker. That’s because there’s not just one or two options a broker can give you. There are a whole slew of things that can be looked at to improve the situation without eliminating benefits. If the benefit can be saved, it will continue to be an employee retention tool.

A great example is with dental benefits. As a broker, we can run usage model analyses for groups. With the information we obtain, we can find alternatives that don’t disrupt employee benefits while still saving the employer money.

Perhaps a group has a $2,000 annual maximum on its dental plan, but nobody is using more than a thousand dollars. So, we reduce that down and there’s a cost savings. But that reduction has zero negative impact on employees because no one was using that second thousand anyway.

It’s rare to find a scenario without multiple solutions. The unfortunate truth is many brokers just don’t have the incentive to find those answers, while others haven’t adapted to the times and aren’t aware of them. It takes a lot of effort to really talk with a client, do a thorough review and research other carriers. Many brokers would rather keep things status quo rather than look out for a client’s best interests by being more aggressive and forthcoming.

The problem in the small group space is clients are not getting the attention from their broker that they should, in most cases. They’re just a file in the drawer. When renewal comes up, they get their token letter or e-mail, but there’s no outreach. There’s no push for something else—something better or more appropriate—because either the broker hasn’t stayed up with current trends or is only reactive (instead of proactive). Often it’s in the client’s best interest to make changes, but regrettably in the small group space often that client isn’t aware of what the options are.

No employer wants to go back to its employees and say, “We’re cutting benefits.” It’s hard to do. But when it’s essential to make cuts to important programs, your broker should be engaged and helpful in keeping benefits as rich as possible.

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Nothing to Fear Here: ‘High-Deductible’ Plans Reduce Costs, Please Clients

A lot of people worry that if they switch to a high-deductible health plan to save some money, they’ll end up with lousy insurance. It doesn’t have to be that way. Today’s HSA-compatible (high-deductible) plans aren’t the least bit scary; they’re just different … and cash-strapped employers can save up to 60 percent in reduced premium costs.

High-deductible, HSA-compatible health care plans are normal PPO plans. There’s no gatekeeper, and it’s not an HMO where you’re locked into certain doctors or services of the carrier’s choosing. In fact, these plans are actually relatively rich in benefits.

High-deductible health plans are typically thought of as catastrophic prevention plans that won’t help much in the day-to-day. But the current high-deductible health care plans include a wealth of free preventative services that are covered at 100 percent (regardless of your deductible status). You’re also covered at 100 percent after you hit your deductible. Services of such quality are designed to incentivize people to switch. But what’s nice is the model becomes a win-win (for you and the carrier): With more preventative services, carriers are banking on fewer claims and healthier people. Meanwhile, employers get dramatic cost reductions while retaining benefits—and their employees.

Regardless of whether you use your medical insurance a lot or a little, high-deductible health plans can be a great option because your exposure is capped. You know exactly how much your worst-case scenario is going to be on an annual basis.

People pay huge premiums for rich, low-copay plans. But if you’re not going to the doctor, you’re giving the carrier all your money up front for the coziness of having $10 or $20 copays for purely theoretical doctor visits. The truth is that when expenses are broken down, often these low-copay plans end up having a higher out-of-pocket cost to you than the higher-deductible health plans (because of an inefficient usage model).

Your bill might be a little higher up front if you use your high-deductible health plan. But the nice thing is you know where you stand going into every year. You know you have a maximum exposure that is usually lower than a rich copay plan’s potential exposure. And the cost savings are so dramatically different that I would rather save up front than pay through the nose for a low copay that I don’t ever use.

I’m not just saying that. My wife and I switched our family to a high-deductible, HSA-compatible plan. We chose the lowest of these higher-deductible options and we’re still saving $600 a month in premiums. We also know we have a certain maximum exposure and that we’re 100 percent covered after hitting our individual and/or family deductible. I personally love the plan. And in Stephenson Welsh Insurance Services’ most dramatic case, we saved a small business (eight employees) $52,000 initially in premiums. The business then fully funded each employee’s deductible amount (put that money into their individual HSA accounts), so the employees effectively had a zero deductible and 100 percent coverage. After all that, the business still saw a $34,000 savings by switching to a high-deductible plan.

For those totally unfamiliar with HSA plans, it’s a health savings account, which is a portable medical IRA in your name (and tied to your normal health insurance). You can use it to pay for your medically eligible expenses in a manner that’s not subject to federal income taxes. It’s not “use it or lose it.” Funds roll over and accumulate if not spent during the year. In fact, you have a lot of flexibility, including leveraging it to pay for services such as acupuncture, chiropractic, dental and vision.

If any of this is beginning to sound overwhelming (or simply intriguing and worthwhile), we’re here to help. As an insurance broker, we’ll do a free benefits review and free cost analysis to find the right health plan with the right strategy. High deductibles may not be for everybody. And some others want the most-possible savings by going with a high-deductible plan at $4,000 or $5,000 (as opposed to $1,500).

In all honesty, not all brokers are pushing high-deductible plans. That’s because if you lower your premiums, it lowers the broker’s commissions. But it’s the right thing to do by the client. And ultimately if the client is happy, they’ll refer us to others. By having a delighted client, it benefits us in the long run, too.

For more information or a free consultation, please call us at (925) 256-7800 or send us an e-mail.

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