If you are a small business with a relatively young work force, the use of a High Deductible Health Plan (HDHP) and accompanying Health Savings Account (HSA) can be a good way to offer your employees health insurance coverage at a much lower cost.
Signed into law by President Bush in 2003, and not without criticism, the HDHP and HSA work in tandem to provide a good health insurance option to young, healthy, employees. Older employees and those with chronic care needs will not benefit from these plans.
There are two components:
- The High Deductible Health Plan:
This is a health insurance plan that will pay for basic preventative care, but all other care is paid for by the policy holder until a very high deductible is reached. For 2007, the minimum deductible is $1,100 for individuals and $2,000 for families. This means, the policy holder will need to pay the first $1,100 of medical expenses in any calendar year under a minimum deductible plan.
- The Health Savings Account:
Obviously, the prospect of such a high out-of-pocket expense is not appealing. But, the HDHP participant is entitled to hold a Health Savings Account. This is a tax benefitted account that accumulates as deposits are made. The policy holder is allowed to withdraw the money from the HSA to pay for the HDHP deductible and allowable medical expenses. Better yet, most plans now allow a premium pass through so a portion of the monthly premium payment goes into the HSA directly. For 2007, the maximum limit on yearly deposits has been expanded to $2,850 individual and $5,650 family.
Because of the high deductibles, the HDHP typically has substantially lower premiums than traditional plans, PPOs or HMOs. While there is no way to provide direct comparisons because group size, health, age and other factors differ, it can be stated conservatively that HDHP plans have premiums 50 - 60% lower than traditional plans.
The HSA can be invested, much like a 401(K) or IRA, and becomes the property of the employee. The employee directs payment from the account on their own. Medical treatment expenses can be withdrawn and paid for without being taxed on the withdrawal. Non-medical withdrawals are subject to taxation and a 10% penalty (the 10% penalty disappears after 65).
As an employer, the benefit to contributing to such a plan is not only that it provides health care at a substantially lower rate, but that it also appears as if a direct cash deposit is being made into an employee account every month and this can provide morale benefits. Finally, since the employees learn the direct cost of health care by making payments from their HSA, it is presumed that employees will become better health care consumers and take better care of themselves.
