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Posted by Alexandre Timothy, Group Insurance and Group Annuity Plans Advisor, May 26 2016
Savings strategies
The HSA: a bank account for health!

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Health care costs keep rising significantly every year, primarily as a result of the growing number of new and more expensive drugs coming on the market. For example, the most expensive drug in 1996 was Betaseron at $17,000 annually, whereas in 2016, Vimizim costs approximately $675,000 a year. This is placing increasing pressure on group insurance plans as their costs keep going up.

With such recurring increases and ever less generous plans, the vast majority of employees would like their group insurance plan to be more flexible, according to a survey by Sanofi.

The Health Spending Account (HSA) largely meets this need. Let’s see how the HSA can help control costs while providing employees with more flexibility.

What is a Health Spending Account (HSA)?

The HSA is an account through which members can be reimbursed for health expenses not covered under their group insurance plan or expenses over and above the existing coverage. Most employers allocate an amount to the HSA of their employees based on their status.

The HSA for flexibility

With a traditional group insurance plan, employees must adhere to strict guidelines. Depending on the contract, some expenses are eligible whereas others are not; maximums apply or deductibles are charged. Generally, all employees with the same status pay the same premium, although they make a very different use of the coverage provided. Employees often feel they don’t get their money’s worth, especially when their claims are small.

In order to grant greater flexibility, it is possible to provide a basic plan (e.g. life insurance, disability, prescription drugs and travel insurance) supplemented by a HSA that will replace coverage such as dental care, paramedical services or vision care (glasses). For instance, an employer could provide $500 for individual certificates and $1,000 for family certificates. Employees can thus be reimbursed for any health expense that is not paid for by their plan (glasses, paramedical services, dentist, orthodontist, drug coinsurance, deductible, etc.).

A HSA better addresses the needs of employees as they are deciding how they spend it.

The financial edge of the HSA

Besides providing employees with greater flexibility, the HSA has several financial benefits for employers.

  • Enhanced budgeting

The HSA enables employers to better plan their budget, as they determine beforehand the maximum amount that can be claimed by employees. For example, if you have 20 employees that have $500 each in their HSA, your costs cannot exceed $10,000 plus fees and taxes. There will be no surprises upon the renewal of the HSA. It’s the employer who decides to increase or index the amounts allocated from year to year.

  • Pay only for what your employees claim

Contrary to traditional group insurance, there are no premiums for the HSA. You are billed every month based on what your employees used, plus fees and taxes. Therefore, you only pay when your employees make a claim. According to the Sanofi survey, in the long run, only 50% of the value of a HSA is actually used.

  • A better understanding of value

Allocating an amount to a HSA also gives your employees a better understanding of the value of the benefit you are providing. Moreover, the value of the plan as perceived by your employees will be greater than the actual cost, assuming only 50% of it will be used. Thus, a perceived value of $500 will only cost you approximately $250 per employee.

  • A better return on investment

The HSA is financially more optimal than a group insurance plan, as administration fees are normally lower. Moreover, fees and taxes are calculated on claims rather than on premiums.

Conclusion

With the HSA, you get a better return on investment while providing your employees with greater flexibility suited to their differing needs. These are highly desirable benefits in the current economic context.

However, before setting up a HSA, employer and employee needs must be properly assessed. When a group plan is already in place, it is important to adequately analyze cost sharing, rates and coverage.

Are you a good candidate for the implementation of a HSA? Click here to find out:

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Group Insurance and Group Annuity Plans Advisor | With a Bachelor in finance, Alexandre Timothy understands the challenges and realities of his clients, both from a financial point of view as well as a level of human resources and benefits. With his new outlook in a traditional industry, Alexandre offers innovative solutions to ensure the sustainability of social benefits while meeting the needs of participants and employers. During his six years of experience, Alexandre has stood out for his creativity and integrity, becoming a highly valued adviser by many of his customers.
Alexandre Timothy, Group Insurance and Group Annuity Plans Advisor