Health spending accounts: a new way to think about group benefits
Group benefit plans are insurance policies that provide coverage to members of a particular group. Companies often provide such benefits to take care of their employees. Read on to find out how you can leverage group benefits in your business.
These plans also help firms attract and retain talent, and establish a great workplace culture. After all, healthy employees are productive employees.
But although these plans can do so much for employees, some businesses struggle with group benefits policies as they not always cost effective or flexible. Others have felt disappointed and powerless in the face of ever increasing premiums.
The reason premiums increase has to do with the structure of the traditional group benefits package. Normally, the insurer underwriting the policy sets a usage rate, expressed as a percentage, of the amount it expects the group to use.
That rate is usually 65-75% which means businesses lose a chunk of their money on a group benefits plan even if their employees don’t incur any expenses. If they use more than the expected rate, their premiums will increase. Damned if you do, damned if you don’t.
No wonder some of our customers saw group benefit plans as a lose-lose. Some told us their rates keep going up because their employees use their benefits plan. Others say they don’t want a plan because it is unworkable for them to pay more than what they use.
A Health Spending Account, or HSA, is a new form of group benefits that has become increasingly popular. The way an HSA works is that businesses put money into dedicated accounts that can be used for a wide array of medical expenses.
Whatever money they don’t use in a given year is known as a surplus and can be rolled over to the next year. The genius of an HSA is that businesses can use surpluses to increase their coverage in subsequent years or decrease premiums on the exact same amount of coverage.
Because of that, HSAs are much more flexible and cost effective than traditional benefits plans. They also have smaller overhead than previous plans. For example, TSG’s HSA provider charges only 10% of the plan value, as opposed to 25-35% for older plans.
That being said, HSAs can become expensive if a business keeps rolling surpluses forward.
To avoid this, you can put whatever amount of coverage you didn’t use this year toward reducing your premiums next year and this does not reduce your coverage. Therefore, you can use less coverage one year and enjoy lower premiums the following year with no overall reductions in coverage.
And unlike a traditional plan, there is no monthly cost if you’re healthy. You can fund an HSA as needed and “park” it the rest of the time. All you need to pay is the $75 annual operation fee.
HSAs are also scalable. TSG has arranged HSAs for a group of 3 and a team of 25. Our latest HSA client has 150 employees. HSAs work particularly well for larger businesses who tend to spend a lot on employee benefits and it makes sense for them to retain control of their money.
But they can be tricky
Although HSAs have been around for over ten years, there haven’t been many companies in this market up until now. It was only a few years ago that providers started moving into this space. We’ve seen the novelty of HSAs reflected in our customers’ questions. Even though an HSA allows policyholders to move money into the account as needed, customers still ask us about coverage limits.
Indeed, HSAs are pretty complicated tools and given that they remain quite unfamiliar to many businesses, brokers will need to be on their toes in the coming years as their customers transition to the new plans. They’ll have many questions and they’ll need them answered properly.
Brokers will need to assist their customers with designing an HSA. Because HSAs are extremely flexible, they can get too flexible and policyholders may be unsure of what is covered and what the rules are. HSAs can accommodate many different rules and you will need someone who knows the rules to design a plan that meets your needs.
One way to structure an HSA is to designate funding limits for specific areas. For instance, a $1500 annual plan can set aside $500 for dental, $200 for massage therapy, $500 for chiro and so on. This kind of structure works for larger businesses.
Smaller ones, like the three member team we mentioned earlier, can opt for all-encompassing coverage. We can design the plan to allot three thousand dollars to take care of each employee’s family’s needs and they can use this money for anything health related, even something like laser eye surgery that a traditional plan would not go near with a ten foot pole.
HSAs really are a no brainer for anyone who’s self employed or incorporated. We encourage you to contact our team to find out if an HSA is right for you.