Employers Hesitate Over Health Care Alternative

By Darla Martin Tucker, The Business Press, San Bernardino, Calif.

Mar. 6–As the nation scrambles to find ways to provide health care to an aging population, insurance brokers are talking up the new tax-free health savings accounts to Hansen Beverage Co. (Nasdaq: HANS) in Corona.

Meanwhile, Brickley Environmental in San Bernardino has opted against the so-called HSA health benefit, said Annor Gowdy, chief financial officer.

“It’s not such a good deal,” Gowdy said. “It costs the employee a lot of money in out-of-pocket expenses.”

Brickley Environmental provides health benefits through a health maintenance organization contract with Kaiser Permanente.

A senior vice president of administration for Stater Bros. Markets in Colton had initially determined the health savings account program lacked value for the company’s management benefit plan, but has decided to study the program in further detail, said Jack Brown, Stater’s chairman and chief executive officer. Most of the grocery chain workers are union employees and covered by trust funds.

Local employers are sometimes reluctant about offering the new health savings account plans, primarily because the plans are complex, require a bank account and copious paperwork, and compete with HMO plans’ low co-payments, say benefits brokers and an account administrator.

“California HMO pricing is extremely competitive. It’s probably the lowest in the country,” said Bob Lancaster, an employee benefits consultant with Hub International of California Insurance Services Inc. in Riverside, formerly Talbot Insurance. If consultants have signed up local companies for the health savings account-based plans, it would be “a very small group,” he said.

The new health savings account plans are based on preferred provider organization, or PPO, models, which carry higher out-of-pocket costs. The plans allow greater freedom of choice, although costs may be higher outside health plans’ contracted network of medical providers.

President Bush approved the program in December 2003 as part of the sweeping Medicare Prescription Drug Improvement and Modernization Act.

The health savings account, or HSA program, links high-deductible health plans with tax-free savings accounts out of which individuals withdraw money to pay for IRS-approved medical expenses up to certain high deductibles. Comprehensive coverage for major medical bills kicks in once the deductibles are met.

The health savings accounts function similarly to an individual retirement account. Contributions roll over year-to-year and “follow” workers from job to job. After age 65, account holders may withdraw savings for non-medical purposes without incurring a penalty.

Account holders may contribute 100 percent of their deductible up to the limit allowed by the Internal Revenue Service. Health savings account contribution limits for 2006 are $2,700 for a single policy and $5,450 for a family policy.

Are people rushing out to buy health savings account plans? “Probably not,” said Gordon Colburn of Colburn Insurance Service and president of the Inland Empire Association of Health Underwriters. People still are accustomed to paying $10 for a visit to a doctor through health maintenance organizations.

Most consumers are insensitive to health care costs, said Steven Larson, a physician and chief executive officer of Riverside Medical Clinic. “They have no idea what the costs are because they’re not paying for it.”

A health care spending forecast by the National Health Statistics Group with the U.S. Centers for Medicare & Medicaid Services shows HSAs and other consumer-directed health plans accounted for just 1 percent of all covered employees in 2005. The savings account plans are expected to “grow rapidly, but from a very small base,” said the Feb. 22 report. So far, at least 3 million consumers nationwide have opted for health coverage through high-deductible, HSA-based plans, according to a Jan. 26 release from America’s Health Insurance Plans in Washington, D.C. That number is less than 2 percent of those in private plans, according to a published report.

In early 2004 insurance companies began rolling out high-deductible plans designed for health savings accounts and banks began offering health savings account debit cards, checks and other withdrawal and reimbursement methods.

CIGNA Healthcare in Bloomfield, Conn., Aetna Inc. in Hartford, Conn., and Blue Cross of California, a subsidiary of WellPoint Inc. in Thousand Oaks, are among insurers offering high-deductible, health savings account-eligible plans to employers.

Bank of America and Wells Fargo & Co., the two largest banks in the Inland Empire in terms of assets, provide health savings accounts. Inside Consumer Directed Care, in a Feb. 24 report, estimated there are 820,000 health savings accounts totaling $967 million in assets and an average account balance of $1,181.

Wells Fargo held 55,000 health savings accounts with a total deposit value of $37 million by Dec. 31, said Drew Wineland, marketing consultant with Wells Fargo Institutional Trust Services in Minneapolis.

Sterling HSA in Oakland manages an estimated 10,000 health savings accounts, 1,700 of which originate in Southern California, said Kevin Woodard, chief financial officer. The company does not release county-specific information, he said.

Between 70 percent and 75 percent of the accounts are for employer plans and 20 percent to 30 percent are individual accounts, he said. Who benefits?

Young professionals may benefit most from the new plans while the uninsured, who need catastrophic coverage to prevent bankruptcy from medical costs, can’t afford the high deductibles, said Larson at Riverside Medical Clinic.

Employers need to help fund the health savings accounts, Larson said.

The plans may be good for employers and employees and serve as tax shelters for the wealthy, said Sterling’s Woodard. “But I don’t think the adoption rate will be nearly as fast as some proponents say,” he said, mainly because of the program’s complexity, inherent paperwork and bank account system.

Most employers don’t understand how they can save money through health savings accounts, Colburn said. Monthly premiums for health savings accounts are lower than for traditional health maintenance organization plans, he said For example, HMO premiums with $10 doctor’s office co-payments and 100 percent hospitalization coverage for a 39-year-old with a family cost $754 a month, he said. A high deductible plan and a $2,000 deductible cost $326 a month with co-insurance kicking in after the deductible is met.

“The temptation employers are going to be confronted with is to look at this as a way to reduce expenses,” said Bob Fredericks of Fredericks Benefits in Redlands. Employers need to offer a variety of plans and not rely solely on funding of the deductible by the employee, he said.

HSA NATION: At least 3 million people are enrolled in health savings account plans.

There are 820,000 health savings accounts totaling $967 million in assets; average account balance is $1,181.

HSA Bank leads with 150,000 accounts and $280 million in assets.

2006 IRS contribution limits:

–Single policy — $2,700

–Family policy — $5,450

Sterling HSA

–average annual account contributions: $2,200;

–average use: $500;

–average age of account holder: 52;

–of account holders, 60 percent are male.

Sources: America’s Health Insurance Plans, Inside Consumer Directed Care, HSA Bank, Sterling HSA.

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