The newsletter of the ISBA’s Standing Committee on Women and the Law
Health Savings Accounts: One option for small firms when a group health plan is unaffordable
As this election year comes to a close we have repeatedly heard the ideas and plans of politicians for how to improve the current health care crisis that millions of Americans now face. Today 47 million Americans are currently uninsured. The vast majority of uninsured Americans are employed but have no option for an employer-provided group plan. Left on their own, most individuals cannot afford to provide health care coverage for themselves and their families via individual plans that are subject to the whims of insurance company underwriters. In my own search for affordable options for health insurance, I came across an option that may bridge the benefits gap that exists today for small businesses and law firms alike. Small law firms can stay competitive and continue to subsidize their employees’ benefits without having to take on the astronomical costs of a group plan, by contributing to employee owned Health Savings Accounts (HSA).
I am a relatively young woman, age 30, divorced, with no kids and just finishing my first year as a practicing attorney in a small private firm in Chicago. My firm does not provide an employee group health insurance plan. The cost is just too high, for both the firm and the employees to bear. On my own, I searched for an individual plan that I could afford while also paying rent, matured student loans and the incredible cost of creating a court-appropriate wardrobe. Quickly, it was clear to me that, although I feel pretty healthy, a pre-existing condition nearly prevented my obtaining an individual plan as well. Alas, after weeks of begging all the various insurance companies to take me on, I was approved for a low premium, high deductible plan. Combining my monthly premiums, prescriptions and doctor visits, I have accrued about $7,000 in health care costs so far in 2008 alone. Although, I make a decent salary, this expense has made it very difficult to make ends meet, forcing me to search out better options.
Some say that attorneys constitute the top percentages of Americans in earning potential, education level and potential for career growth. If the cost of healthcare has this detrimental of an effect on me, the devastation this country faces is astronomical. According to The Wall Street Journal, big companies on average spend more than $6,000 per year on health insurance for each employee. Employer health care costs have risen an average of 15 percent each year over five years to an average of about $700 per month per employee, according to surveys by The Kaiser Family Institute and The National Association of Health Underwriters. It is not surprising that 47 percent of America’s small business owners provide no health care coverage at all. Health premiums costs have outpaced both the 2.2 percent growth in wages and 2.3 percent growth in inflation by five times as reported by the Kaiser survey. The average premium for single coverage rose 9.2 percent to $3,383 annually.1
HSAs are a fairly new option. They were created as part of the Medicare Prescription Drug, Improvement and Modernization Act of 2003. HSAs are tax sheltered savings accounts that must be paired with a high-deductible individual health insurance plan. Employer contributions to HSA accounts have the following advantage over group insurance plans:
• HSAs are used in combination with high-deductible plans that offer low premiums that most Americans can afford. Employer contributions to an HSA allow for accumulations of funds to help support the cost of any services prior to meeting the deductible. Contributions can be made by both employers and employees to an HAS, are pre-tax and excluded from an employee’s gross income. The funds are only taxed at the time they are used and only when the funds are used for “unqualified” medical expenses.
• HSAs are owned by the individual employee. They accumulate interest and dividends and can accumulate from year to year without penalty.
• Contributions made by employers are exempt from payroll taxes.
• Employees self-administer HSAs so other than the initial set up, there is little to no administration requirements for the employer
• There is no minimum contribution for HSAs however there is a maximum contribution that changes annually, employers need not match or exceed the employee’s chosen contribution, and it can be done in a lump sum, by paycheck issuance period or any other time increment.
As a woman I know that there will never be a year when I do not see a doctor at least once. Also, I know I will have prescription costs monthly. These facts brought up initial skepticism as to how cost-effective HSAs really would be. Thankfully, most HSAs establish an initial pre-deductible exemption for gynecological preventative care. In other words, our annual visits are covered 100 percent at no effect to our plan or existing savings accumulated in the HSA.
There are many resources available online for small firms and businesses to investigate their options for implementing or transitioning to an HSA contribution program. If you are a small firm owner or partner or a solo practitioner with associates and support staff or if you are the associate or support staff, it may be to your benefit to investigate if an employer contributed HSA is right for you and your firm. See the following Web sites and resources to learn more: