Hub Magazine Thought Leader – Dan Perrin, HSA CoalitionSeptember 30, 2004
Although Congress authorized Health Savings Accounts (HSA) less than a year ago, Dan Perrin has been advocating for them from behind the scenes for more than a decade. He is executive director of the HSA Coalition, a Washington, D.C.-based alliance of non-profit organizations that has long supported the creation of the HSA and its predecessor, the Medical Savings Account (MSA). Though the coalition received little attention at its inception, when it was called the Business Coalition for Affordable Health Care, or when it was later renamed the Archer MSA Coalition, in recent months the group has become a preeminent source on these new accounts. Perrin – who since March also has published the HSA Insider Web site and newsletter – has been quoted in numerous national business publications and has appeared on a number of panels to discuss the details of HSAs. hub recently spoke with him about what employers need to know when evaluating and implementing an HSA for their businesses.
Q: Early indicators show that nearly one- third of individuals purchasing an HSA were previously uninsured. What features of HSAs make them so attractive to that population?
A: We saw this in the MSA pilot program, and the central reason for that high number is the cost of insurance. The affordability of HSAs, by moving to a higher deductible, makes a lot of sense to people who don’t have $700 or $800 or $900 a month for a family plan, or $300 or $400 a month for an individual plan. They are making two simple calculations. One is that an HSA is a stop-loss against bankruptcy. They can afford a deductible of $3,000; what they can’t afford is a month in the hospital or two weeks in the intensive care unit. The second calculation is that to the extent they have health care expenses each year, they’d rather meet those expenses with tax-free money than after-tax money.Q: In testimony before a congressional subcommittee in March, you described HSAs as “consumer friendly,” in large part because of their affordability. Are they also employer friendly?
A: The reason HSAs are employer friendly is because they will reduce your health care costs in the short term and in the long term, generally speaking. We have seen with the MSA pilot project, companies and organizations such as the Cato Institute, where their health care costs in 2003 were less per person than in 1996.
In 1997, they switched to an MSA.
The reason for this cost containment in an era of rising health care costs is really quite simple: It’s how people spend their own money versus how they spend their employer’s money. If I go on an expense account meal, I’m going to order differently than if I’m paying for it. Employers should consider that if their employees are allowed to make their own health care decisions with their own money and access their own funds, the company will likely save money in the long run.
Q: What benefits other than cost might an employer realize by offering an HSA?
A: For employers, HSAs are really a way for them to step back out of the health insurance business and allow their employees to design a benefits plan that suits their own individual needs without employers having to offer a variety of different options. For employers tired of arguing with employees about which benefits are covered and to what extent, they can simply say: “Here’s the cash. You decide how much is covered.” There is also a reduction in their involvement in the day-to-day operations. For example, with a Flexible Spending Account (FSA), the employee takes the receipt and gives it to the employer to get reimbursed. That function of the employer is removed with an HSA because the employee has access to those funds directly.
Q: Several studies have predicted a quick adoption rate of HSAs among employers. Do you expect that to hold true?
A: Put on your sunglasses because the future’s bright. If you just look at the unbelievable cost pressure that employers are experiencing, that is driving this adoption. The reason it’s happening so quickly right now is because we’ve already been through the early adoption phase of this innovation, during the MSA pilot project. If you study any innovation adopted by the marketplace – say DVDs – you’ll see that when name brand companies are buying and selling the innovation, you’re in a period called the early majority phase of adoption, which is three stages into the innovation function. There’s a big gap between early adopters and early majority, and into this gap a lot of products fall, and they never come out.
This cadre of people who were in the MSA market, they already did all the things they needed to do – figured out their IT systems, trained people, figured out what regulations they have to deal with, designed their marketing plans, insurance plans, account plans. And so, when HSAs were passed and became effective Jan. 1, 2004 they were not in the start-up mode; they were in the ramp-up mode.
Q: What should employers consider when deciding whether an HSA is right for them?
A: We have seen blue-collar workers with an HSA, lumber yard employees, people who work at printing presses – everyone. There’s a low-wage workforce interest in HSAs that has been surprising to some, so employers who enter into thinking about HSAs with preconceived notions about whom it will appeal to generally are not correct. The people we have seen moving into this space are the people who don’t have a lot of money to spend on health insurance – and given the fact that health care costs have doubled in the past five years, that’s pretty much everybody.
Q: For a company that has decided to offer an HSA, what criteria are critical
to evaluate when determining who administers its health plan?
A: I think that the people who were in the business during the MSA pilot have a clear advantage, and employers will find themselves with a lot fewer issues if they go with somebody who has “been there, done that.” The second thing I’d look at is whether you’re seeing a substantial reduction in premiums. There are some insurers who are new to the HSA market who have priced their HSAs $20 less per month than their traditional plan. That’s not going to fly. When you see a price like that, an employer should immediately understand these people have no idea what they’re doing.
Q: How can an employer who has selected an HSA encourage a high adoption rate?
A: For employers who have an FSA in place, it’s very easy to explain the transition to an HSA to employees by simply saying, “There is no more use it or lose it; you keep the money if you don’t spend it, and here’s a debit card so you don’t have to come to us to get reimbursed.” Those things make employees very happy, and they’ve already been through the FSA experience so they understand how it works.
For employers who have a low-deductible plan, the thing not to do is to say to your employees, “Here’s a $3,000 deductible, and we’re not putting any money in your account.” The way to explain it is to say, “Here’s a debit card or a bank account and you own it – it’s your money – and we’re going to put in $1,500 or $2,000 cash, and if you don’t spend it, it’s yours.” Then tell them they’ve got a $3,000 deductible, but that most people won’t spend that much money during their first year so they’re probably going to have money left over. You explain the money first and the insurance second. If you explain the insurance first, you will likely have a problem.
Q: In your experience, are there different features of HSAs that appeal to employers of different sizes?
A: Small businesses are used to people wearing a bunch of different hats and have a lot more comfort with employees taking on the additional responsibility of spending the money out of their own accounts. For some reason, some large employers seem to have a psychological block against that, and that’s something that needs to be helped. The same employer gives their employees a weekly or biweekly paycheck and doesn’t tell them how to spend it. I’d tell those employers: “It’s okay to relax and give your employees the money. You will save money; they will be happier.”