Want to save money on your employees’ health care? Want to set aside tax-free dollars for whatever grim illnesses await you personally in your twilight years?
A scheme that will allow you to do all that is about to join medical insurance offerings on Guam.
Guam’s first health savings account insurance program will launch on Oct. 1.
Calvo’s Insurance Underwriters will provide the service through its SelectCare division.
The concept of health savings accounts was initiated after President George W. Bush signed the Medicare Prescription Drug Improvement and Modernization Act of 2003 into law Dec. 8 2003.
HSAs can mean less cost to the employer and allow employees to control where they want to spend dollars. Under a health savings account an employee can choose to spend money on health care not covered in a health plan as long as it is considered a qualified medical expense.
HSAs have grown in popularity since their introduction in the U.S. mainland in May 2004.
An HSA is a savings product that enables people to pay for current health expenses. It allows consumers to save for future qualified medical and retiree health expenses — tax-free. It also allows an “above-the-line” tax deduction. An “above-the-line” deduction reduces taxable income by the amount put into an HSA. Anyone can contribute to your HAS but you receive the tax deduction benefit.
Under HSA federal guidelines in order to take advantage of an HSA you must be covered by a high deductible health plan. An HDHP should cost less than traditional health-care coverage costs. The HSA is yours and you control the money in it.
Frank J. Campillo plan administrator for SelectCare said Calvo’s would take care of the HDHP portion of the program while a partnership with Administrative Services Corp. will handle the savings portion.
Campillo said Bush wanted to accomplish three things through the act. “No. 1 to improve the savings rates of Americans because Americans are not saving a lot of money; No. 2 to try to get more people to participate in health-insurance programs; and No. 3 try to get consumers to direct their health-insurance expenditures and make them aware of the cost of health insurance.” He said Americans in the 1960s and 1970s participated in health-insurance programs that were primarily indemnity plans or plans where consumers first paid for health or medical services and sought reimbursement from companies. “Americans are unaware of the costs behind health care.”
Campillo said HSAs were not the first federally backed initiative to encourage set-asides for health care.
“Years ago in 1994 the Clinton administration came out with MSAs — medical savings accounts [also known as cafeteria plans]. However they were not popular because the money that you accumulated under that MSA — if you did not use it you would lose it.”
While there is a cap on how much consumers can contribute in a year — no higher than the deductible — Campillo said “you can roll over your contributions to the following year.”
Campillo said HSAs offered a tax-avoidance advantage. “On a regular deductible plan if you have a deductible of $1 000 typically the family will have a deductible of three times that amount.” He added “Once you’ve met your deductible then your plan starts to pay but with an HDHP you not only have to meet your deductible but if you have a family unit you need to meet the whole family deductible in order for HDHP to start paying benefits. You are accumulating money in a health-savings account and that money is pre-tax. You put money in there to help pay for your medical services for you and your family.”
However federal HSA rules state that if you are self-employed you cannot contribute to an HSA on a pre-tax basis and you cannot take the amount of the HSA contribution as a deduction for SECA(Self Employment Contributions Act tax) but you can contribute to an HSA with after-tax dollars and take an “above-the-line” deduction.
Campillo said employers and business owners looking to save money might be interested in a high-deductible health plan. “A high-deductible health plan should produce significantly less premiums. For the employer the cost of health insurance for their employees should be reduced.”
As an added employment benefit employers can choose to contribute to an employee’s HSA. Campillo said a great number of U.S. health-insurance companies are now offering consumer-directed health plans and it is now available as an option for federal government employees.
Campillo said he does not anticipate the product will receive wide popularity but that it will serve a niche market. “We believe that the niche market has sufficient economies of scale to get involved.”
While Calvo’s Insurance is the first to offer a consumer-directed health plan Campillo does not necessarily view the event as an advantage. “We were the first company to offer an interactive Web site for employers and employees to see how their claims are being paid and the changes that were being made.
“We are trying to change the landscape of health care on the island and stay on the cutting edge. It may not give us an edge but it makes us different.”
Gus T. Sablan marketing manager of PacifiCare — soon to be TakeCare Insurance Co. (See “PacifiCare acquisition involves guintet of local ownership” in the Aug. 22 issue of the Journal) said the company also plans to launch an HSA product soon. “As part of the transition to TakeCare we are offering the HSA option and it allows people more control and responsibility in their health-care decisions. The funds are already there in their account and it’s theirs to keep. It’s a way for them to make choices about how they want to spend their health care-dollar. We also want to emphasize that it is a tax-free way for employees to save money for future health care needs.”
“Employer groups will have tax savings in insurance premium contributions which are not considered taxable income and it will help lower the employer’s overall FICA taxes ” he said.
Moylan’s NetCare Health Insurance plans to offer HSA products to consumers as well beginning Jan. 2006. MBJ