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While Individuals, Firms Are Moving To HSAs, Healthcare Insurance Buyers Still Face Uncertainties

While healthcare reform seems to be receding based on the latest events in Massachusetts and elsewhere, uncertainty is still the name of the game when it comes to choosing a healthcare policy in 2010.

This trend applies to companies as well as to individuals.  It is particularly true among human-resource executives charged with managing healthcare benefits.

In two recent studies conducted by Information Strategies, Inc., it is clear that 2010 will be a year of greater healthcare-insurance movement by both individuals and companies. The company is this newsletter’s parent.

30% of Firms Surveyed Expect to Change Plans

Compared with ISI’s previous studies - this newsletter’s parent's 2008 and 2009 surveys - more than 30% of companies polled indicated they expected to change their base healthcare insurance this year.

This national sampling of 902 companies seems to trend along with other polls.

The survey included three focus groups, from which some interesting findings were elicited:

• Companies are unsure as to the ultimate direction healthcare-reform legislation will take. Managers want to know what pre-emptive steps they can take before the legislation becomes effective.

• There were indications that benefits were being trimmed because of cost considerations and the fear that they will be frozen by the new legislation.

• The trend for full adoption of health savings account (HSA)-based healthcare benefits continues with a marked increase in requests for information from information sources and agents.

Here's What to Do Next

ISI dug a little deeper into the motivating factors as to why companies were moving to HSAs.  From these and previous research studies, ISI suggests the following for companies and individuals:

• Start earlier this year in contacting agents or insurance providers.  The decision cycle will be longer and more detailed than in the past.

• Obtain a clear understanding of how the new legislation will affect HSAs. To date, they remain relatively unchanged and still offer all the benefits as originally authorized.

• Urge full replacement over multi-plan approach.

• Take note from other users that a lot of data are available to support the overall thesis that most employees don't use up the deductible in the first year and have money in the bank at the end.

• Experts strongly urge employers to put some money in employee accounts.  The suggested minimum is 25% of the deductible or at least $300.

• Identify two or three financial institutions that offer HSA custodial accounts with at least one of them being local.  If possible, line up an officer of that institution to make at least one presentation to management and/or employees.

• Be prepared to participate in employee and management discussions and be thoroughly briefed on the benefits of HSAs. (We provide some talking points in the accompanying sidebar.)

• Try to persuade senior management to adopt HSAs for themselves and their families.

• Above all, be flexible and listen to any objections.

HSAs Hit the Mainstream

Clearly, HSAs have become a mainstream offering, with more than 10.5 million covered lives, a figure that is expected to grow by 35% in the first six months of 2010.

In 2009, it became evident to industry observers that the size of companies doesn't dictate who is purchasing HSAs.  In ISI’s surveys, company size didn't enter into the decision process, with companies as small as two employees and some with 20,000 workers adopted them.

On the individual front, if ISI’s surveys are correct, interest in HSAs is growing.

In ISI's and other surveys, 83% of HSA users would recommend them to friends or family compared with just 56% for users of other healthcare-insurance plans.

While interest and adoption are increasing, so are fears for the plans' long-term viability.

ISI based its conclusions on a sampling of 425 interviews and two of the three focus groups.

ISI believes that the Obama administration will gradually tighten the rules and benefits of HSAs.

HSAs Appear Unaffected by Legislation

One of the most-asked questions ISI’s staff is receiving concerns the long-term viability of HSAs. Nothing in the pending legislation directly affects their continuation.

One issue is how calculations are made for the baseline required healthcare-insurance policies.  The current Senate bill provides for this contingency while the House version is somewhat vaguer.

As one Washington insider said: “They may suffer the death of a thousand cuts, but should nonetheless be in place through 2014, and the monies put in them remain tax-free until retirement.”

That individuals are increasingly seeking HSAs was demonstrated by a recent report that Internet searches for information about them was up 33% in the last quarter of 2009 compared with searches conducted in the fourth quarter of 2008.

Questions Answered

Agents should be prepared to answer some or all of the following questions:

• Do I need a specific HSA designated insurance plan? Yes.

• Do I need the insurance plan before getting my custodial account? Yes.

• Can I obtain an HSA insurance policy if I am on Medicare? No.

• Can I pay my own and/or my spouses COBRA with my HSA monies? No.

• Do I need to pay authorized medical expenses if I have not funded my account? Yes.

• What is the last day I can fund my HSA account? April 14th of the following year.

• What happens to the money I don’t spend? It rolls over tax-free to the following year.

The year 2010 promises to be one of change for the healthcare-insurance industry and the people it serves, and should be viewed as a period of opportunity, not disaster.