By James Heine
The onset of fall heralds predictable rituals: children returning to school, football returning to TV, and a relatively new one — choosing a health-insurance plan for the coming year and deciding how to pay for it.
Most employers still offer health care insurance as a major benefit. But they’re also searching constantly for ways to control the ever-growing cost of that insurance, according to Merle Freitag and Jim Sanft, two LCMS executives who follow the trends in health care coverage.
Freitag is president of the Lutheran Church Extension Fund, and Sanft is executive vice president and chief operating officer of Concordia Plan Services.
It’s no secret that employers — as well as families and individuals — struggle with the rapidly rising costs of health care, Freitag and Sanft say. For the church, there is the added issue of adequately supporting workers whose compensation packages are often less than those with similar credentials in secular professions. Churches also are committed to good stewardship — making the best use of their resources, they add.
Relatively new to the mix of health-insurance options available today is combining a qualifying high-deductible health plan with a health savings account (HSA) — a tool created by Congress in 2003 that is now beginning to be noticed by employers and employees.
Designed to work with a high-deductible health plan such as the one offered by Concordia Plan Services, an HSA could be described as a “medical IRA” that allows individuals to set aside money for health care.
The first step is to decide whether a high-deductible plan is right for you, Freitag says. If it is, an HSA can answer the question, “What do I do with the money I save?”
Freitag notes that employees are not eligible if they are covered by other health insurance (including Medicare), have a high-deductible plan that does not meet the HSA requirement, or can be claimed as a dependent on another person’s tax return.
Like an IRA, contributions to an HSA are tax exempt and over time grow as a tax-exempt investment. Funds invested in an HSA may be used as needed to pay for qualified out-of-pocket medical expenses not covered by the individual’s high-deductible plan. Annual contributions to an HSA are pro-rated according to an insurance plan’s deductible limits and are presently capped at $2,700 for individuals and $5,450 for families.
Unlike contributions to a flexible spending account — a similar savings program with a “use it or lose it” provision — HSA contributions not used in a given year “roll over” and may be used for medical expenses in future years or withdrawn as tax-deferred income after the owner of the fund reaches age 65, Freitag notes. HSAs also are “portable” — they are owned by the account holder and follow an employee if he or she changes jobs, he said.
Getting consumers involved
The high-deductible health plan (HDHP) falls into a category industry observers term “consumer-driven health plans,” explains Sanft. The goal is to manage health care expenditures by encouraging consumers to take more control in determining how these dollars are spent. When workers are better informed and engaged in their health care decisions, the result is good stewardship of resources and improved health outcomes, he said.
Freitag says the number of individuals who have opted for an HDHP/HSA package has been modest, due in part to their unfamiliarity with such packages. But he believes interest in that health care option will grow in the coming years.
Used properly, HSAs and high-deductible health plans can reduce the rate of health care premium increases while providing an opportunity to build savings assets for medical costs in retirement.
But used improperly and without planning — or unilaterally by an employer to cut expenses — they could leave workers exposed to unanticipated medical expenses.
Sanft encourages employers that are considering an HDHP/HSA option to carefully construct the program and to “seed” employees’ accounts by initially contributing the money saved to the HSA. Employers also should spend significant time helping their workers understand the proper use of this type of program, he said.
Getting the greatest benefit from an HSA requires self-discipline, says Freitag, and any money an individual may save by switching to a high-deductible plan should be invested in his or her HSA. Not following that admonition could leave an individual vulnerable when unplanned medical expenses occur before an individual’s annual deductible limit is met, he says.
Freitag also notes there are penalties for improperly using HSA funds for purposes other than medical expenses.
HDHPs combined with HSAs also offer potential benefits to those who are self-insured or uninsured/ underinsured, says Freitag. He cites a June 2006 report by American’s Health Insurance Plans, an industry organization, which suggests that, according to data gathered by one insurer, 45 percent of individuals establishing HSAs had annual incomes of less than $50,000 and that half of all HSA participants experienced a savings rollover from one year to the next. Other data cited indicates that 31 percent of HSA participants were previously uninsured.
“That’s a striking number,” Freitag says. “It tells you that if we have any significant number of people in the church who are uninsured, this may be a good product for them.”
Like other financial institutions, LCEF has been working hard to add HSAs to the products it provides, Freitag says. Effective Oct. 1, LCEF will offer HSAs to qualified investors. The accounts are compatible with the HDHP offered by Concordia Plan Services and with qualified plans offered by other employers and insurers.
“Any LCMS employee with an HSA-compatible HDHP could work with LCEF,” Freitag says.
He also recognizes that an LCEF HSA won’t be “the only game in town” and that church workers opting for Concordia Plan Services’ HDHP option could establish an HSA elsewhere.
“We know we have to be competitive. We want to be competitive,” Freitag says. “We are in the church. We are of the church, and we want to work for the church.”
Like other LCEF tools, investments in LCEF HSAs will be used for low-cost loans to congregations and other Synod organizations until the account holder needs them, according to Freitag.
“This is our ‘ministry dividend,’ ” he says.
An emotional issue
While an HDHP/HSA plan may be attractive to some, others are not enthralled with the idea of consumer-driven health plans. There are oppone