Health savings, Affordable Care Act investment strategies

By Jacqueline Prue

Health plan choices would appear to be less consumer-driven now than they were before the complexities of the Affordable Care Act. Yet some would argue that a free market system in health care hasn”™t been in effect since before the 1940s, when large corporations were first permitted to use pre-tax dollars to fund health insurance for their employees.

One alternative which still offers some freedom of choice for employers and employees is the High Deductible Health Plan paired with Health Savings Accounts or HSA”™s. HSA”™s allow individuals to save money pre-tax and to allow the employers of account holders to make tax-free contributions to their accounts. Provided the funds are used to pay out-of-pocket health care expenses, the money deposited in an HSA is never subject to federal income tax. (Some states have passed legislation to make HSA contributions pre-tax as well).

Contribution limits in 2013 for HSAs are $3,250 for individuals and $6450 for a family with an additional $1,000 “catch-up” contribution permitted after age 55. Deductibles may be no less than $1,250 for individuals and $2,500 for families. Out-of-pocket expenses are capped at $6,250 for individuals and $12,500 for families. Thus an individual over age 55 might contribute $7,450 for him or herself and his family.

James D. Scutzer of JD Moschitto & Associates, a White Plains-based employee benefits consulting firm, believes that all the ACA really did was tweak plan designs so they are at a metal level and that most HSA-compatible plan designs fall into the “silver” or “bronze” category.

In other words, if one is shopping with the intention of opening an HAS one should be looking at silver or bronze plans depending on the carrier. A reason an employer might shop for an HSA-compatible plan is price. The higher the deductible, the greater the out-of-pocket costs therefore premiums will be less.

Another reason is strategy. By giving them money to set aside rather than paying it to a carrier, an employer is empowering employees to use the money wisely whether for eligible qualified expenses or if the person is healthy, letting it build tax free in an account.

Schutzer builds the following example: “Let”™s say you”™re an employer and you”™re budgeting $100,000 for health insurance and you wind up instead of taking a Gold Plan for $100,000, getting a Bronze Plan which is HSA-compatible at $75,000. Now you have $25,000 that you would have spent but you”™re saying that rather than writing a check to the insurance company, you”™re going to offer to your employees a bit higher of a deductible. You”™re then going to give them money to offset the deductible. Maybe to each single employee you”™ll give $1,000 and to each family $2,000. So you”™re helping them, putting money into an HRA or HSA to help them offset the additional cost.”

Demystifying 2014 health plan choices for small employers is easy, Schutzer says.

“Everything is fairly uniform. What we want to decide is the out-of-pocket costs that you want for your employees,” he says. “Typically most employers are going to look at a budget first, how much they can spend on health insurance and then they can get an idea of what kind of plan they can buy. Some of the other things the employer is going to look at is choosing between carriers or network-doctors, hospitals, etc”¦Then again some employers are going to be able to say, ”˜I”™m able to save 20 percent going into a high-deductible plan, therefore I”™ll give my employees a few dollars into their HSA account.”™ Or HRA, but that”™s employer-sponsored money.”

Given the rising cost of health care, on the other hand, the objective of ACA ”“ making health care affordable ”“ may not be so easy.

Jacqueline Prue is the vice president of Clark Dodge & Company, Inc., clarkdogeco.com. She can be reached at (914) 251-9555 or jprue@clarkdodgeco.com.