According to the 2010 Health Market Study conducted by Agent Media in partnership with the National Association of Health Underwriters, a large number of agents are challenged by their prospects’ preference for traditional health insurance. That’s not surprising, given that so-called “traditional” health insurance has been with us in some form or other since the late 1800s, while HSAs were introduced less than a decade ago.
The bias may also be due to the fact that traditional health insurance seems less complicated than HSAs, and people like simplicity. Whether they are participating in employer-provided plans or purchasing their own coverage, they are used to simply paying their premiums and going about their business. If they want to pay less for health care out of pocket, they pay bigger premiums. If they prefer lower premiums, they accept higher deductibles and pay more out of pocket, hoping they’ll stay well enough to keep these costs to a minimum.
Nonetheless, the preference for traditional health insurance may not hold much water once your prospects have all the facts. Individuals or families funding their own health coverage could be good prospects for HSAs, but you can also tap business owners contemplating the plans as an additional option for employees or a replacement for current coverage. When dealing with the workplace, it’s important that you not only explain HSAs to your prospects — the employers — but also to the employees. After all, if employees don’t see the value of participating in the plan, the option will have less value to their employer.
So, what’s all the good news?
HSAs are remarkably flexible and designed to accommodate many situations — and the choices are even broader when you’re looking at employer-provided HSAs. This versatility, however, can make them seem more complicated at the outset. The primary difference between traditional plans and HSAs is that HSAs were specifically designed to give people more control over their health care and other personal expenses. The core advantages of HSAs are their favorable tax benefits, as well as the opportunity to put funds away for both short-term medical costs and long-term financial needs.
The concept boils down to several easy-to-understand “good news” points.
- These plans should feel familiar. Every HSA plan must include an HSA-qualified high-deductible insurance policy through an insurer selected by the individual prospect or an employer, in the case of a worksite sale. The good news is that they still have a choice in terms of their premium and minimum deductible levels. For those with traditional high-premium, low-deductible policies, this will certainly mean cheaper premiums, so they can anticipate having more cash available to them. Those prospects who already have a high-deductible policy will find themselves in familiar territory, which might even include the same choice of doctors or other service providers. Some plans even offer first-dollar coverage, like traditional policies.
- HSAs are very tax-friendly. After paying the lower premiums, the money that’s left can be protected from income taxes by depositing it into an HSA. In 2010, consumers can deposit up to $3,050 for an individual or $6,150 for a family, and if they are 55 or older, they have the option of a catch-up $1,000 deposit, which can also be deducted from their income tax.
- While insurance premiums follow a schedule, prospects should realize that they can make the HSA deposits at their convenience throughout the year. This offers an opportunity to match deposits with cash availability for people who are not salaried employees but who may be self-employed or rely on sales commissions or some other source of variable income.
- There’s also good news for people evaluating an employer-sponsored HSA: The company can deposit money into their HSA, and it immediately and permanently becomes their own money and cannot be taxed. The employer may also opt to pay all or part of their insurance premium.
- If and when the consumer takes money out of the HSA to pay certain medical costs, they still pay no taxes on it.
- All the money they leave in the account may draw interest without income tax. If their health care bills are small, they can even choose to pay the costs out of pocket and leave all the HSA funds in the savings account drawing interest.
While most people will initially leave their deposits in an HSA, these funds can eventually be shifted into other types of investments with a potentially higher return. This might be an attractive long-term use of any money they feel they will not need for what they consider normal annual medical costs.
Certainly before any presentation is complete, you must spend time on many of the other details of setting up and maintaining and HSA. However, if the prospect is enthused about the good news you have shared, they should be excited to learn more.
Reggie Karas is the senior vice president of health savings accounts at Millennium Trust Company. She can be reached at [email protected] or 630-368-5674.