Health savings accounts (HSAs) aren’t exactly new to the marketplace, but the effectiveness and skill with which they are pitched and implemented vary greatly. The American Academy of Actuaries working group’s May 2009 paper on consumer-driven health plans (CDHPs) stated that “the total savings generated could be as much as 12 percent to 20 percent in the first year.” But even with these demonstrated savings, most agents are still uncomfortable presenting and implementing CDHPs.
So where and how do we begin selling HSAs? The key, as always, is selling to a client’s need. To determine this, we need to ask a few questions. First, who pays what? The simple rule is “the more the employer pays in premium, the better a health reimbursement arrangement (HRA) looks.”
You may be thinking, “Wait — I thought we are talking about HSAs?” We are, but if an employer is paying 75 percent of the total premium for both the employee and dependents, they might not want to fund an HSA. In an HSA, the employee is vested from day one, dollar one. An HRA, on the other hand, is a promise to pay, so if the money isn’t spent, it stays with the employer. In today’s tough economic climate, this is often the more attractive option.
Turnover is the next important question. If a company has a lot of employees coming and going (more than 10 percent per year), it probably isn’t a good idea to put money into an HSA since it has a higher probability of walking away with the employee. To recap: Unused dollars stay with the employee, not the employer.
A third qualifier is how rich of a plan your clients want for their employees. Do they have union employees? Do they work in a competitive marketplace where other employers may be likely to lure their prospective employees away with better benefits packages? An HSA is an especially great plan for these types of companies.
You might try two basic themes when prospecting for HSA clients (these are also valid for HRAs): cost savings and providing employees with a better benefit. In selling your services, you can tie these together in a 30-second sound bite. For example, tell prospective clients how you can save the average employer $1,000 to $3,000 per employee per year, and that you can do this the vast majority of the time by providing the employee with a better benefit — which is defined as the new HSA plan with a lower out-of-pocket than their current plan design.
Health savings accounts in action
I had a 40-person company with which we worked. They wanted to save money, but not at the expense of their employee benefits. They had 23 single employees and 17 assorted dependents covered on the plan; in their industry, a competitive health benefit package is a must, and they had low employee turnover. The employer picked up 75 percent of the total premium for employees and dependents. Their current plan had $3,000/$6,000 out-of-pocket for deductibles and co-insurance, plus all office visit and prescription copays on a three-tier system of $20/$40/$60.
Prescription copays can be a large out-of-pocket expense for an employee; on this plan, if an employee was on two $40 prescriptions and two $60 prescriptions, they would face an additional $2,400 of out-of-pocket per year. If an employee had a hospitalization the same year that they took the above medications (for example, a typical bypass surgery) their total out-of-pocket would be more than $5,400, plus office visits.
Our solution was to place them in an HSA/HRA plan. Even though the employer was paying most of the premium, their desire and need for a competitive benefits package pushed the HSA to the front of the design agenda. We chose a $3,000 embedded-deductible CDHP-qualified plan with their current carrier (they did an agent of record to us). Through the summary plan description, we set up the first $2,000 of this deductible as an HSA corridor and the last $1,000 as an HRA corridor. The gross premium reduction was almost $115,000. This allowed us to fund $1,000 per worker into the HSA for single coverage and $2,000 for family coverage. The last $1,000 of the deductible we split 50/50 with the employee through an HRA. The total out-of-pocket on the new hybrid plan was $1,500, compared with the $3,000 out-of-pocket on the previous plan. If you throw in prescriptions as in the example above, the employee out-of-pocket was reduced from $5,500 to $1,500 — a 375 percent reduction.
How did cost savings work out? The premium, funding, and administration costs came in at more than $42,000 under their renewal on the old plan design with the same carrier after the first year (this was split 75/25 employer/employee), but still comes out to more than $1,000 per employee per year in savings. This also doesn’t include the more than $30,000 that wasn’t spent out of the employees’ HSAs.
In the end, the key to marketing HSAs is education, education, and education — first with the employer/management team, and then with the employees at enrollment (with most groups, we offer a dual choice, with the employee paying the full extra premium difference between the CDHP plan and the traditional copay plan). If the employer is averse to change or too paternalistic in their viewing of their employees, then they are a suspect — not a prospect for an HSA.
Ron Dobervich is chief benefit consultant for Sage Benefit Group. He can be reached at [email protected].