While not wildly popular, medical savings accounts (MSAs) are making inroads in southeastern Wisconsin as a health insurance vehicle for the self-employed and small companies.
An MSA entails the insured holding a high-deductible insurance policy. The insured then deposits a percentage of the deductible into a 100% tax-deferred personal medical savings account. Money in the account can be used to pay for medical expenses, or may be used as an additional vehicle for retirement.
“We’ve written a few. More people are interested, though,” said Craig Johnson of Compass Benefits Specialists, Inc. in Waukesha. “We believe that with the trends of premium increases, especially with group business, that there will be a lot more MSA business written. The deductibles are higher than what you would normally have. I have one personally. I took a $3,200 deductible for my family – but you can also opt for a $4,800 deductible for a family. MSAs are an attractive option for anyone. Rates are based on age. The older you are, the higher your health insurance costs will be. But there was a significant savings between my MSA and what I paid for traditional health insurance, even through my own agency.”
MSA deductibles that Johnson’s firm offers allow for deductibles of $1,600 or $2,400 for a single – or $3,200 or $4,800 for a family.
Increases in allowable deductibles are affected by the consumer price index, according to Johnson. “The deductibles are from time to time indexed upward. Last year they were $1,550 and $3,100, and basically it went up $50 for a single and $100 for a family.”
Industry analysts feel that because of the corporate benefits environment in Wisconsin, MSAs with their higher deductibles will make slower gains here than some other areas.
“In chatting with some of the companies that we deal with, I think it would probably have to be a company that’s somewhat progressive in their thinking,” Johnson said. “Traditionally, if you’re looking at health insurance, you have a $250 or $500 deductible with a PPO plan. You meet that first. Then there’s some cost sharing involved with the insurance company. Of the next $5,000 – you might be responsible for 10 to 20 percent of that. You might have total out-of-pocket costs of $1,000 to $1,500. With an MSA, your deductible is $1,600 minimum. But your health insurance premiums are significantly lower. That allows you to fund your MSA account.”
Any number of expenses may count against an MSA’s deductible, including prescription medicine, eyeglasses and eye exams, guide dogs for the blind or disabled, and dental expenses. Self-employed individuals who would typically have a hard time finding dental insurance may find MSAs very attractive for that reason alone.
Small groups
to come around?
Despite the fact that MSA advantages accrue to groups of insured employees as well as self-employed individuals, Johnson has been more successful with the self-employed. But due to inflationary pressures, benefits managers at small companies may soon come around.
Christine Krsko, a Franklin chiropractor, purchased an MSA policy through Johnson for herself, but has her children and a staff member covered by a preferred provider organization policy.
“I wasn’t using my insurance,” Krsko said. “My insurance was being raised to almost $3,000 a quarter for me and my children. This was a way to reduce the cost of having major medical coverage.”
One of Krsko’s staff of two had insurance through a spouse, and due to concerns about out-of-pocket costs, Krsko didn’t think the MSA would be right for the remaining employee.
“I’m gambling on the idea that I will be healthy and not need that money right away. I feel comfortable on taking a risk,” she said. “The beauty of this arrangement is that we have reduced the cost of our family’s medical coverage, and we are still covered in the event of a major medical event.
“Policies I’ve done have been primarily for self-employed individuals,” Johnson said. “A gentleman in our agency and I are actively pursuing and promoting group MSA accounts. Business owners, now that premium increases have crept back into the 15+% range, may start thinking more about MSAs. After all, if you ask business owners if they are able to raise their rates 12% to 15% a year, they’d say no. In a medium-sized company, an MSA could cost 20% to 30% less than a traditional plan. You have to have a different mindset here if you’re going to an MSA from a traditional plan – there has to be a leap of faith there because the deductible is entirely on your shoulders.”
MSAs make
you think twice
MSAs, Johnson said, can also help employees better understand and weigh the costs of various medical treatments.
“I think in a lot of plans, for example, point of service plans – especially if they know there is no deductible and no coinsurance levels – there is some abuse because employees can go in for whatever ails them. With an MSA, you may think twice before you go in for a routine illness. It’s your money,” he said. “There is an added layer of responsibility to the individual. With an MSA, you are allowed to let that money build up over time.”
Very small companies may find MSAs particularly desirable because of difficulties securing different types of coverage from more traditional plans.
“Some insurance companies won’t write dental insurance on a standalone basis for companies with less than 10 employees,” Johnson said. “One benefit would be that an employee could use their MSA account to pay for dental insurance if they were unable to attain it because of their size. The same thing would go for eyewear or eye exams. A small employer could be of such a size that there wasn’t a vision program available to them – but employees could use their MSA to pay for eye exam or eyewear. It just kind of expands their horizons as far as paying for health care expenses.”
In many group insurance scenarios, Johnson feels that employees would pay little more out-of-pocket for their MSA than a traditional low-deductible policy.
“Let’s say you have a $250 deductible and a co-insurance is 90-10 of the next $2,500. That’s $500 out of pocket. To take someone to a $1,600 deductible – they have to see the wisdom of what you’re doing – or you have to be a creative salesman. It is a lot easier to sell an MSA to a company with higher total out-of-pocket costs. You have to have some faith that the savings in the insurance premiums as well as the ability to put money into a medical savings account will be more beneficial in the long run,” Johnson said. “I had heard at one point in time that if you have a $250 deductible, in a group of 30 employees, less than 25% are going to hit that deductible. How often do you hit – in the course of the year – your entire deductible plus your co-insurance? If you do, it will come from something catastrophic – an auto accident or something where hospitalization is required.”
Even within MSAs, there are options that should be familiar to those used to more traditional group policies.
“The best analogy is that it’s really like you’re insuring yourself. In my own personal policy, after I hit my deductible, the coverage is 100%. But through one of the carriers I sell, you can get a policy that pays 80-20 after the deductible is met to a maximum out-of-pocket. Even within MSA accounts, there are also preferred provider options available. Even within MSAs, you can have a traditional go-where-you-want-to-go plan, or stay within a participating network for a lower co-pay.”
April 13, 2001 Small Business Times
