Sheboygan County bank doing big medical savings accounts business
By Jordan Fox, for SBT
The medical savings account (MSA) concept makes sense, says Kirk Hoewisch, vice president of State Bank of Howards Grove. So much so that his Sheboygan County bank is the number two provider of MSAs in the country.
Although MSAs are not a new concept (Forbes Magazine established them for its employees about 11 years ago), it wasn’t until the Health Insurance Portability and Accountability Act of 1996 that the government authorized tax-favored treatment of MSA funds.
These savings accounts effectively address the main goal of health care reform — to make health care more affordable and accessible. State Bank of Howards Grove has been offering them since 1997.
"We now are administrator and custodian for about 30,000 MSAs for people from every state in the Union and the District of Columbia," Hoewisch says. "And we’re seeing more and more interest in this concept."
By law, these special savings accounts are only for self-employed individuals and employees of companies with fewer than 50 workers. As health care costs increase, those people are among those who may be hit hardest.
MSAs involve buying a high-deductible health insurance policy with lower premiums, and setting money aside in a savings account for qualified medical expenses that could come up in the future. In addition, the money in MSAs earns tax-free interest and is used without penalties. The savings account also allows for portability. If participants should lose their jobs for whatever reason, they can continue their high deductible plan wherever they go and pay for the premiums from their MSAs.
"Because you can use MSA moneys that you have accumulated but haven’t spent, at age 65 it can act like a retirement account for some individuals," says Hoewish. "The tax advantages are similar to IRAs. And MSA owners have the option of paying their medical expenses out of pocket and leaving their money in their savings accounts to grow tax deferred."
The maximum that can be saved is set annually by the Internal Revenue Service.
Hoewish says his bank works with more than a dozen insurance carriers, including Blue Cross and Blue Shield United of Wisconsin. Those companies market the MSA product for State Bank of Howards Grove.
"The interest in this product is definitely out there," Hoewish says. "Insurance companies that are developing high-deductible products are looking for banks that will handle the associated MSA. Insurance agents, too, are telling us that they knew about MSAs several years ago but weren’t that interested in the idea. Now, however, they’re rethinking that product because their customers are complaining that their insurance premiums are going through the roof.
"Our bank recently partnered with Blue Cross/Blue Shield, and North Track Funds, a mutual fund family, to offer our Personal Choice MSA Plan. All of our MSA customers have an FDIC insured checking account and have the option to invest in three mutual funds in North Track’s portfolio offered by BC Ziegler and Co. These funds include the S&P 100 Plus Fund, the Government Fund, and the Cash Reserve Fund."
Tim Pederson, president of Diversified Benefit Services, a Hartland-based employee benefits administrative and consulting firm, was one of the early advocates of MSAs when the law went into effect in February, 1997.
"We liked the idea because the MSA is a free-market approach to solving the health care cost crisis," he explains. "It provides incentives for being healthy and for taking care of yourself. MSAs were originally proposed to make consumer most cost conscious in purchasing health care. This was to be accomplished by restoring market discipline to the health care arena and reducing the costs of providing health care service.
"MSAs are composed of employees’ money, so they are likely to spend it more carefully than under traditional plans, thus reducing plan costs to the employer," Pederson says.
Says Hoewisch, "We think health insurance should be more like auto insurance, where you insure the big things and pay out-of-pocket the small things like oil changes and maintenance.
"We believe in free-market economics. If you put money back in the hands of people and let them make their own health care decisions, they’ll shop on quality and price, just like they do for everything else. That will make the health care industry more efficient and competitive, driving down costs, and improving service."
Hoewisch believes everyone wins with MSAs. The employer has lower cost health insurance; employees have more control over their health care and the ability to accrue tax-deferred funds, and the economy in general benefits from a more stable medical inflation rate.
Additionally the high-deductible health plans sold in conjunction with MSAs typically cost less, thus reducing the basic cost of health insurance, he notes.
Aug. 8, 2003 Small Business Times, Milwaukee
