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Health Savings Accounts

Health Savings Accounts

The Union at Cheap Enterprises was getting ready for contract negotiations, and so was the company. Union Stewards were out taking a survey of members on what were the most important issues. At the monthly Steward meeting, most Steward's reports were similar in one area.

"Seems like the foremen have been talking up a new insurance plan that the company is going to propose," said Harry Sternberg.

"Same in my department," added Rosa Luxemberg.

"They've been talking up this health savings account, telling people the company is going to put money into each person's own bank account. I don't trust them, what's this all about?"

What are Health Savings Account (HSA's)?

Here we go again with another in a long line of corporate/government gimmicks designed to get workers to pay more and get less.

Hidden in a bill that passed in December 2003, the "Medicare, Prescription Drug, Improvement and Modernization Act," was a provision that created a new entity called "Health Savings Accounts." They became effective on January 1, 2004.

HSA's are tax free saving accounts designed for use with high deductible health insurance plans.

The basic idea is that anyone who has a high deductible health insurance plan, can put money into their HSA and then spend that money to pay for medical expenses that aren't covered because of the high deductible or "out-of-pocket expenses."

To qualify as a "high deductible plan," it must have a minimum deductible of $1,000 for an individual and at least a $2,000 deductible for families. This means that employees with these plans would pay the first $1,000 or $2,000 before the insurance kicks in.

The plans can also have "out-of-pocket expenses" above and beyond the deductible. This means employees can be required to pay a portion of other bills, such as a $100 fee each time they use the emergency room, or $25 for each doctors visit. The only limit is that for individuals the total of the up-front deductible and "out-of-pocket expenses" cannot exceed $5,000 per year. For families the combined total cannot exceed $10,000 per year.

The interest these accounts earn is also not taxable, while it is in the account or if it is used to pay medical bills. If any money is withdrawn from the account to be used for purposes other than paying medical bills it is taxable and a 10% penalty will also be charged.

The accounts are "portable" which means if you go to another job you can keep your HSA account.

The money that your employer puts into your account is not counted as wages, and therefore you do not pay taxes on it (no different than the current situation, you are not taxed on benefits like health insurance that your employer pays).

According to the latest IRS guidelines, any money an individual puts into the HSA will be tax deductible, even if the individual does not itemize deductions on their tax return. This is why they call them "tax free" accounts.

Defined Contribution Health Insurance

Employers are always complaining about the cost of health insurance, how it keeps going up and makes it hard for them to get a fix on their costs. Of course if they are asked to support single-payer health insurance which would lower costs, they always refuse.

The promoters of HSA accounts are calling these the first step towards creating a "defined contribution health insurance system" rather than a "defined benefit health insurance system."

What's the Difference?

The Savvy Steward

What is 'Single-Payer' Health Insurance?

Eight thousand physicians signed an article in the Journal of American Medicine supporting single-payer health insurance.

Why? Because instead of over 1,000 insurance companies creating mountains of paperwork and wasting our premium dollars, one insurance plan (thus the name, "single-payer") would cover everyone, cradle to grave.

Right now, as much as 30 cents of every premium dollar is squandered on enormous CEO salaries, shareholder profits, advertising and administration. Some people have coverage, some people have minimal coverage and 45 million Americans have none. Employees who do have health insurance are being asked to shoulder increasingly larger shares of the cost.

Single-payer, universal health care coverage would provide guaranteed, lifetime health care coverage, whether you have a job or not. Its provisions are informed by the Canadian health care system, which has functioned with a high level of patient satisfaction for almost 30 years (despite what you may have heard in anecdotal stories).

Several UE locals are part of coalitions that have begun to work towards single-payer health care coverage in their state. The next time an employer claims that they have no choice other than to try to pass health insurance costs onto the employees, tell them that there is an alternative.

A "defined benefit health insurance system" means that the union bargains for a specific health insurance plan and the employer must pay the costs, even if those costs rise during the term of the contract. In some contracts employees must pay additional costs if the total premium costs go up, but in general it is the employer paying the overwhelming majority of the costs, thus it is the employer shouldering the risk.

A "defined contribution health insurance system" would mean that the union negotiates with the employer how much the employer will pay per employee per year for health insurance. If the costs go up or the plan changes, it is the employee, not the employer, who will have to pay the difference. Thus it is the employee who shoulders the risk, not the employer. The employers' costs are fixed, per employee per year.

This is very much like what happened with pension plans in this country. Before 1980 most pension plans were defined benefit plans. Depending on how many years an employee worked, they were guaranteed a set amount of pension. It was up to the employer to make sure there was enough money in the pension plan to pay what was owed. The employer carries the risk of keeping the plan financially healthy.

401(k) plans were established by the government in 1981. They are defined contribution plans. That means employers put a set amount into the plan each year. There is no guarantee as to how much money each worker will have when they retire. It depends on how much was put in, for how long, and how much it earned in the stock market. If the stock market crashes when a person retires and their 401(k) loses value, tough luck. The employees shoulder the risk of having enough money for retirement.

With a defined contribution plan, whether it is for pension or health insurance, the burden of risk is transferred from the employer to the employee.

Union Efforts to Lower Premium Costs

In many workplaces the union has agreed to higher deductibles as a way to lower premium costs for the employer. In these cases an agreement is reached to have the employer pay the deductible.

How Does This Work?

Basically it works on the principle that the insurance company assumes that most people in the course of a year have only minor medical costs. So if there is an up-front $1,000 deductible that has to be paid first, the insurance company won't have to pay anything for most of the employees. This is why they can drastically lower the monthly premiums the employer pays. When the employer agrees to assume payments of the high deductible they are guessing that they will pay less in deductibles than they save with the lower premiums. In most cases this is true. The union gets to keep a full coverage insurance plan and the employer gets lower premiums.

This is very different from what the developers of HSAs want them to do, which includes:

  • Getting employees used to paying large portions of their health insurance bills.
  • Creating a climate that assumes that paying for health insurance is an obligation of each employee.
  • Make employees used to the idea that large deductibles in health insurance plans are normal. Currently it is normal for a health plan to have a $100 or $200 deductible, not a $1000 or higher deductible.
  • Already we are seeing more and more insurance companies including high deductibles as standard for their plans.
  • Corporate think-tanks like the Cato Institute envision that in the very near future employers will no longer provide health insurance. It will be up to each individual employee to buy their own insurance. Some employers may contribute money to an employee's HSA but there will no longer be employer provided health insurance.

How HSAs Would Change Bargaining

We are used to bargaining over the cost of health insurance. Even where health insurance is still fully paid by the employer it is a major factor at every negotiations, with the cost of health insurance being pitted against pay raises. For decades now employers have tried to make employees responsible for a portion of health care costs by bargaining for co-pays, and up-front deductibles that must be paid before the insurance starts.

If HSAs become the norm for health insurance then we will not only be bargaining over these issues but we will be bargaining over how much the employer puts into each individual's account, how big the deductibles will be (remember they can go as high as $10,000 for a family plan) and therefore how much employees will have to put into their account to pay for the deductibles.

The originators of HSAs hope to see in the very near future a situation where employers put some money into each employee's HSA account and the employee is responsible for purchasing the entire health insurance plan themselves.

Dividing the Workforce

Some employers are already using HSAs as a way to divide the workforce. They are offering options for health insurance, one of which is an HSA with a very large deductible, but lower premiums and lower employee co-pays than the other plan.

Who takes the HSA? For the most part it is young, single employees who are betting that they won't get sick and have to pay the deductible. This leaves older employees, employees with families or those with health problems in the more expensive plan. By removing the non-users from the plan it will, over time, raise the costs of premiums even more for the standard plan. Instead of all employees worrying about the rising cost of health care together, they are divided.

What Should the Stewards at Cheap Enterprises Do?

MORE INFORMATION:

Visit the Physicians for a National Health Program website. To determine how much your employer would save with single-payer health insurance, request the UE workshop on Just Health Care.

Their main task will be to make sure that all the employees understand the big picture about HSAs. The idea of "tax free" savings accounts may sound appealing to some, but they need to understand that with that will come a bigger pay cut as employees pay more and more of their own health insurance and health care costs.