Health Savings Account Blog

“Something is wrong. There is nothing to explain it,” Galvin said during a recent interview at the offices of Whaleback Systems, a Pease-based company and his fourth high-technology initiative.

“The cost of homeowners or automobile insurance hasn’t doubled in that time period. As a business owner, it’s a pet peeve.”

Another Galvin annoyance is the propensity of traditional insurance companies to promise one thing, while delivering much less.

Coverage disconnect

”They say they will cover you, but they seem to argue every charge. At the end of the day, unless you wanted to do full time battle with them, you weren’t going to get (fully) reimbursed.”

Finally, Galvin is also annoyed by the need to obtain pre-authorization from the insurer, before a procedure can be done.

“It suggests that rather than following the advice of your family doctor, who is often a trusted advisor, the insurance company wants to have control.”

With the advent of Whaleback, Galvin knew the time had come for something new, different and financially less onerous to his bottom line, while still protecting employees.

He opted for Health Savings Accounts. Here’s how they work.

Under guidelines established by the Internal Revenue Service, Galvin is able to establish a tax-free employee owned account for each of his 20 staffers, in their names.

In 2005, Uncle Sam allowed each single employee $2,650, while the family limit was $5,250. In 2006, the individual limit is $2,700, while a family tops out at $5,450.

Unspent dollars left from last year roll over tax free into this year’s account, while Galvin contributes another $2,700 for an individual or $5,450 for a family.

Should an employee opt to leave the company, the worker keeps the unspent dollars and, at age 65, is able to convert the account into a personal 401-k retirement plan. Like any other 401-k, it remains tax-free until retirement, when it can be drawn upon and taxed.

Young workers benefit

Younger workers and those who stay healthy “are actually ahead of the game,” said deputy commissioner Alexander Feldvebel, of the New Hampshire Insurance Department.

Should a Whaleback employee need to see a doctor, payment is made using a Visa debit card, drawn on Wells Fargo Bank. There is no additional paper work, resulting in savings to the physician and, unlike more traditional insurance plans, there is no co-pay.

Drug related charges can also be covered, without a co-pay, by presenting the card.

Employee accountability

Galvin contends the HSA Plans forces an employee to be more aware of medical costs. Under traditional plans, a worker seldom knows or asks about the costs associated with a procedure.

The HSA also makes it more likely an employee will shop around for the best price, since the worker owns the account and gets to keep what isn’t spent.

In short, an HSA makes health care costs “more of an issue and brings it to the forefront of an employee’s mind,” according to Leslie Ludtke, health policy analyst, with the New Hampshire Insurance Department.

Feldvebel said the accounts are increasingly seen as shifting the market to more consumer driven health care. “If you’re responsible for the initial tier that you pay for, you’ll be a more interested buyer and more likely to use health care in a more cost effective manner. . .it introduces incentives for consumers to be cost conscious.”

“It’s a theory that’s out there,” he added. “Because it’s consumer driven, employees will have an interest in how much things cost.”

Other services

Depending on the policy and what is negotiated with the underwriter, a variety of preventative services and laboratory fees are also fully covered, even if the employee has not met the deductible, which can be $1,000 or more and which the employee must pay. In many plans, the deductible can come directly from the HSA.

Services include routine physical exams and well-child visits with a primary care physician, an annual gynecological exam, routine pre-natal services, mammograms, pap smears, lead screenings, PSA screenings for prostrate cancer, immunizations and one colonoscopy screening every 10-years, for those over 50. A complete list can be found on our HSA Qualifed Expenses page.

Under Whaleback’s plan, the costs are not deducted from a worker’s HSA account, but come directly from a policy with Patriot Healthcare, Galvin’s underwriter. This may not be true for other underwriters.

“They recognize that (paying for) preventative care saves a lot of money on the other end,” Galvin said.

Zero balances

Should there be a zero balance in a worker’s account, Galvin has a backup plan in the form of a high-deductible policy, whose premiums the company pays. This policy means each employee and family is indemnified against a catastrophic illness.

According to Galvin, at the end of 2005, his “typical” employee had 75 percent of the Whaleback’s original deposit left in their accounts.

Savings

Under his previous insurance company, to cover employees in 2005, Galvin would have paid out $231,888 in premiums.

In its first year, coverage using health savings accounts — including the fee for the high deductible plan — cost Galvin $164,267, a savings of $68,000.

“Who loses in this equation,” he asked. “Only the traditional insurance companies” and their policies, which he no longer uses.