A Kaiser Family Foundation 2007 report found that 45 percent of companies with less than 10 employees offered health insurance, while 55 percent of firms with less than 200 employees, but more than 10, offered it. In the past, the numbers were as high as 58 percent and 68 percent, respectively. Compare this to 99 percent for companies with more than 200 employees.

For many small and mid-sized companies, health insurance is just not an affordable option. However, there is one type of plan that is providing these smaller companies and their employees with an alternative to traditional health insurance. It's called a Health Savings Account (HSA). HSAs provide companies and individuals the opportunity to purchase health insurance that is less expensive than traditional comprehensive health insurance, as well as the chance to save money tax-free to fund future medical costs.

Here's how it works. Funds from the HSA can be spent on qualified medical expenses like doctor or dentist fees, prescription and nonprescription medications, eyeglasses or contact lenses, as well as hospital costs not covered by insurance. Unlike any other investment product available, funds go in tax-free, can grow tax-free, and are spent tax-free (on appropriate medical expenses), so that more of an individual's dollars are available to pay for medical expenses. Other investment accounts, like 401(k)s or dependent care accounts, are always taxed at some point, are not allowed to be invested, or do not carry over the following year ("use it or lose it provision). Using pre-tax dollars, an employee's overall taxable gross income is also lowered, resulting in less tax owed to the government at the end of the year.

The catch is that HSAs must be linked to a high-deductible health insurance plan as required by IRS regulations. In 2005, the minimum deductible was $1,000 for an individual and $2,000 for a family. Although in the past, individuals and families could only defer to the lesser of the deductible or the maximum amount listed by IRS regulations, due to 2007 legislation employees can now defer to the maximum amount allowed. For example, in 2007 the maximum amount was $2,850 for an individual and $5,650 for a family. An individual with a $1,000 deductible could now defer up to $2,850. Individuals 55 and older have a catch-up provision that allows an additional $800 to be set aside above the limits.


Employees Want Health Insurance

Why should companies, particularly small to mid-sized companies, consider adding or changing to a HSA? There is no doubt that health insurance benefits are sought out by individuals, and for smaller companies, it is an opportunity to stand out.

How much do employees say they value health insurance? An Employee Benefits Research Institute 2007 survey found that:

" Three-quarters of workers with employer-provided health coverage preferred $7,500 in health benefits to an additional $7,500 in taxable income. For those who preferred health insurance coverage over income, they would require an additional taxable income of $12,000 on average before giving up the benefit.

" Fewer than one in five with employer-based health insurance were extremely or very confident they could find affordable health insurance on their own if their company stopped offering benefits, even if their employer gave them money to help pay for it. More than that were not too confident (22 percent) or not at all confident (32 percent) they could afford coverage.


Why HSAs Offer a Good Solution for Smaller Businesses

The trend of employers is to shift more healthcare costs to employees through health insurance plans with more cost sharing and deductibles. This is the same thing that occurred a few years ago when more companies were moving from providing defined benefit retirement plans (company funded) to defined contribution plans (employee funded). Although only about 7 percent of companies currently offer Health Savings Account eligible high-deductible insurance plans, this is expected to grow over the next few years as traditional health insurance is increasingly unaffordable.

Healthier employees make for more productive employees. While workplace wellness programs are most likely out of reach for small and mid-sized companies, these initiatives have shown that providing workers with the necessary preventive care, like treating asthma, results in their staff more often at work than out ill. Research has shown that those without health insurance tend to delay necessary and needed care, which not only is a detriment to the individual's family but also the company. Note that Starbucks CEO Howard Schultz had this experience at age seven, when his father, a deliveryman, not only broke his ankle but was also without a job and had no health insurance. Consequently, Schultz swore that he would build "the kind of company my father never got a chance to work for. Much of the loyal employee following at Starbucks is due to the fact that it offers comprehensive benefits to part-timers.


What Employees Need to Know about HSAs

If you do offer the HSA, then the challenge is to educate your employees to make wise choices. Research currently suggests that although participants ask doctors more for cost-effective care (generic medications), do research prior to office visits, and are trying to take better care of themselves, many are also delaying the time when to see the doctor and are not filling prescriptions or are skipping doses of medication. Compared to those with comprehensive health insurance, those with deductible plans are less satisfied. However, this is probably due to the inadequate information available to participants on how to get the right care as well as costs.

The best way around this is simple. Choose a health insurance plan that is ranked highly on the quality of care it provides to its members. This could be more important than the individual doctors available, as research shows that the right preventive care is delivered consistently in the nation only 55 percent of the time. Yet with high-quality health insurance plans, which may not be more expensive, individuals and families get these interventions more often because these insurers provide incentives to doctors to do so. Start with the National Committee for Quality Assurance (www.ncqa.org) and under report cards look for NCQA Health Plan Report Card. Look for plans accredited by NCQA as excellent, and ask your insurance broker to narrow your search to these plans. For employers in California, the Office of the Patient Advocate (www.opa.ca.gov) has an excellent reference that not only ranks insurance plans but also medical groups on how well they keep people healthy and on how satisfied people are in getting care. If your firm decides to invest money on its employees in keeping them healthy, or to use a health insurance benefit as a way to attract new hires, then it is important you help them find a high-quality plan. Your workers will notice the difference, and you will benefit from healthier and more productive employees.




Dr. Liu is a board-certified family physician with the Permanente Medical Group in Northern California. In addition to his medical training and education, Dr. Liu graduated Phi Beta Kappa from the Wharton School of Business. He is author of Stay Healthy, Live Longer, Spend Wisely: Making Intelligent Choices in America's Healthcare System (Stetho Publishing). Learn more about him at www.davisliumd.com.