Districts look to cut insurance bills through health savings accounts

Superintendent Bob Smith estimates his district will save more than $200,000 on health insurance in 2008 by moving to a health savings account plan.

The Elkton-Pigeon-Bay Port Laker Board of Education and the Laker Education Association agreed to the plan as part of a new teacher contract ratified in March. The district joins a small, but growing, number of employers in the public and private sectors using the accounts, according to the U.S. Treasury.

More than 100 school employee groups in Michigan, most of them administrators and support staff, now participate in HSA plans through the School Employers Trust and School Employers Group, SET SEG officials told Michigan Education Report, and one state legislator would like to require schools to offer the plans to all employees in the future. Meanwhile, the Michigan Education Special Services Association, or MESSA, is watching to see if HSAs are a "flash in the pan," a spokesman said.

Health savings accounts combine a tax-free savings account earmarked for medical expenses with a high-deductible health insurance policy.

In Huron County’s Laker district, the plan calls for the district to set up a savings account for each covered employee. The district will contribute $1,250 per individual or $2,500 per family to each account, but the employees can add more, up to the $2,850 individual limit or $5,650 family limit set by the Internal Revenue Service. Those contributions are tax-deductible.

Each employee owns the money in his or her account and can draw on it to pay the deductible for the accompanying health insurance policy. Those deductibles are higher than in a traditional plan, typically $1,250 for an individual or $2,500 per family. Once the deductible is met, the insurance policy picks up 100 percent of the cost of eligible services, Smith said. But employees also can use the money to buy health care that isn’t covered under the policy, like surgery to correct faulty vision, or over-the-counter medication. If an employee doesn’t use all of the money in the savings account, it carries over to the next year and is added to that year’s contribution from the district.

The carryover feature is a key attraction, Smith said, allowing employees to accumulate tax-free dollars in the account. (Withdrawals for non-medical purposes are taxed and subject to a penalty until age 65. After that, withdrawals for non-medical purposes are taxed, but not subject to a penalty.)

"Once that money goes into the account, that money belongs to the employee for the rest of their life," said Chuck Miller, SET SEG director of sales and marketing. "The hope is that they will give some thought to the best way to spend it."

"It’s very consumer driven," agreed Marla Kopah, an agent with Haley, Ward & Associates of Bad Axe. "It changes the way insurance works." Haley Ward is the Laker district’s insurance company; the medical services are underwritten by Blue Cross Blue Shield.

The plan gives employees an incentive to consider the need for — and the cost of — treatment before buying it, she said, because unspent dollars remain in the employee’s personal account. For example, employees who had no reason to think beyond the $5 co-payment when buying prescription medication in the past now might comparison shop among pharmacies, she said.

"When it’s your own money, you pay attention to it," Smith said.

"What we’re really pushing is engaging the consumer," agreed Brian Flowerday, SET SEG operations manager.

Traditional insurance plans — which SET SEG also offers — tend to "keep people insulated from the true cost" of health care, he said. The selling point of many of those plans is that the consumer doesn’t have to worry about any costs other than a $100 to $200 deductible and small co-payment, he said.

"It’s a mindset change," Miller said. "Do I really need that $500 brand-name drug? Do I really need to go to the emergency room tonight, or could I see the doctor tomorrow?"

Employees who are already healthy tend to gain the most from HSA plans. Since they don’t spend much on health care, their savings accounts build the most from year to year.

"Some people will save no money and some will save lots," Kopah said. People with chronic health conditions or who take prescription medication regularly are likely to spend all of the money in the savings account each year.

Critics of HSA plans say they encourage people to put off medical treatment because they don’t want to spend money from their account, including money for preventive care like well-child checks.

"Medical research is starting to show that HSAs are not reducing the cost of health care," said Gary Fralick, Michigan Education Special Services Association director of communications and government relations. MESSA is a third party that administers Blue Cross Blue Shield health insurance to a majority of Michigan school districts. MESSA was established by and is affiliated with the Michigan Education Association, a school employees union. It does not offer a health savings account plan.

HSAs may drive up costs because of consumers who delay treatment until their condition worsens and requires more-expensive care, Fralick said.

Flowerday countered: "HSAs are not about skimping on health benefits. If somebody needs to go to the emergency room, they should go to the emergency room. … We very concertedly try to help people be wise consumers."

Some HSA plans exempt preventive care costs from the deductible. The SET SEG plan allows up to $500 per family member — which is not deducted from the savings account — for preventive care, Flowerday said.

Fralick said there already are other incentives in place that "are helping people make better decisions about appropriate care." Many teacher unions have negotiated contracts in the last two years that switched teachers from MESSA’s traditional fee-for-service plan, SupraCare, to its less-expensive preferred provider organization. Preferred provider arrangements require consumers to select health care providers from an approved group or pay a premium out of pocket. Some districts and unions also have negotiated contracts with higher co-payments by teachers for treatment or prescription medication. Those encourage consumers to consider health care costs, Fralick said.

Under the Laker plan, the district will fund each employee’s savings account and also pay the full premium for the accompanying insurance, but still save money, Smith said.

Calling it a ballpark figure, Smith said the district could save more than $200,000 during 2008, the year the policy takes effect. The savings come mainly from lower premiums. At about 1,000 students, the savings could equal up to $200 per student.

MESSA also questions whether HSAs will shift costs from employer to employee, Fralick said. The Laker district is putting enough money into each employee’s savings account to cover the deductible, but "many employers don’t fund that deductible," he asserted, or fund it initially but not in later years.

"We’re watching the market," he said.

Kopah, at Haley Ward and Associates, said that a handful of other school districts have inquired about HSA arrangements, but that "people are a little nervous taking the plunge."

State Rep. Bruce Caswell, R-Pittsford, introduced legislation in January that would require conventional public school districts, intermediate districts and charter public schools to offer HSAs as an option beginning this year or when the school’s current collective bargaining agreement expires. House Bill 4012 was referred to the Education Committee but has not been taken up.

"My intent is to make it one more type of health care plan people can access," Caswell said, adding that HSAs will encourage districts to "think beyond the traditional type of health care vehicles. Yes, costs are certainly one part of it, but more than cost is the opportunity to have a choice."

School employees should have the opportunity to "build a little nest egg" using HSAs as a vehicle, he said.

The U.S. Treasury reported that 3.2 million people were covered by HSA policies in December of 2005, but projected that between 25 and 30 million would participate in HSAs by 2010.