HSA to the rescue.

You have seen the headlines: "Health Insurance for Workers Now Most Expensive Benefit for Employers, Study Finds," "New Way to Curb Medical Costs: Make Employees Feel the Sting," or "Health Insurance Costs Increase for Smaller Firms, Says Study."

The message is clear: providing health insurance has become a major cost for employers.

CBS Marketwatch recently reported that medical benefits account for 23 percent of non-wage compensation, or an average of $7,900 per year for each employee. Moreover, the report said benefit costs increased 51 percent between 1998 and 2003, and more than 12 percent last year.

So, what can be done to help mitigate rising health insurance costs for small and medium-sized firms?

THE GROUP INSURANCE TRUST

The Group Insurance Trust of the California Society of Certified Public Accountants is one of five Multiple Employer Welfare Arrangements, or MEWAs, operating in California.

[ILLUSTRATION OMITTED]

The MEWA allows CalCPA to offer group medical plans to members who practice in small and medium-sized firms. The MEWA structure spreads the cost of catastrophic medical claims across a large population, and by contracting with the Blue Cross network of hospitals, doctors and other health-care providers, the GIT is able to hold premium costs at competitive levels. Few other professional associations can provide this level of health-care coverage to their members.

POSSIBLE SOLUTIONS

But, since even competitive premiums are climbing, you'll need to consider additional options to help maintain health-care costs:

* Require partial employee payment for dependent coverage. When employers pay the entire cost of spousal or partner coverage, they bear a cost that could be borne by the spouse's or partner's employer. When there is no cost to an employee to cover an employed dependent, there is no incentive to decline coverage.

* Increase the employee's premium share. Many employers pay 100 percent of the cost to cover single employees. Because ProtectPlus requires only that firms pay at least 50 percent of a single employee's premium, up to 50 percent of that premium may be shifted to the covered employee. Another strategy is to tie employee premium contributions to compensation--with more highly paid employees paying a higher share of the premiums for health care coverage.

* Purchase less expensive coverage. GIT offers five plans with a wide range of premiums. The impact of a less expensive plan is that actual costs rise only for employees who actually need to get medical services.

* Adopt a partial defined-contribution policy. GIT will offer a high-deductible health plan starting Jan. 1, 2005, that will allow firms to adopt a health savings account. This innovative approach will allow employees to retain catastrophic coverage while covering routine medical expenses from individual health savings accounts, thus encouraging employees to shop prudently when they need medical services.

THE HEALTH SAVINGS ACCOUNT

An HSA plan features two components: a high-deductible health plan, or HDHP, and a health savings account. In most cases, an insurance company offers the HDHP, while a bank, brokerage, mutual fund or trust company sponsor will offer the HSA (which may or may not be linked to the HDHP).

Under its new program, GIT will offer an HDHP and will recommend one or more HSA accounts offered by major financial institutions.

The knowledge needed to run an HSA is not extensive and most CPAs and their staff will be able to deal with the contribution, pay out and documentation requirements.

Unlike previously available health care account programs, like a Sec. 129 flexible spending account, covered employees will own their HSAs. And financial institutions will be able to distribute funds from the accounts at any time for both medical and non-medical purposes.

GIT plans to offer HSA accounts that will be simple to set up and will allow account owners to invest in a wide range of plans with low fees.

For more information on the Group Insurance Trust and its new HSA program, contact Judy Graziani at [phone] or [e-mail], or visit www.cpaprotectplus.com.

BY JOHN PHILLIPS, CPA 

John Phillips, CPA is executive director of the Group Insurance Trust, a MEWA trust providing group medical, dental, vision, disability and life plans to CalCPA members. He can be reached at [e-mail].