Health Savings Account Can Save Your Dentistry Practice “Real” Money

Rising health care costs including dentistry are taking a toll on Americans. According to a recent report by a consulting company, Mercer Human Resources Consulting, health care premiums paid by employers rose 6.1% in 2006. If you provide health care to your employees, these premiums are eating away at your profitability.

While managing health care costs is becoming a priority for our law makers, the debate for national health care continues. But there is a government program already in place that can help you and your employees reduce health care costs. This is the Health Savings Act (HSA) which was enacted by President Bush in 2003.

Employers Benefit from Reducing Costs
What if someone walked up to you and said your dentistry practice can save money with respect to health insurance while still maintaining the same level of care for your employees? This sounds almost too good to be true, but if you incorporate HSA into your health insurance coverage, you can make this happen.

The HSA program is meant primarily to benefit individuals, but employers can use it to reduce their insurance costs as well. Here is a brief summary of how the program works. Individuals can reduce their insurance premiums by enrolling in a qualified high-deductible plan and simultaneously opening an HSA through a financial institution. The HSA would be funded (up to the amount of the insurance deductible or the maximum ceiling amount) ahead of time, either by the employee or employer. Most medical expenses (including the insurance premium) can be paid from this account. The beauty of the HSA is that all money contributed to the account by the employee is considered pre-tax (like a 401(k) or IRA) and therefore reduce the employee’s taxes.

For employers, the HSA can be used to cut your health care costs dramatically. First off, you can lower employee premiums by enrolling in a health insurance plan with a higher deductible. Then help your employees sign up for a HSA and fund it at the start of the enrollment period. While your premium cost has dropped, the good news is that you are not taking anything away from your employees. Your employees get the same level of health care service. To the extent the employer contributes to the HSA, the employee does not realize the funded amount as income.

For 2006, the highest deductible for your employees under the HSA program is $2,700 for a single person or $5,450 for a married couple. In 2007, the highest deductible for a single person is $2,850 and for a married couple, $5,650.

As the employer, the cost for paying the employee health care plans and also funding their HSA accounts are fully expensed each tax year. On an after-tax basis, the total cost of the health insurance plan with the higher deductible plus your funding of the HSA for your employees will be less than what you are currently paying. By using HSA, your gross payroll will be smaller which has the additional effect of reducing your contribution for your worker’s social security payment. At the same time, your employees can continue to enjoy the same level of health care service.

Your Employees Benefit Too with HSA
In addition to dropping the cost of health care, your employees will get some additional benefits. For example, in situations where the health insurance will not pay for a particular procedure, this amount can be paid from the HSA which you have already funded. Additionally they can use the HSA to pay for dental care, eye care, and even non-traditional medicines.

Also, the HSA account would be owned by the employee with the added benefit that the unused amount can roll forward into the next year and taken with them if and when they change jobs. In the case where an employee has excellent health, the funds in the HSA can be invested in mutual funds or money markets – similar to an IRA.

Summary
In lieu of a grand plan to reform health care, the government has created a program - the Health Savings Act - that can help employers reduce the cost of their employees’ health insurance. By allowing an employer to sign up for a plan with a higher deductible, the insurance premium will drop. At the same time, employers will sign up and fund their employees’ HSA account. Both of these costs can be expensed. Thus, nobody loses anything and the health care costs for the employer decreases. It’s a win-win for all!

Posted by Henry Wong (hwong@pariveda.com)