HSA

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Health Insurance for Part Time Workers

September 15, 2010 in Health Insurance, HSA | 6 comments

The goal of LyfeBank is basically to serve as a 401(k) for health insurance.  Employers can make contributions to the employees health insurance into a fund and workers can use this money to buy various health insurance products, reimburse themselves for co-payments or deductibles, or pay for medical costs directly.

LyfeBank has two key innovations.  The first is that part-time workers can still receive money for health insurance on a pre-tax basis.  Further, multiple employers can contribute the the worker’s health insurance premiums as these funds go directly into the employee’s LyfeBank account.  Second, workers can apply for a LyfeBank Visa which will automatically deduct covered medical expenses from their bill.  If this credit card works well, it could reduce paperwork needed to reimburse providers.  However, there will likely still be arguments from benefciaries about what is or is not covered by the insurance company they choose.

The main drawback of Lyfebank is that workers must purchase health insurance on the individual market.  There is no pooling mechanism.  Thus, although part-time workers can now receive funding from multiple employers, the cost of their health insurance premiums will still be much higher than it would be if they worked at a large firm.

LyfeBank thus helps reduce the health insurance complexities for individuals working multiple part-time jobs.  It does not, however, offer these individuals a mechanism to pool their risk with other part time workers.  It will be interesting to see how this innovation will evolve when Health Insurance Exchanges appear in a few years.

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HRAs vs. HSAs

May 12, 2008 in Health Insurance, HSA | Permalink

On Friday I posted on Consumer Driven Health Care.  These consumer driven health plans (CDHPs) involve individuals having direct discretion about how health care dollars are spent.  If you are interested in CDHP, there may still be some confusion over which H?A you prefer.  Is a HRA (Health Reimbursement Account or Health Reimbursement Arrangement) or a HSA (Health Savings Account) better?  Scott Borden of OFM Benefits Consulting gives some simple explanations in his Kansas City Star article (“…Health Insurance for Workers“).

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CDHPs and Small Business

May 7, 2008 in Health Insurance, HSA | 1 comment

Consumer directed health plans (CDHP) seem like an attractive option for small businesses. CDHPs utilize high deductible health plans (HDHP) making patients pay more money out of pocket. Because of this, insurance premiums are lower. These HDHPs can be linked to Health Reimbursement Arrangements (HRAs) or Health Savings Accounts (HSAs). Since small businesses do not benefit from economies of scale with respect to the purchase of insurance, HDHPs may be especially attractive for this group.

A paper by Gates, Kapur and Karaca Mandic (2008) find this not to be the case, however. Firms employing 3-49 people are no less likely to offer high deductible health plans than are large firms–conditional on offering insurance. Midsize firms employing 200-499 workers are less likely to offer HDHPs than larger firms.

If the firm offers a HD health plan, will they offer an HSA? One may guess that small firms are less likely to offer HSAs if there are fixed costs to implementing an HSA. Small firms will have higher average costs to offering HSAs, if offering HSA is a true fixed cost and its cost to the employer is not proportional to the number of employees in the firm.

It turns out that small firms between 3-49 workers and firms with 200-499 workers are less likely to offer HSAs–conditional on offering HDHPs–than large firms with 500 or more workers. Middle sized firms with between 50 and 199 workers are just as likely to offer HSAs as large firms.

Other findings of the study include that HSAs are most popular in the Midwest and the South and, surprisingly, firms with a higher proportional of low-income workers are more likely to offer HSAs.

All Firms Firms w/ 3-49 employees Firms w/ 3-199 employees Firms w/ 200+ employees
% offer Health Insurance 61% 58% 60% 99%
% offer HD conditional on offering 14% 14% 14% 14%
% offer HSA conditional on offering HDHP 17% 16% 17% 21%

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Health Insurance: Why rent when you could own?

March 31, 2008 in Health Insurance, HSA | Permalink

Devon M. Herrick writes an article (“Why rent…“) creating a clever analogy comparing HSAs to equity in a house. He likens traditional health insurance to renting a home, while having a Health Savings Account (HSA) is more like owning the home. Making contributions to HSAs in essence gives you “equity” towards future health care expenses. On the other hand, if you do not use any medical care with traditional insurance, you lose all of your rent annual health insurance premium.

Mr. Herrick claims that he could cut his health insurance premiums by half if he had an HSA. There are 3 main reasons why health insurance premiums are lower. First, in a mechanical sense, health insurance plans are combined with HSAs which have higher deductibles. This means the insurance company will not pay for the first $1000 or so of medical care. Secondly, since there are high deductibles, utilization will decrease because of a reduction in the moral hazard problem. Finally, healthier people sort into HSAs and thus if everyone was compelled to have HSAs, health insurance prices would not decrease as much because there would be less advantageous selection.

As I have mentioned before in this blog, HSAs are highly unequal, since the rich 1) are the ones most likely to benefit from this legislation and 2) they have higher marginal tax rates and thus will receive a larger tax break for every dollar contributed.

Nevertheless, shifting more costs to the consumers and forcing consumers to face the true cost of medical procedures will help to reduce costs and to ensure than only necessary medical procedures are conducted.

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