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.
Health savings accounts combine a tax-free savings account earmarked for medical expenses with a high-deductible health insurance policy.
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.
EMPLOYEE OWNS MONEY
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
"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
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.
"When it’s your own money, you pay attention to it."
- Bob Smith, Superintendent
Elkton-Pigeon-Bay Port Laker
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
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.