Employees to Mull New Trade-offs in 2006 Health Care Options

An array of new health care benefits have become available that may help employees plan for ever-increasing medical costs.


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Employees will have much to consider during 2006 open enrollment periods. Take, for example, the new Health Savings Account (HSA), which is being offered to workers in conjunction with new high-deductible health plans. Workers can contribute pre-tax dollars that can be invested in stocks, bonds and mutual funds – much like a 401(k) – but the money must be used for insurance premiums, co-payments, deductibles and other medical expenses. The funds can be taken to another job, so healthy people can put aside funds for illnesses later.

"The more upfront cost-sharing the employee can bear, typically the less they will have to pay out of their paycheck" in premiums, Tom Billet, a senior consultant for Watson Wyatt told MarketWatch.

Health reimbursement accounts (HRAs) are another form of high-deductible plan, but unlike HSAs, HRAs are funded by the employer alone. Balances roll over from year to year but the funds aren't portable.

Flexible spending accounts (FSA) are another option. Pre-tax dollars are used to pay for uncovered medical expenses generated over a certain period of time, usually a year or so.

It's no surprise that health insurance premiums are spiraling, and companies and employees alike are looking for ways to keep costs down. The Kaiser Family Foundation reports that the average cost of family coverage is now $10,880, of which employers pay an average of 74 percent or $8,051. Since 2000, premiums have increased 73 percent, Kaiser said.

The high costs hit small businesses particularly hard. According to the Pittsburgh Post-Gazette, the National Association for the Self-Employed released a survey that showed more than half of businesses with 10 or fewer employees offer no health insurance because the costs are too high. Bills before the Pennsylvania legislature would change the way premiums are set.

Better Business Bureaus across the country are warning small businesses to watch for discount cards, which appear to be health insurance plans with low monthly rates, but are not actually licensed insurance products. The cards offer a discount off a participating health care provider's full fee, with the patient responsible for the majority of the cost, the Idaho Statesman reported.

Meanwhile, a federal tax reform panel appointed by President Bush is considering limiting the amount of tax-free health insurance contributions employers make for their employees. The way it typically works now is that the employer pays a large chunk of employees' health insurance premiums, if not the entire cost. That money is tax-free to the employee.

Tax-free contributions may be capped at a certain amount – say $11,000 – and anything above that would be treated as taxable income. CNN/Money reported that part of the reasoning for the proposal is that it could help make up for lost taxes if the unpopular alternative minimum tax is abolished. The Government Accountability Office says that excluding income taxes on employer contributions to health insurance premiums and medical care is a huge revenue loser. Costing more than $100 billion in 2004, it loses the most money of all the federal tax breaks available to individuals.

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