Small businesses, advisers embrace health savings accounts

Small-business owners — and their advisers — are finding ways to deal with the rising cost of health insurance, making health savings accounts all the more appealing.

“More clients are becoming warm to that concept,” said James J. Holtzman, a certified financial planner and adviser with Legend Financial Advisors Inc. of Pittsburgh. “It just has to be the right kind of situation.”

As small-business owners themselves, advisers are following their own advice and seeking alternatives to trim health costs.

“I’ve seen that insurance companies are phasing out the richest benefit plans by escalating premiums to the point that they’re no longer affordable,” said Keith Newcomb, a financial planner and wealth manager with Full Life Financial LLC of Nashville, Tenn. He runs his practice on his own, with help from his spouse.

“We’re looking at switching from a superrich [preferred-provider organization] to a health-savings-account-based model,” Mr. Newcomb said.

Fully 63% of Americans with health insurance coverage reported a jump in the costs they had to pay in the previous year, according to the 2007 Health Confidence Survey from the Employee Benefit Research Institute of Washington. Thirty percent of those with higher costs said that they had cut back on retirement contributions, while 52% were reducing their savings.

The problem is serious for small-business owners, who may not have the money for group policies but still have to contend with larger competitors for prospective employees, said Mr. Newcomb.

“I shop their health insurance around, making sure that we get a good rate for our clients,” said Mr. Holtzman, who is also a shareholder in his practice. When the time comes to renew their policies, and clients are consulting different insurance companies and comparing coverage, this is also a great time to make sure that the doctors are a good match with the business’ needs, he added.

A health insurance broker can help with this part of the process, Mr. Holtzman said.

Consumer-directed health plans usually combine high-deductible plans with health savings accounts or health reimbursement arrangements. Participants think a little more when they go to the doctor and are encouraged to shop around for a better price so as to hold on to or invest the money in the HSA account.

The HSA options also make health costs transparent, as plan participants will talk to their doctors about the prices of procedures and treatments, said Eric Remjeske, president of Devenir Group LLC, a Minneapolis firm that provides HSA investment options.

Mr. Remjeske and his wife shopped around when searching for a hospital before their youngest son’s birth. “I got a few quotes on the cost of child delivery, and we went somewhere cheaper,” he said. “The key isn’t just education [on HSAs] but also the transparency.”

Employees are also encouraged to remain in good health to cut back on trips to the doctor. “Internally, you can encourage them to do things that are good for wellness,” said Mr. Holtzman. “If you can get them to pick up a gym membership or offer them a discount for the costs, you might save some money in terms of premiums.” It’s a solution that will play out over the long term, Mr. Holtzman added.

A number of plans are slashing costs for business owners in both ways — by rewarding good health and providing an HSA option. Among them, a plan from The Principal Financial Group Inc. in Des Moines, Iowa, provides covered employees with health risk assessments.

All workers save on deductibles and co-payments during the first three months of coverage. Those who meet a minimum score requirement on the assessment get the savings, while those who fall below that mark have wellness options for getting healthy and qualifying for the savings. HSAs are also accessible through the plan.

Advisers also report that they’re saving with consumer-driven plans and HSAs even if their practices are too small for group policies.

“We’ve had the most success using individual plans for companies with two to five employees,” said J. Patrick Collins Jr., a certified financial planner and principal at Greenspring Wealth Management Inc. of Towson, Md. When working with his small-business clients, he compares traditional products such as health-maintenance or preferred-provider organizations with high-deductible plans with HSAs.

Simply by choosing individual policies over group coverage, Mr. Collins has seen his clients save 30% to 40% on plan costs — but this works only if there are no more than five employees and everyone is in good shape. The results have been good enough that he uses the same approach in his practice.

“The people here are young and healthy, so we save a lot of money with an individual policy and an HSA,” Mr. Collins added.

Although employers may have to go over the HSA plans with their workers to show them the benefit, educated participants become more engaged in their health and strive to drive costs down for all, Mr. Remjeske observed.

“We’re trying to get people to think, ‘If I have a runny nose, should I go to the emergency room?’” he noted. “People abuse the system because someone else is paying for the services, but if you’re paying for it, you decide what to do.”

Darla Mercado can be reached at [email protected].