Medical Plan for Small Businesses Offers Investment Options

The Plan

Here’s how the plan works. A high deductible ($1500) medical insurance plan is sold to the employee. $2500 to $3000 is placed in a Medical Savings Account in the employee’s name. The MSA deposit may be made by the employer, the employee or a combination of the two. As medical expenses crop up, money is withdrawn from the Medical Savings Account to pay first dollar coverage for care.. If and when the medical Savings Account is depleted, the catastrophic medical plan kicks in, paying for everything over and above the sum in the Medical Savings Account. MSAs also offer a potential new way for some people to boost their savings because money that isn’t used for medical expenses can continue to grow tax-deferred. Some insurers and bankers are already pitching the accounts as a vehicle for long-term investing. In addition to super-safe cash or money market accounts, they are offering mutual funds and, in some cases, individual stocks and bonds. The companies say they want to offer people investments with competitive returns in a tax-sheltered environment similar to an individual retirement account.

First, MSA funds may be used to pay for a broad range of medical expenses tax free. (Funds withdrawn for non-medical purposes will be taxed as ordinary income and are subject to a 15% penalty if withdrawn before the age of 65). Eligible expenses include dental and vision care, mental health counseling, home medical equipment alternative medicine, long-term care expenses and even taxicab fares to the doctor’s office. But the insurance policies cover, and thus credit toward the deductible, a much shorter list of costs, such as doctor, hospital, surgical and lab services and, perhaps, limited coverage for other types of care.

The Standard Plan Comparison

Now let’s look at small businesses carrying standard health care plans. The average paid by the employer is $4200 per employee per year. The plan is usually a fairly low deductible – $250 or less. When a claim is made the insurance company must be notified and if the procedure is approved the medical bills are paid directly to the provider with the balance not paid becoming the responsibility of the patient. This requires comprehensive administrative oversight adding to the expense of the coverage.

Perverse Incentives Found In Managed Care Programs

For HMOs the situation is similar. An office visit or procedure is requested. The HMO is contacted to see if the medical need is covered by the plan. If the HMO does not deem the medical treatment necessary, they may refuse coverage at their discretion. In other instances the physician is given a financial incentive not to treat and, referring patients to specialists is frequently frowned upon. It is these perverse incentives incorporated into managed care that has drawn criticism, media attention and in some cases litigation.

What are Your MSA Options To Date?

Since NPRI has members in several of our neighboring states, the range of options you have will depend largely where you live. Golden Rule Insurance Co. is launching MSAs in more than 20 states and is expected to offer plans in Nevada within a year. Managed Care giant, Humana Inc. is set to market in 14 states. And Time Insurance Co., owned by Netherlands and Belgian based Fortis, is targeting more than 40 states. To find out about MSA options where you live, call your local insurance agent.

The savings accounts offer a tax break, with workers or their employers able to contribute as much as 65% of the insurance deductible for singles and up to 75% for families on a tax-free basis. But the big savings can come from paying lower premiums for high-deductible polices than for plans with low deductibles. If you stay healthy, you could come out thousands of dollars ahead of where you would be if you had paid steeper premiums for insurance you never needed.

Though the savings accounts themselves impose no restrictions on which doctors you can see, many of the insurance policies do have preferred networks of doctors and hospitals that you must use to get maximum coverage and credit toward the deductible. Under the law, people are free to set up medical savings accounts and purchase the insurance policies through separate institutions. But insurers often are hooking up with banks or other third-party vendors to offer the accounts. For example, Wellpoint Health Networks has teamed with Mellon Bank in Pittsburgh, which will make mutual funds and individual stocks and bonds available through its Dreyfus Investment Service Corp., unit. Humana and Blue Cross have separately teamed with Firstar Corp. to offer Portico mutual funds; and Blue Cross of Texas is said to be negotiating with Merrill Lynch & Company. NPRI has been unable to find anyone at Blue Cross of Nevada who will comment on negotiations going on locally.