As insurance costs grow more painful, medical savings accounts may offer some relief
HEALTH-INSURANCE premiums could jump 11% for small companies this year, so it's no wonder that medical savings accounts -- an overlooked alternative to traditional coverage -- are starting to take off. First approved in 1997, these hybrid accounts have languished despite much fanfare by small-business advocates. Of 750,000 accounts authorized by Congress, only 50,000 had been set up by last December. Why? "MSAs have been unattractive not to the buyer, but to the seller," says Emmett B. Keeler of Rand Corp. Brokers are put off by the paltry commissions low premiums yield.
But if you can find a vendor, MSAS are worth checking out. They consist of two parts: a tax-free savings account, similar to a 401(k), that you can tap for routine medical expenses and a high-deductible, low-cost insurance policy that covers catastrophic illness. True, that makes an MSA complicated, partly because it requires an insurer and a separate investment plan administrator. Also, the accounts must be funded entirely by either the employer or employee in any given year. But with high-deductible policies costing 20% to 60% less than other health plans, companies are starting to sign up.
Insurer interest is growing, too. Nearly 50 carriers now offer MSA-linked policies, and about a dozen banks and financial firms, such as Merrill Lynch & Co., administer them. MSA money can be invested in savings accounts, mutual funds, stocks, or bonds, and accumulate tax-deferred if not used.
Strict legal guidelines mean the terms of MSAs don't differ much. Deductibles must fall between $1,550 and $2,300 for individuals and $3,050 and $4,600 for families. After that, most plans cover 100%. But premiums and administration fees vary considerably, so get several quotes. At the low end, State Bank of Howards Grove in Wisconsin charges just $12 to open an MSA and a $1 monthly fee. Wells Fargo charges $35 and $2.
If you're interested in MSAs, start by checking out the few specialists. MSAver Resources (MSAver.com, 888 367-6727), an Overland Park (Kan.) administrator, can also give quotes for insurers throughout the U.S. Plan 3 Inc. (plan3.com, 301 951-0077), an independent insurance broker in Bethesda, Md., won't handle administration but offers advice on selecting a vendor who does. Or find a qualified broker near you by clicking on the Web site of the National Association of Alternative Benefit Consultants, a trade group of specialists in MSAs and self-funding plans (www.room100.com/msa).
If you want simplicity, several insurers -- such as Milwaukee's Fortis Health and Golden Rule Insurance Co. of Indianapolis -- can arrange for administration, too. But you'll have to take what they give you. That might not be the worst medicine, considering health-care costs.
By Joshua Kendall
This article was originally published in the May, 24, 1999 print edition of Business Week's Frontier. To subscribe, please see our subscription policy.
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