While individual HSA Plan sales were strong in 2004, the same cannot be said about Florida's Small Group HSA's. Signed into law in December 2003, HSA plans put individual taxpayers back in the driver's seat when it comes to controlling health care costs. So, what's going on here–what’s the problem?

HSA plans come in two pieces: a health insurance policy, in which the owner self-insures for a portion of his or her medical expenses, plus a taxfavored cash account, from which the owner pays a vast array of medical and dental expenses with income tax-free dollars. A ground swell of healthy individuals abandoned their restrictive old-fashioned health insurance and flocked to HSA plans last year.

However, ground rules for Florida's small group (employer-sponsored) health insurance differ from individual health insurance plans, stifling the advance of employer sponsored HSA plans in 2004. Insurance companies issuing health insurance to individuals require that the proposed insured be in good health, working in a safe occupation, have a clean driving record, and meet other underwriting standards to qualify for his or her insurance.

As a consequence, claim frequency is less and premium requirements are lower. However, Florida's small employer-sponsored group health insurance plans can only require that an employee work at least 25 hours per week, and show up on the sponsoring employer's state and federal payroll records to participate in the group health plan.

To further complicate matters, the state requires a laundry list of benefits be included in each small group health plan, and then dictates the method and manner to arrive at the plan's monthly premiums. If you're a small business owner, take a look at your latest group health insurance premium notice to witness the results of our state's largess.

Setting up an HSA plan for an individual is easy. Just apply for the insurance policy, and set up the HSA cash account with your broker, banker, or credit union. Typically, the result will be lower premiums to pay, freeing up excess dollars to deposit into the tax-favored cash account.

However, small business owners wishing to do the same for their employees, have discovered, (1) that group HSA health insurance premiums are not significantly less than non-HSA plans (see above for reasons), (2) in exchange for slightly lower premiums, rank and file employees must assume a self insurance role in the plan (often a tough sell) and (3) the employer must establish a relationship with a bank or other qualified trustee to administer the HSA cash account for each covered employee, creating more fees for the employer to pay.

A better alternative for group insurance purposes may be a Health Reimbursement Arrangement, a near relative of HSA's. HRA's employ high deductible health insurance coverages, coupled with an employer "pay all" cash account.

First, medical expenses are paid from the employer's dedicated cash account until the covered employee's annual deductible has been met. After that, the insurance pays for the rest of the year. Meanwhile, the employer controls the cash account, which never vests with the employee.

Currently, insurance companies offering small group health plans in Florida are trying to use off-the-shelf plans pounded into the shape required by HSA regulations. Some are using traditional HMO's and PPO plans with "high" annual deductibles on all benefits, including prescription drugs.

Such plans would be better suited to HRA plans. As HSA rules require that annual deductibles be cumulative family deductibles rather than "per person" deductibles, and deductibles be indexed to annual cost of living, some other design changes have been necessary. However, as long as Florida citizens are saddled with our current small group health insurance rules and regulations, there may be no bright future for small group HSA plans here.

If you want to make a difference, contact your State Representatives and tell them to scrap the small group health insurance guarantee mandated in 1993. Instead, allow the insurance carriers to resume underwriting their small group health insurance risks. At the same time, create a safety net program for the uninsurable employee groups similar to what was in place prior to 1993.

Kenneth L. Smith. CLU, FLMI, owns Insurance Planning Services
and is a charter member of SBRN. He can be contacted at
(904) 285-5255 or at kensmith@kensmithhsa.com.