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Last week's depressing news was a report that health insurance premiums have risen yet again. Worse now is that employers are making employees pay more of the cost. Fifty nine percent of the companies surveyed also said they were cutting benefits and/or raising employees' share of premiums.

Whether the employer or employee has to pay more hardly matters, because it's effectively employee money that makes up the cost of fielding a labor force. We're only kidding ourselves when we consider a benefit to be "free" because the employer pays for it.

When employer insurance costs go up, there goes more of what could have been more money for us. However, several tax-subsidized programs now combat the problem of rising costs. Fundamentally, "It never pays to insure something you can afford to pay for yourself." Anytime we purchase insurance to pay for a small, every-day claim, we're trading dollars with an insurance company. This means that to receive any dollar of benefit, we are also paying for layers of management overhead, commissions and dividends to stockholders, not to mention $1.4 billion to a single CEO recently. We definitely need insurance to cover the big claims, like cancer treatments, but fortunately they don't happen very often. Insuring them can be relatively inexpensive for employers and their employees who choose to sweat some of the risk on the small stuff.

Three types of vehicles use tax savings (pre-tax dollars) to cushion the cost of self-funding. First, the highly publicized Health Savings Accounts (HSA's) allow employer and/or employees to contribute tax-free dollars to fund a self-insured deductible (from zero to at least $2,900 for singles and up to $5,800 for families).

All health insurance carriers (including Kaiser) now have high-deductible products integrated with this self-funding format. The employer can offer to pay the self-funded portion by any arbitrary amount (often some portion of what they saved in premiums.) The money deposited either by employee or by employer can be rolled into future years and can build up as a resource for paying for any health-related expense, tax-free, at any time over the remaining life of the employee. It can even be invested in stock mutual funds and eventually rolled into a 401(k).
It all sounds good until we realize that the money can also be spent on anything at any time as long as the employee is prepared to pay income taxes on any non-healthcare-related distribution. For many, it will amount to just a taxable bonus which defeats the purpose.

A second approach is the 20-year-old Section 125 Flexible spending accounts with which most are now familiar. These plans allow participants to deposit tax-free money to pay for any health-care-related expense not otherwise covered by insurance. Employers can also contribute. There is a "use it or lose it" provision in these plans that prompts some employees to shy away from making any substantial contributions, but for those who do some planning and have a handle on what they typically spend, these plans amount to a 45 percent government subsidy for health-care costs (pre-tax contributions save federal, state, social security and Medicare taxes --- all at the highest marginal rate.)

The final approach is the HRA or Health Reimbursement Account. This is the employer's contribution commitment to the self-funded high deductible program often duplicating what the fully insured plan would otherwise have provided.

Typically, the premium savings will be roughly twice the employer's self-funded cost. The HRA is a far better alternative than the HSA, because any unused funds return to the employer. Many young singles go years with no claims at all. Knowing that more comes back can allow the employer to make a larger commitment on paper. The HSA contributions, by comparison, are gone forever, so the employer commitment must be reduced to roughly half of what they could have been promised to an HRA.

Bottom line: A creative approach can mean more savings, and every dollar of savings means more contributions to 401(k) plans --- a place where real long-term value takes place.

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