Weighing the HSA healthcare remedy: health savings accounts are quite new, and their purported advantages aren't well known to many companies. An HSA expert talks about how they work and what they can offer.

• Author: Laing, JoAnn Mills
• Position: Benefits - Health savings accounts

What is a health savings account (HSA) program, and what can it do for my business? Those are questions that are being heard more and more often these days, given that the accounts are new and the whys and wherefores aren't always well-known.

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Quite simply, HSAs offer large and small firms the ability to deliver a cost-efficient healthcare plan to employees while retaining more dollars in the company coffers.

An HSA program has two parts: a high-deductible health plan (which usually costs less than other health plans) and a tax-advantaged, portable savings account for payment of current medical expenses which builds like a medical individual retirement account (IRA).

Congress created these accounts late in 2003; they hit the market early in 2004 and are steadily gaining in popularity. That's not surprising, given that healthcare is the number one concern of small and medium-sized businesses, which have faced double-digit cost increases each of the last five years.

In 2004, the first year that HSAs were available, 10 percent of U.S. businesses adopted them in some form, according to data from the Small Business Digest. In 2005, an estimated 23 percent of businesses will offer HSAs to their employees, and predictions are that by the close of 2010, half of insured workers will be covered by some form of HSA.

In general, HSA features include: they are available to U.S. taxpayers covered by a qualified high-deductible health plan; contributions are tax-deductible; they are owned by the taxpayer and are portable; accumulated HSA funds carry over from year to year; HSA funds can be invested and earn interest, tax-free; they can be used to pay for many more healthcare offerings tax-free; money saved is an inheritable asset.

Experts both for and against HSAs agree that there needs to be a massive education program in place to instruct both employers and employees. Where HSAs are offered as part of a suite of offerings, they generally do not fare well, primarily because the accounts aren't yet well understood. However, in situations where they are mandated and properly administered, there are frequently strong positive feelings about this new approach to healthcare.

Advantages to the Company

1. High-deductible health plans cost less (rather than trying to pay for another year of double-digit premium increases, your business could be saving money).

2. Health insurance is the No. 1 benefit sought by employees, and an HSA program will enable your company to continue offering health insurance or perhaps start offering it, while helping employees build a retirement nest egg.

3. The cost of the insurance premium and any contribution to employees' HSAs are...