To paraphrase the marketing philosophy of a popular tool company, “Never sell a drill; always sell the advantages of having a hole whenever you want one.” Agents presenting an HSA to a client or prospect would do well to remember this thought. Actually, an HSA is a tool — a personal finance tool. But like many first-time tool buyers, HSA prospects may not immediately grasp all the advantages if they are distracted by what seem to be too many moving parts and pieces. Concepts such as high-deductible health plans (HDHP), minimum deductibles, maximum out-of-pocket, triple-tax advantaged, catch-up contributions, and qualified medical expenses are ultimately important to any HSA discussion. But it’s better at the outset to focus on the big-picture advantage — in other words, the “hole.”
For HSAs, this advantage is that clients can use funds already allocated for health care insurance and services to continue their level of health care coverage while also increasing their wealth. (Company-sponsored HSAs offer the same advantages, but this article will focus on private plans.)
Long before the birth of HSAs just about five years ago, many people had begun paying for health insurance using savings vehicles. They are comfortable with these tools, but how quickly they grasp the advantages of this newer tool will be determined in part by your appreciation as an agent of the product’s unique historical perspectives.
For example, some consumers don’t know their annual costs for insurance and health care, so they have no point of reference when evaluating HSAs. Their tool until now has been employer-provided coverage. Monthly premiums were transparently deducted from their paychecks, and copays became a habit. Few of them ever had a reason to add up the costs.
When you help your clients with this calculation, however, their view of an HSA’s potential value will be sharpened.
People who have been buying their own health insurance all along have a different perspective. They’ve learned to balance premium costs and deductible levels. They know what they spend. They will react positively to the opportunity to rebalance premiums and deductibles while exploring new wealth building opportunities with HSAs.
Another burgeoning group of prospects includes folks in their late 50s and early 60s. They have started to anticipate Medicare as their eventual health care resource and believe other approaches are temporary. They will eventually realize they must add supplemental policies, and in the back of their minds, they know they should also investigate long term care insurance. They may have IRAs, but depending on their age, they may not be able to touch this money without penalty for years. While they want a quality, affordable insurance plan, they can appreciate that an HSA gives them a very flexible, long-term savings and wealth-building opportunity without the minimum distributions or limitations of an IRA.
Once prospects appreciate the big-picture advantages, they can be introduced to the more specific benefits. On the insurance side of the equation, their policy for conventional PPO coverage will cost less than in the past, they can change carriers when they wish, and they can arrange premium payment schedules to suit their needs.
This sets the stage for a discussion of the term “high deductible.” “High” is a subjective term and may raise the eyebrows of some people. Because the prospect actually has a choice of deductible levels and can change the level each year, it might even be better to describe it as personalized, customized, or self-determined deductible.
The next topic you’ll want to cover is how medical bills are paid with an HSA while savings grow. Under the deductible, HSA owners must pay personal or family medical costs each year. If the self-determined deductible is reached, the insurance kicks in. The costs paid prior to that time, if any, may be more than the copay levels your clients are accustomed to. Here, you’ll want to introduce the concept of paying those costs using the money saved from lower insurance premiums that is deposited tax-free into a health savings account. No tax is paid on any money actually spent for eligible medical costs, and better yet, the unspent funds stay in the account, earning tax-deferred interest. These are federal tax advantages, but most states offer the same tax features. (It’s advisable for you to learn the state tax laws to which your prospects are subject.) Each year, more funds, up to the federally designated maximum, are contributed while the remaining funds from previous years stay in the account, earning the tax savings and wealth-building opportunities that HSAs offer.
Now, back to those senior citizens who are on or getting ready for Medicare: Once they are enrolled in Medicare at age 65, their HSA funds can be used for any medical or non-medical expenses and can be withdrawn without the 10 percent tax penalty previously imposed on withdrawals for non-medical purposes. They will be subject to federal or state taxes, but many older HSA account holders may be in a lower tax bracket than when they established the account. Unlike IRAs, there are no mandatory withdrawal requirements, so these funds can be left to earn interest or additional income from the wide range of investment options allowed for these accounts.
Finally, many prospects aged 55 and older should find the catch-up feature attractive as it allows them to put an additional $1,000 per year into the account.
In the end, if you first sell the advantages of having a “hole” and later focus on an HSA’s many parts and features, prospects should find the entire concept much easier to grasp — and be better able to see how HSAs can help them.
Reggie Karas is the senior marketing executive of health savings accounts at Millennium Trust Company. He can be reached at 630-368-5674.