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Filling A Void

Few things vex small business owners more than providing employees with health insurance. That may be changing, though, because of health savings accounts (HSAs), which are now available with high-deductible health plans. Brokers who include these accounts in their portfolio of products and services have an additional tool that will help keep current clients and aid in wooing new ones. Brad Rosley,

Few things vex small business owners more than providing employees with health insurance. That may be changing, though, because of health savings accounts (HSAs), which are now available with high-deductible health plans. Brokers who include these accounts in their portfolio of products and services have an additional tool that will help keep current clients and aid in wooing new ones.

Brad Rosley, an independent investment advisor and insurance specialist in Glen Ellyn, Ill., has been doing just that. While talking with a wealth-management client who was a partner in a 50-employee temporary employment agency, Rosley recommended that his agency switch to the new high-deductible health care combination. By showing the agency how it would save $10,000 a month on premiums using the new health insurance plan, Rosley is only a signature away from winning a new client — and a steady annual fee from the insurer.

“They are a great tool for getting in the door,” says Rosley. Besides, “talking to clients about investing their money, now you can tell them ‘here's a way I can save you money.’”

The potential of the HSA in the small-business market as both an investment and insurance vehicle is enormous for banks, brokerages and insurers, as well as for independent advisors like Rosley. More than a third of businesses employing fewer than 100 employees — or 38 percent of all workers — don't offer any health care coverage, according to the Henry J. Kaiser Family Foundation. But small businesses appear to be ready to listen to a pitch for an affordable plan that will help find and retain employees. According to the Employee Benefits Research Institute, 73 percent of small businesses are interested in HSA accounts.


The widespread interest is impressive, given how new the idea is. Created by Congress as part of the Medicare reform package passed in December 2003, states still had until Jan. 1, 2006, to work the plans into their insurance rules and regulations.

Basically, the accounts are pretax funds set aside to deal with medical expenses not covered under the high-deductible plans, which the government defines as plans that charge $1,000 or higher for single coverage and $2,000 or higher for family coverage. The higher the deductible, the more money anyone covered by a plan can put into the savings account annually, up to the deductible or a maximum of $2,700 for an individual and $5,400 for a family this year. Unused funds can be invested in any type of security and earnings accumulate tax-free.

Still, the funds are part of a package that is, first and foremost, insurance, and financial advisors must get a license from their state insurance commissioner to sell the coverage. In most states, the license covers the sale of life, health and disability insurance. In general, getting the license involves completing 50 to 60 hours of class work and passing a state-licensing exam. Once licensed, insurance agents must also take any continuing-education courses required by their state, though many states grant reciprocal licenses to agents licensed in another state.

In any case, earning an insurance license is easier than getting a Series 7, brokers say. Whatever the cost in time and money, the returns may be well worth it to a broker when he puts on his insurance agent hat. A company plan with 60 to 70 participants, for example, might earn an insurance broker a commission of $1,500 a month from the insurer, says Rosley.

Selling insurance provides “a nice stream of income, because the insurance commissions are paid monthly,” Rosley notes. “This is something level that you can build on. The premiums pretty much go up every year, so the income goes up every year. I pay all of my base bills from insurance commissions.”


Even if a broker has no interest in working as an agent, there is potential income to be earned from having some involvement in the sale of HSA plans.

“If you've developed a strategic relationship with an insurance firm that specializes in the benefit field, you can make money,” says Paul Love, vice president of Foster Soltoff & Love, a financial advisory firm in Bethesda, Md. Love says he's more than happy to share commissions with advisors that want to forge an alliance, as long as the broker is licensed and, if not independent, has the approval of an employer to take a cut.

If an advisor meets those requirements, Love's advice is simple: “Don't leave all of that on the table. Fifty percent of something is better than 100 percent of nothing. If a rep is handling a client's investments, and can work with an insurance agent, he can bring in somebody like me.”

With the plan in place, the advisor has the inside track on adding the account holders as future clients, should their health care account holdings grow to exceed their immediate needs for medical expenses.

However, from an investment management standpoint, HSAs are so new and small there is not a lot to do with them. If an account holder gets sick or has an accident, he will need the money fast, and there would be no better place for it than a simple cash account. Still, there are signs that the accounts as investments-in-waiting are off to a good start.

Banks, both big and small, are getting in on the savings account act. Just a few years ago, the Howard's Grove Savings Bank in Sheboygan, Wis., was a quiet little community bank. Now, it's one of the largest custodial players in the HSA field.

The bank went from 120,000 accounts at the end of 2004 to more than 250,000 this year. “Our business is booming,” says Mike Glatkowski, the bank's vice president of national sales.

Mellon Financial, U.S. Bank, Wells Fargo and, most recently, Charles Schwab's trust division are among the big firms handling HSA funds.

“More and more financial advisors are calling us,” Glatkowski says. He also says that HSAs “don't fit in with the wirehouses just yet because the balances are so small. Most of the big wirehouses have at least called us, and we're trying to educate ourselves on how the arrangements with a broker/dealer might work. For the advisor, an HSA company like us has to work with the clearing firm in a way that the bank remains the custodian.”

Mark Ferris, a certified financial planner in Old Saybrook, Conn., who has a health and life insurance license, says that while the accounts “are not my specialty in deriving income,” he does advise clients on whether HSAs make sense.

“It's a service to the client,” Ferris says. “There are some things you ought to do just to strengthen the relationship. If a client asks you to open an HSA, of course you should. If you can do the HSA, the investment side of it, as a courtesy to clients, why not?”

Rosley agrees with Ferris: “If you have a good relationship with clients, there's a good chance they will switch the business over to you. Because health insurance is a commodity, the relationship is where the value is.”

Down the road, as the accounts get bigger, there may even be real investment business to be found. The law permits money placed in an HSA to be invested in stocks, bonds or mutual funds. Any investment permitted for IRAs is allowed for the HSAs. That potential is expected to attract the wirehouses and large fund providers, which will begin eyeing the accounts as if they were IRAs. (Money in HSAs can be rolled over into other HSAs, but not into other tax-deferred savings vehicles).

Advisors like Love and Rosley are looking to tap into that market. As Love says, “from a financial-planning standpoint, HSAs are a very useful tool, because it gives us a way to say to a business owner and his employees: ‘Let's look at your future medical costs.’ HSAs are a great way for a small firm to set up a basic medical plan. Are the accounts a gold mine? No. But they are a way of capturing capital.”

High-Deductible Health Plans in the Workplace

More firms of all sizes are offering their employees high-deductible health plans.

Percentage of Firms That Offer Employees a High-Deductible Health Plan, By Firm Size, 2003-2005
Year Small Firms (3-199 Workers) Midsize Firms (200-999) Large Firms (1,000-4,999) Jumbo Firms (5,000+) All Firms
2003 5% 5% 5% 17% 5%
2004 10 7 9 20 10
2005 20 20 20 33 20
High-deductible health plan (HDHP): A plan with an annual deductible, at least $1,000 for single coverage and $2,000 for family coverage.
Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 2003-2005, September 2005 Annual Survey.

Use of Health Savings Accounts On the Rise

Firms of all sizes are warming up to the idea of HSA qualified high-deductible health plan.

Among Firms Not Offering an HSA Qualified HDHP, Percentage That Say They Are “Very Likely” or “Somewhat Likely” to Offer an HSA Qualified HDHP in the Next Year, 2005.
Small Firms (3-199 Workers) Midsize Firms (200-999) Large Firms (1,000-4,999) Jumbo Firms (5,000+) All Firms
Very Likely 2% 6% 8% 10% 2%
Somewhat Likely 25 23 32 25 25
HSA Qualified HDHP: A high-deductible health plan (HDHP) that meets the legal requirements to permit a workplace to establish an HSA.
Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, September 2005 Annual Survey.
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