An HSA might be a good health policy for you.

Industrial Distribution - August 1, 2005

Jack Keough
Editor/Associate Publisher

It doesn't matter if you own a small distributorship or a large one: health care costs continue to be a major problem for all businesses throughout the country.

Industrial Distribution's 59th Annual Survey of Distributor Operations (p. 32) shows that health care costs in 2004 increased an average of 15 percent for distributors, on top of a 12 percent increase the year before. In fact, 76 percent of the nearly 800 respondents to the survey reported that their health care costs increased last year, while another 20 percent said those costs remained the same.

When we asked what steps they took to control health care costs, 43 percent of the respondents said they increased their employees' share of contribution; 29 percent increased deductibles; 25 percent found new insurance providers; 20 percent reduced coverage; and 3 percent eliminated coverage altogether. (The percentages add to more than 100 because many distributors adopted multiple strategies.)

That 3 percent number might be higher next year if the results of a national study are correct. The Kaiser Survey of Employer Sponsored Health Benefits 2004 showed that the percentage of all workers receiving health coverage from their employers fell from 65 percent in 2001 to 61 percent in 2004.

But distributors are doing what they can to absorb the increases—at least for now.

"We absorbed the costs this year, but we don't know how much longer we can do that," one distributor told us. "We were forced to eat the increase because our employees cannot afford to pay the increase. We want to retain our workers."

Other distributors said that they worked with independent insurance agents who specialize in distribution and were able to mix and match some coverage without impacting health care services. Still others said they negotiated harder with their existing insurance companies to soften the blow of the increases.

There are no clear-cut ways for distributors to reduce health care costs. But if distributors are to remain competitive, they're going to have to examine new methods for controlling these costs, such as using Health Savings Accounts. HSAs are worker-owned, high-deductible plans that function like tax-free investment accounts to help offset health expenses. HSAs have become extremely popular in the last year, and they could be an important strategy for distributors looking to lower their health care costs. It's worth investigating.