Vermont Insurer Proving Successful with HSAs

Published October 1, 2005

When Blue Cross Blue Shield of Vermont introduced a basic high-deductible health plan coordinated with a Health Savings Account (HSA) in January 2004, there was a 400 percent growth in the number of customers moving from the Medical Savings Account (MSA) market into the HSA market. The rate of HSA adoption in Vermont is the highest in New England.

BCBS Vermont first launched an MSA product in January 1998 and saw a limited level of market acceptance, according to Richard Taylor, corporate product developer at BCBS of Vermont. “We saw growth from 1998 through the end of 2003, but it was very slow growth.

“We were just starting to experience a level of market acceptance, particularly in the very small group market segment, when the Medicare bill passed [in 2003] and HSAs supplanted MSAs,” said Taylor. “It really exploded with the introduction of HSAs.”

Businesses, Associations Attracted

Taylor credits business partnerships, in particular several small group business associations and professional associations, for expressing interest in MSAs initially and gravitating naturally toward HSAs.

“Small business associations are hearing the message on HSAs through our advertising and newsletter vehicles, and they are also hearing the same message through professional and business organizations that a lot of the small employers are members of.”

Vermont’s economy is dominated by small businesses. Eighty percent of private employers in the state have fewer than 10 employees, and 60 percent of all individuals who are employed in the state work for small businesses. “They are fighting to survive, frankly,” said Taylor, because of increasing costs associated with running a small business, including health care costs.

Accounts, Purchasers Growing

“Our most popular HSA is built on a traditional, comprehensive major medical product,” said Taylor. “It has a $2,250 deductible, and that is the individual level deductible. It carries an out-of-pocket maximum of $2,250, so we pay at 100 percent after the deductible is satisfied. We have coordinated the prescription and medical deductible since we introduced the benefit.”

BCBS Vermont has approximately 14,500 covered lives in its high-deductible HSA plans–roughly 7,000 HSA accounts.

In 2005, the first larger business customers started to adopt HSAs in Vermont. Several employers with between 75 and 200 employees selected HSAs through BCBS Vermont this year.

“There is a beginning trend that we are seeing so we are anticipating new accounts from larger employers,” Taylor noted. One Vermont school district will be moving to an HSA for all of its employees on January 1, 2006. The district will fund employee accounts at a rate of 80 percent.

Investing in Accounts, Renewing

Local insurance brokers who were not previously active in HSAs have become very interested in 2005. “About 70 percent of all of the business that brokers bring to us in the small group market for 2005 has been in at least some combination of HSA products, if not 100 percent replacement with HSAs,” said Taylor.

“We are not experiencing a situation where people who are adopting the high-deductible health plan are then not opening accounts,” Taylor said. “We believe we have 100 percent of the subscribers who are involved in the HSA products opening the account.”

BCBS Vermont’s largest single pool of HSA members, the Vermont-based small group association Business Resource Services, re-enrolled at 100 percent in January 2005.

Stabilizing Costs, Increasing Benefits

“Companies that adopt HSAs are able to stabilize insurance costs while delivering more benefits to employees,” said Tom McKeown, executive director of Business Resource Services in Burlington. “Since the account has no ‘use-it-or-lose-it’ provision, employees have a vested interest in controlling costs.”

McKeown credits the success of HSAs in Vermont to a strong partnership between the insurance companies and HSA administrators, ongoing education of brokers selling the product, creation of educational materials for groups and employees, a clear understanding and differentiation of the insurance company’s and HSA administrator’s roles, and diligent monitoring of member feedback.

The demographics of Vermont’s HSA population mirror the general insurance pool in the state. “We’ve experienced a high degree of acceptance by people employed in a broad range of employer types,” Taylor said.

“We’re also experiencing a consistent uptake trend from the uninsured ranks. While the numbers are not huge, we’re seeing about 10 percent of our new HSA business moving from uninsured status into the insured market,” Taylor said.

Dan Perrin ([email protected]) is president of The HSA Insider.

For more information …

“HSA State Implementation Report,” which summarizes state efforts to implement and encourage use of Health Savings Accounts, is available online from the Council for Affordable Health Insurance,