In another sign of the growing popularity and usage of HSAs, a major grain distributing company is using a payment system for farmers to secure a steady crop supply in the face of increasing competition.

In what is expected to be the first of many such innovative approaches, Cargill, the grain company, said that it would set up tax-free health savings accounts for farmers who pledge to sell a portion of their grain to the company.

The big producer is taking advantage of the provisions in the HSA regulations that permit the individual or corporation who provides funding for the HSA account to take the tax deduction.

The program, which company officials say is the first in the nation, is aimed at helping farmers who are struggling with rising health insurance costs while guaranteeing business for Cargill in an increasingly competitive grain market.

Heavy Pressure On Crop Buying

"Today, farmers have more and more choices where they can deliver their grain," said Dean Grossmann, vice president for sales and marketing at Cargill AgHorizons, the grain marketing unit of Cargill, which will operate the program. "We have to earn our customers' business."

Called Harvest Health, Cargill will deposit money, based on the amount of grain the farmer agrees to sell at a set price and time, in a tax-exempt health savings account. The account can be used to pay for eligible medical expenses if the farmer has a HSA eligible insurance policy.

Cargill, based in Wayzata, Minn., will deposit 8 to 10 cents a bushel, up to $2,700 for an individual and up to $5,450 for a family, into the account. Crop prices very widely from year to year, with corn typically selling for $2.50 to $3.50 a bushel, wheat for $3 to $4 a bushel and soybeans for $5.50 to $7 a bushel.

Cargill said it would restrict farmers to a maximum of 25 percent of his expected harvest, to ensure that delivery is possible in the event of a drought or other crop catastrophe. In addition, the company said each farmer must promise to sell at least 3,000 bushels of corn, beans or wheat to the company.

According to the New York Times, Alan R. May, a grain marketing specialist at South Dakota State University in Brookings, S.D., said grain companies had to be inventive or aggressive to stay competitive as the demand grew for grain used in increasingly popular products like ethanol.

Again, according to the company, farmers in 18 states in the South and Midwest, where Cargill AgHorizons operates, are eligible.