HSAs: The Next Healthcare Solution?
For a while now, various advocates have been predicting – or at least hoping – that consumer-directed health plans would rein in the costs of medical insurance premiums even while transforming employees into more cost-effective healthcare consumers. So far, however, less than 1% of U.S. residents with medical insurance have CDHP coverage (Adler, 2004). Now, some anticipate that health savings accounts, or HSAs, will invigorate the consumer-directed concept.
CDHPs feature higher deductibles than traditional health insurance plans but give workers the freedom to choose providers without the requirement for referrals from primary care physicians. Until their deductibles are met, participants pay the full cost of healthcare services out of pretax funds (Lee, 2003).
While CDHPs have been around for a few years, HSAs were created by the new Medicare reform law in late 2003. These accounts are available to people under the age of 65 who have a qualifying health insurance plan with a deductible of at least $1,000 for individual coverage and $2,000 for family coverage. The out-of-pocket costs for such plans can’t go over $5,000 annually for individual plans or $10,000 for family plans.
The money in HSAs can be spent tax-free on health care, and funding can be provided by companies, their employees, or both. Whoever provides them, contributions are limited to $2,600 for individuals and $5,150 for families (Epperson, 2004).
One of the beauties of HSAs is that, unlike flexible spending accounts, money that goes unspent in any given year can be rolled over to future years. What’s more, these accounts are portable because “an employee has a nonforfeitable interest in the funds and can take them along after leaving employment for any reason,” reports Mercer HR Consulting (2004).
So far, most HSA policies have been bought by people who don’t have employer-provided medical insurance, but “some employers are planning to add HSAs to their menu of insurance options at open-enrollment time,” notes Money magazine (Chatzky, 2004). With only about half a year till the next enrollment, HR professionals must start considering whether or not they want to adopt HSAs.
What makes this decision especially difficult is that the Internal Revenue Service has yet to figure out all the details relating to these accounts. One of the most important questions is whether they can be used in conjunction with flexible spending accounts (FSAs). If so, then workers could delve into their pre-tax FSA dollars in order to help pay out-of-pocket costs (Greene, 2004). Another question is exactly what types of preventive services will be exempt from the high deductibles that come with HSAs.
HR professionals also need to consider how suitable these accounts are for their employees. People with existing health problems could wind up paying large amounts out of pocket, leading to employee resentment. And some observers worry that “HSAs will attract mostly younger or healthier employees and cause other types of coverage (selected by older and sicker employees) to become more expensive” (Mercer, 2004).
Despite potential drawbacks, however, some experts think HSAs are very attractive to employers hard hit by the rising costs of healthcare benefits. “For those who are interested in migrating to a defined contribution strategy – or potentially getting out of the healthcare business – [HSAs] provide us with a platform that will enable us to do that,” said Randall K. Abbott, a senior consultant at Watson Wyatt Worldwide.
He also noted that, because HSAs are a portable, asset-based plan, they could wind up changing the whole healthcare business. “There’ll be those who provide the health insurance ... but there’ll also be those who are in the account business, and it makes evident sense that it’s going to be the financial institutions, the Fidelitys and the Vanguards and the like, partnering with a whole new array of service providers,” Abbott stated (Wojcik, 2004).
Others remain skeptical about the future of these accounts, noting that they’re a replacement for the more restrictive medical savings accounts, which never really caught on. “We have explained MSAs to many of our clients and only a couple wound up with those accounts. Most people don’t like the idea of high-deductible health insurance because they pay their own medical bills until they meet the deductible,” said Larry G. Jackson, a financial planner with Lincoln Financial Advisors (Korn, 2004). The question is whether HSAs will have better luck in the marketplace.
For a Web site devoted to HSA news, go to
www.hsainsider.com
For a PDF file providing IRS guidance on HSAs, go to
http://www.irs.gov/pub/irs-drop/n-04-2.pdf
The HR Magazine article “Assessing the Health Savings Option” can be found at
http://www.shrm.org/hrmagazine/articles/0404/0404greene.asp
To read “A New Cure for What Ails Health Care?” go to
http://washington.bizjournals.com/washington/stories/2004/03/15/story4.html
For more information on HSAs from Mercer, go to
http://www.mercerhr.com/knowledgecenter/reportsummary.jhtml/dynamic/idContent/1124205
Other details about HSAs can be found at
www.eHealthInsurance.com
The sources cited in this TrendWatcher include the following:
Adler, N. (2004, March 12). A New Cure for What Ails Health Care? Washington Business Journal. Retrieved April 19, 2004 from ProQuest database (584740331).
Chatzky, J. (2004, May). Is There an HSA in Your Future? Money. Retrieved April 19, 2004 from ProQuest database (618457211).
Epperson, S. (2004, April 5). Save for Your Health. Time, p. 85. Retrieved April 19, 2004 from ProQuest database (598335791).
Greene, J. (2004, April). Assessing the Health Savings Option. HR Magazine. Retrieved April 19, 2004 from ProQuest database (618119401).
Korn, D.J. (2004, April). Are Health Savings Accounts in Your Future? Black Enterprise. Retrieved April 19, 2004 from ProQuest database (604038861).
Lee, K. (2003, June). Consumer-Driven Health Needs New Sales Vocabulary. Employee Benefit Advisor, p. 39.
Mercer HR Consulting (2004, January 8). New Tax-favored Health Savings Accounts in the US Medicare Reform Law. Retrieved April 2004 from http://www.mercerhr.com
Wojcik, J. (2004, April 5). HSAs Set New Standard of Plan. Business Insurance. Retrieved April 19, 2004 from ProQuest database (617853071).
CDHPs feature higher deductibles than traditional health insurance plans but give workers the freedom to choose providers without the requirement for referrals from primary care physicians. Until their deductibles are met, participants pay the full cost of healthcare services out of pretax funds (Lee, 2003).
While CDHPs have been around for a few years, HSAs were created by the new Medicare reform law in late 2003. These accounts are available to people under the age of 65 who have a qualifying health insurance plan with a deductible of at least $1,000 for individual coverage and $2,000 for family coverage. The out-of-pocket costs for such plans can’t go over $5,000 annually for individual plans or $10,000 for family plans.
The money in HSAs can be spent tax-free on health care, and funding can be provided by companies, their employees, or both. Whoever provides them, contributions are limited to $2,600 for individuals and $5,150 for families (Epperson, 2004).
One of the beauties of HSAs is that, unlike flexible spending accounts, money that goes unspent in any given year can be rolled over to future years. What’s more, these accounts are portable because “an employee has a nonforfeitable interest in the funds and can take them along after leaving employment for any reason,” reports Mercer HR Consulting (2004).
So far, most HSA policies have been bought by people who don’t have employer-provided medical insurance, but “some employers are planning to add HSAs to their menu of insurance options at open-enrollment time,” notes Money magazine (Chatzky, 2004). With only about half a year till the next enrollment, HR professionals must start considering whether or not they want to adopt HSAs.
What makes this decision especially difficult is that the Internal Revenue Service has yet to figure out all the details relating to these accounts. One of the most important questions is whether they can be used in conjunction with flexible spending accounts (FSAs). If so, then workers could delve into their pre-tax FSA dollars in order to help pay out-of-pocket costs (Greene, 2004). Another question is exactly what types of preventive services will be exempt from the high deductibles that come with HSAs.
HR professionals also need to consider how suitable these accounts are for their employees. People with existing health problems could wind up paying large amounts out of pocket, leading to employee resentment. And some observers worry that “HSAs will attract mostly younger or healthier employees and cause other types of coverage (selected by older and sicker employees) to become more expensive” (Mercer, 2004).
Despite potential drawbacks, however, some experts think HSAs are very attractive to employers hard hit by the rising costs of healthcare benefits. “For those who are interested in migrating to a defined contribution strategy – or potentially getting out of the healthcare business – [HSAs] provide us with a platform that will enable us to do that,” said Randall K. Abbott, a senior consultant at Watson Wyatt Worldwide.
He also noted that, because HSAs are a portable, asset-based plan, they could wind up changing the whole healthcare business. “There’ll be those who provide the health insurance ... but there’ll also be those who are in the account business, and it makes evident sense that it’s going to be the financial institutions, the Fidelitys and the Vanguards and the like, partnering with a whole new array of service providers,” Abbott stated (Wojcik, 2004).
Others remain skeptical about the future of these accounts, noting that they’re a replacement for the more restrictive medical savings accounts, which never really caught on. “We have explained MSAs to many of our clients and only a couple wound up with those accounts. Most people don’t like the idea of high-deductible health insurance because they pay their own medical bills until they meet the deductible,” said Larry G. Jackson, a financial planner with Lincoln Financial Advisors (Korn, 2004). The question is whether HSAs will have better luck in the marketplace.
For a Web site devoted to HSA news, go to
www.hsainsider.com
For a PDF file providing IRS guidance on HSAs, go to
http://www.irs.gov/pub/irs-drop/n-04-2.pdf
The HR Magazine article “Assessing the Health Savings Option” can be found at
http://www.shrm.org/hrmagazine/articles/0404/0404greene.asp
To read “A New Cure for What Ails Health Care?” go to
http://washington.bizjournals.com/washington/stories/2004/03/15/story4.html
For more information on HSAs from Mercer, go to
http://www.mercerhr.com/knowledgecenter/reportsummary.jhtml/dynamic/idContent/1124205
Other details about HSAs can be found at
www.eHealthInsurance.com
The sources cited in this TrendWatcher include the following:
Adler, N. (2004, March 12). A New Cure for What Ails Health Care? Washington Business Journal. Retrieved April 19, 2004 from ProQuest database (584740331).
Chatzky, J. (2004, May). Is There an HSA in Your Future? Money. Retrieved April 19, 2004 from ProQuest database (618457211).
Epperson, S. (2004, April 5). Save for Your Health. Time, p. 85. Retrieved April 19, 2004 from ProQuest database (598335791).
Greene, J. (2004, April). Assessing the Health Savings Option. HR Magazine. Retrieved April 19, 2004 from ProQuest database (618119401).
Korn, D.J. (2004, April). Are Health Savings Accounts in Your Future? Black Enterprise. Retrieved April 19, 2004 from ProQuest database (604038861).
Lee, K. (2003, June). Consumer-Driven Health Needs New Sales Vocabulary. Employee Benefit Advisor, p. 39.
Mercer HR Consulting (2004, January 8). New Tax-favored Health Savings Accounts in the US Medicare Reform Law. Retrieved April 2004 from http://www.mercerhr.com
Wojcik, J. (2004, April 5). HSAs Set New Standard of Plan. Business Insurance. Retrieved April 19, 2004 from ProQuest database (617853071).