It’s not a new topic.
The increasingly popular Health Savings Account (HSA) is making an impact on U.S. health care spending.
But at what cost?
Billion Dollar Baby
A recent study from the RAND Corporation, published in the May 2012 issue of Health Affairs, reviewed consumer-directed health plans, which includes personal health accounts and high-deductible health plans.
A reported 13 percent of all employer-sponsored health plans fall into this category. According to the study, if that number grew to 50 percent, health costs could drop by $57 billion annually.
But, there’s a catch.
There usually is when you’re talking billions.
It’s not clear if the cutbacks in spending will be at the expense of consumers’ health.
Consumer Education
The basic concept of consumer-directed health plans is educating people to be better health care consumers. And therein lies the problem.
Consumers remain baffled about these types of plans.
How They Work
HSAs are the most popular of the consumer-directed health plans. Here’s how they work.
HSAs have two parts.
- A high deductible health plan
- A savings account for health care expenses
The money you put in your savings account can be used tax-free, provided the HSA meets certain IRS requirements.
The current HSA 2012 requirements for the annual deductible is a minimum annual deductible of $1,200 for an individual and a minimum of $2,400 for family coverage. There are also contributions and out-of-pocket restrictions.
- Deductible - Except for certain preventive services, you must satisfy your deductible first before the high-deductible plan pays a benefit
- Eligible expenses - You can use your tax-free savings for eligible health care expenses
- Tax penalty - Savings used for non-eligible expenses are subject to tax and a 20 percent penalty
Consumer Confusion?
The deductible does its trick – it stops consumers from consuming health care.
There’s a downside to that. It stops consumers from consuming the RIGHT kind of health care.
- Confusion or intent – consumers tend not to receive preventive services
- Even though some plans cover them at 100 percent
- And the deductible does not apply
Another downside of consumers not seeking care is the worsening of chronic conditions.
- Consumers don’t take medication
- They do not have preventive screenings
- They do not follow their physician’s treatment plan
Estimates for non-compliance is $300 billion in avoidable health care costs.
There’s those billions again.
Does the billions in non-compliance cancel out the billions in savings?
Are we cutting out the wrong kind of health care expenses – the kind that saves lives. We still search for the magic pill to health care. One that won’t cost a fortune and is easy to swallow.
My humble opinion? We’re not there yet. What do you think?
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Notice of Disclaimer –Cathy Miller is not an attorney or health care provider and cannot provide legal or health care advice. The information provided is for your general background only, and is not intended to constitute legal or health care advice as to your specific circumstances. We recommend you review legislation with legal counsel and visit your physician for health care issues.
{ 8 comments… read them below or add one }
Cathy, if I have an HSA and don’t use it in a particular year what happens – does it roll over? Who is using that money of mine that’s in savings?
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Hi Anne: The HSA savings account is owned by you. You decide how you use the funds. Like I mentioned in the post, if you use it for qualified healthcare expenses (as defined by IRS), distributions are tax-free. If you use it for something other than qualified expenses, the distribution is taxed and a penalty applies – similar to taking an early distribution from an IRA or 401k.
There are maximum contributions you can make each year – again, as defined by IRS, which they update. Banks report contributions and distributions, but will not monitor if you play by the rules – that’s your responsibility.
There’s a similar plans employers may offer, known as Health Reimbursement Arrangements (HRAs) where the employer owns the funds so if an employee left the company, they could not take the funds with them.
I have an HSA and I’m quite happy with it. I see your concerns about people with high-deductible plans Cathy, but such a plan is best for me because I have fairly good health and I seek health care when I truly need it, even though I have to pay for it.
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Hi John: I have an HSA as well. At my age, it’s the best plan in terms of premium. I am also very healthy and understand the parameters so it works.
My fear is with the big push of HSAs by employers in efforts to save costs (which I don’t blame them for), but sometimes it’s the only option, and employees who cannot afford the high deductibles put off care.
I appreciate you sharing your story, John.
Having been self-employed for most of my career, health insurance has been an on-going subject. I’m now 71, so I’m on Medicare and a supplement, but before I was 65 I was paying over $1200 a month to Blue Shield for $3500 deductable major medical for the wife and I out of my own pocket. I looked at the HSA option, but figured it was a better move to put the $ into an IRA or SEP. Over the years I’ve had to draw from those tax-deferred instruments and pay the penalties, but considered that just the cost of doing business as a self-employed person.
Hi Chuck. Thank you for sharing your story. I know what you mean. I was very spoiled from 30+ years of an employer (in the health insurance business, no less) sponsoring my health insurance.
It’s a shock to the system when you become self-employed (like I am now) and have to pick up the whole cost. Each person has different needs and there certainly is no one size fits all.
Thanks again for sharing your experience.
Why is it that health care is the only industry that I can think of that doesn’t have the consumer injected into the decision making process. I’m not speaking about emergencies, but essentially everything else that doesn’t need immediate attention. I launched a website called HSA Consumer to provide free HSA education for those that own one now. We’ve got to teach them how to save and spend in their HSA plan wisely. Consumers always demand lower prices, and higher quality. Look at lasik eye surgery, no third party payor, price down, quality up.
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Hi William: Thanks for sharing your information. I agree education is sorely lacking in HSAs.
From my broker days, I saw too many times employer groups slapping a consumer-driven health plan into the mix of employee benefits mere weeks before open enrollment. Employees don’t understand how it works, which is evidenced by this study.
I’m not slamming HSAs (I have one), but there needs to be education and choices that fit the various demographics. One size does not fit all.
Thanks for your thoughtful comments and I applaud your education efforts.