HSAs Gain In Popularity
As employers continue to look for ways to control their employee benefits costs, the option they're often adding to the benefit menu is the health savings account.
HSAs are employee-owned, tax-free trust accounts offered in conjunction with a high-deductible health insurance plan. Funds placed into an HSA are taken from pre-tax income dollars and roll over from year to year, so they can be used to cover both current and future health care expenses. They generally have deductibles of $1,100 for an individual plan and $2,200 for a family plan.
Amy Chambers, director of consumer-engaged health care for Priority Health, said that overwhelmingly, once people understand HSAs and get comfortable with how they work, they really enjoy them. They also tend to re-up for HSAs the following year, which is really the best indicator, she said. Chambers wrote the booklet "Health Savings Accounts For Dummies" in partnership with Wiley Publishing Inc. Some Priority Health subscribers use HSAs for today's medical costs, but a lot of subscribers plan to use the accounts for their retirement medical costs, she said.
Priority Health has offered HSAs to employer groups for more than two years. HSA membership actually doubled last year in the Priority Health book of business, Chambers said. Of Priority Health's 550,000 subscribers, 8 percent are enrolled in consumer-engaged health care products, both HSAs and health reimbursement arrangements.
American Health Insurance Plan association data indicates there was an increase of 2 million in individual memberships in the employer group market in 2007. A recent Michigan Chamber of Commerce survey found that 24 percent of employers are considering offering consumer-directed health plans such as HSAs this year in addition to their current plans, and 10 percent indicated they were considering them as an alternative plan.
In this market, Priority Health is actually seeing more health reimbursement arrangement activity than HSA activity, which she attributes to Priority's "robust" HRA product and its best-in-class functionality. Across the nation, however, HSAs are outpacing HRAs, which also feature a high-deductible plan and a tax-preferred savings option.
"I think that word has gotten around that HSA plans are more affordable and that they're trending better, which means that year after year they're hopefully going to be costing less than traditional plans," Chambers commented. "We are seeing a lot of excitement in the employer community over these HSA plans. A lot of employers are quoting them."
Nearly half of all health insurance agents and brokers have been selling HSA-based plans since they were introduced in January 2004, according to a study released last fall by ChapterHouse LLC and the National Association of Health Underwriters.
For the employer, the foremost financial advantage of offering HSAs is that they lower their premiums instantly. Chambers said employers can see immediate savings of 14 to 40 percent off their premiums when they move from a traditional plan to an HSA. Employers can either pocket those savings or they can make their employees' days by putting some of it back into employees' HSAs.
"We're seeing a lot of that," Chambers observed. "It's a good way to start off an HSA program: It feeds the account, and it makes employees feel more comfortable that they're going to be able to meet their out-of-pocket expenses."
Another advantage for employers is that employees often see the HSA option as a true benefit because it gives them the opportunity to save for retirement, and that's not part of any other kind of health plan, she said. With most plans, employees pay premiums whether they are sick or well. If an individual is very healthy and doesn't spend any medical dollars over the course of the year, the premiums he pays just go to cover other people's expenses, Chambers explained.
"When you have an HSA, you actually get a benefit from it if you're particularly healthy, because at the end of the year, you're going to have money left over in your account that you may be able to spend for dental or vision or over-the-counter drugs," she said.
HSAs also pair beautifully with wellness programs, which are being adopted by more employers, Chambers pointed out. An HSA coupled with a wellness plan can really boost employees' levels of wellness, which in turn reduces absenteeism and workplace injuries, she noted.
Evan Llewellyn, a broker in Edward Jones' Spring Lake office, said his firm has embraced HSAs and now offers its employees two different HSA versions to choose from in addition to other types of health insurance plans.
For employees, Llewellyn said, the HSA's "triple crown" of tax benefits is quite appealing to many people. Any money that goes into the account can earn interest or be invested in a cafeteria-style choice of investment, and the earnings grow tax free. As long as the money taken out is used only for a qualified health expense — such as to pay for a deductible or for a trip to the doctor's office — then distributions are tax free, too, he explained. Money that isn't used rolls over from year to year.
"That makes it a lot more flexible for people to use," he remarked. "I think there are some really nice benefits to it, and that's probably why you see the statistics that half of insurance brokers are writing these policies."
According to Llewellyn, individuals who tend to be interested in HSAs are those who prefer to have more control over how their health care dollars are spent, are comfortable with the concept of the high-deductible health plan that's linked with an HSA, and are interested in saving as much money as possible.
Premiums are less for people with high-deductible plans than they are for people with full-blown, low- or no-deductible "Cadillac-version" plans.
Whether they go to the doctor once or 10 times, they're going to have to pay the higher premiums, he explained.
"With an HSA, your premiums are lower, and if you don't go to the doctor once, all that extra money you put in your HSA stays in your back pocket."
As for consumer-driven health plans overall: The 2007 Annual Employer Health Benefits Survey by the Kaiser Family Foundation and Health Research and Educational Trust showed only modest enrollment in employer-sponsored, consumer-driven health plans for 2007. About 5 percent of all employees were covered under such plans in 2007, up only 1 percent from the year before. An estimated 3.8 million workers were enrolled in CDHPs last year; that number was equally divided between HSAs and HRAs.
According to the Kaiser study, some 10 percent of firms offered CDHPs to their employees last year, up from 7 percent of firms in 2006. Companies with at least 1,000 workers were most likely to offer such plans, and of firms that size or larger, one in five did.
According to study co-author Gary Claxton, Kaiser vice president and director of the foundation's marketplace research, "Consumer-driven plans have established a foothold in the employer market, but they haven't grown as much as one might think, given all the attention that they receive." HQX