HSA – SIZZLE OR FIZZLE?

You may have read any number of articles touting the virtues of the new Health Savings Accounts (HSAs) recently passed into law by Congress. According to the articles we have seen, HSAs will solve all the problems we have with the medical care delivery system and how we pay for the care we receive. We think the following considerations will help you better evaluate HSAs.

AN OVERVIEW

The original Archer MSAs were due to expire as of 12/31/03. Health Savings Accounts were passed to take their place and are simply an expanded version of the MSA. The structure of a Health Savings Account program combines a high deductible medical insurance policy that takes care of the larger bills with a savings account that will provide money to pay for the little bills. The minimum deductible permitted is $1,000 per single and $2,000 per family. Participants may deposit up to $2,600 per single $5,150 per family for deductible and co-insurance into their Health Savings Account. The real headline news is that there is an unlimited rollover of funds not used. This is undoubtedly attractive.

CONSIDERATION #1

Unfortunately, there can be no first dollar coverage associated with these plans including a drug card, a Dr. Office Visit benefit, or an FSA. Consider that one well-known brand name drug costs $120 per month. $1,440 would take most all of the permissible HSA annual deposit with nothing left for anything else. We are not sure America is ready to pay full price for either drugs or doctor’s fees, nor are they possibly ready, for the ones that use it, to give up their FSA.

CONSIDERATION #2

Most articles that we have seen suggest that an HSA program will save money. This is not exactly true. An HSA program does not change the cost of medical insurance. It rearranges how you pay for it. Healthy employees (under age 30) will probably save the majority of the money deposited into an HSA because they do not have many qualified expenses. Employees with children and empty nesters will save very little money, if any. They incur a lot of bills if they are taking care of themselves.

CONSIDERATION #3

HSAs are supposed to make us better consumers of medical care. They are supposed to do this because we are spending money from the HSA that we could continue to roll over were not used. In short, it is supposed to be our own money therefore we will spend it more carefully. Maybe! Have you ever tried to talk to a doctor or hospital about money? Consider how many bills you receive from providers of medical services that you never even see. The medical care delivery system is conditioned and structured to provide you with every service known to man without cost consideration. At this point, interrupting this process is difficult at best.

CONSIDERATION #4

Every now and then companies attempt to change insurance carriers to dodge the latest premium increase. The high deductible medical insurance policy insuring an HSA is subject to the same inflationary cost pressures as any traditionally funded plan. Premiums will rise. Changing insurance carriers may prove difficult for an employer offering an HSA type plan to their employees. At present there are very few insurance companies that offer this product. We shall see how the market unfolds.

CONSIDERATION #5

The money deposited to an HSA does not have to be paid out as bills are incurred but rather as money is periodically withheld and deposited to the Account. Consider the employee who incurs significant medical bills before having the chance to deposit much money and then has to make arrangements to pay providers in payments.

CONSIDERATION #6

Responsibility for proof that monies spent from an HSA were for qualified expenses lies with each participant. Participants are provided with checks or debit cards to pay for services. Kroger may have a pharmacy but they also sell chips and beer. Imagine what will happen when your average worker finds out that the check can be used at Kroger to buy anything in the store.

The market may well grow into this type of benefit structure. At least initially however, we see this type program as possibly a part of a dual offering along with a traditionally funded medical insurance plan. Archer Medical Savings Accounts fizzled. It will be interesting to see if the same fate awaits the new Health Savings Account.

About the author: This article was written by Peter B. Deist and originally appeared in the IARFC Register. Mr. Deist is the President of FlexBank, Inc. He is a graduate of Miami University and has been in the benefits business for over 30 years. FlexBank, Inc. administers FSAs, HRAs and HSAs in combinations designed to achieve maximum cost efficiency and participant satisfaction.