Health savings accounts aren’t just for the “healthy and wealthy.”
More than 50,000 HSA accounts are opened every month in the United States, according to account administrators, showing the dramatic effect of a relatively new insurance alternative.
“This is the best thing I’ve seen in health care — and I’ve been doing this for 31 years,” said Tom Voake, a partner in Effective Choices, a group benefit specialist team that is part of Strategic Financial Partners. “The HSA concept is a strategy, one that allows people to plan for the future by putting the money aside today. In my opinion, this option is perfect for people who have chronic illness.”
Health savings accounts are generally combined with a high-deductible health insurance plan. Once the deductible is met, the insurance companies pay 100 percent of covered medical costs.
In the two and a half years since HSAs were created as part of the Medicare Prescription Drug, Improvement and Modernization Act, consumers and employers have embraced the insurance alternative. In Colorado, more than 26,000 people have health savings accounts, according to the Department of Insurance.
“These plans are unique, they offer no up-front co-pays, but all the money comes out of pocket until the deductible is met,” Voake said. “That’s where the savings accounts come in. They’re portable — like a medical IRA — and have a great tax advantage.”
But the idea is still new, and can be confusing. Voake said the biggest issue is getting employers to realize that the plans have separate parts: the high-deductible insurance plan and the savings accounts.
The high-deductible creates lower premiums, but people must also pay into a savings account to cover health-care costs, he said. That’s where the tax advantage comes in.
Money that is put into a health savings account is not taxed, Voake said, and it isn’t taxed when it’s taken out to pay for medical costs. The federal government limits the amount of money put into a plan, but the lower premiums make saving money for the HSA easier, he said.
“With escalating premium costs for traditional preferred provider or health maintenance plans, employers and consumers can actually save money using a HSA,” Voake said. “You put the money in on a monthly basis, and depending on the employer, there will be some contributions on that end as well.”
Employers can save millions on health insurance costs using the HSA plans — particularly those that pay an employee’s entire premium, he said. But switching to the plans requires a shift in thinking.
“People have to realize how much it really costs to go to the doctor,” Voake said. “Not just their $20 co-pay, but what it actually costs. For some people, it’s too much trouble. But this plan allows people to become educated about what it costs and how controlling that cost benefits them — it’s their money. The biggest hurdle is giving up the prescription cards and taking control of where their money goes. It definitely requires a different thought process. It requires a strategy to pay those up-front costs. But they don’t have a strategy to pay the out-of-pocket costs from a traditional plan.”
Voake said that everyone — regardless of income — can benefit from the health savings accounts. It’s a belief echoed by major insurance companies.
Rocky Mountain Health Plans offers two health savings account plans. Vice President Jim Swayze said the company has seen substantial growth this year in inquiries about the plans.
“There’s a lot of confusion surrounding the plan,” he said. “And so a lot of what we do is communication and education. HSAs can serve a great purpose, but there’s a lot to understand. We expect that people will be signing up as they find out more about the plans and how they work. It can be complex; a lot of it depends on employer contributions and out of pocket alternatives.”
Rocky Mountain Health Plans caters to small companies in Colorado, and Swayze said that most applicants are not from the upper tier income level. He believes that average employees could benefit from the plans — and small businesses that don’t offer health insurance could start, thanks to the lower premiums that come from high deductible health insurance.
Interest in HSAs is growing so quickly that some benefits specialists are predicting the end of traditional insurance. The trends certainly support that outlook: forecasts are that the number of employers offering HSAs will quadruple this year, according to Mellon Financial Group.
And Voake believes the consumer-oriented plans will catch on. Their tax benefits, portability and roll-over status make them attractive to businesses and employees, he said.
“HSAs have long-range benefits,” Voake said. “By the time you’re 65, most of us can’t afford a qualified plan. But you’ve created a pot of money that they can take out to pay Medicare premiums, they can pay for medicine. And they’re not taxed for it. It’s a way to fund retiree medical costs that we haven’t had before.”
The plan also allows people to withdraw money from an HSA for non-medical reasons, he said. That money is taxed the same way a 401(k) withdrawal is taxed.
But some insurance companies believe traditional plans still have a place for employers. At Aetna, Jeff Miller said interest in the plans is rising, but the number of people enrolling in the plans is steady.
“We see far more interest in the plans than we do people signing up for them,” he said. “We have about half a million nationally covered under these consumer-driven plans. So the adoption rates are much less than the interest levels. Basically, it boils down to each customer’s specific needs.”
Voake believes it’s only a matter of education — and of getting people involved in making their own health care decisions.
“I personally think everyone should have one,” he said. “Some people don’t want to be involved, they find it’s easier to deal with a drug card and not worry about the dollars and cents. But this gets people involved in the real costs — medicines don’t cost $10.”