Health Quarterly: HSAs tried-and-true

Health Savings Accounts, with their triple tax benefits, should be the tool most people use when planning for health care expenses later in life.

Financial advisers say they tell their clients that HSAs are the best way to make sure they have the roughly $250,000 for health care expenses later in life.

“These are the best tool, regardless of income level, for people who are planning for the future,” said Dennis Triplett of UMB Healthcare. “And it is a way to pay for health care now — HSA’s make people more responsive to the marketplace. They make them better consumers of health care.”

Investment analyst Allan Roth of Wealth Logic agrees, saying that he has a HSA himself — and advises his clients to use them as well.

“It’s a tool for future health care needs,” he said. “They have great tax benefits, they roll over every year. By the time someone retires, they’ll have money specifically for health care. I view it as a vehicle like an IRA, except solely for health care. Essentially, you’re insuring yourself.”

HSAs are funded by employee contributions, as well as contributions from the company — at least about 80 percent of the time.

The contributions are tax free for both the employer and employee, and the withdrawals are tax free. Money saved in an HSA can only be used for health care purposes.

“But that runs the gamut,” Triplett said. “You can use it for over the counter medications, for eyeglasses, for doctors’ visits. As long as it’s a true health care need, you can use money from the HSA.”

However, Roth believes they aren’t the answer to the health care dilemma. When he needed a colonscopy, he wanted to comparison shop doctors, since he was paying for the procedure out of money from his HSA. However, answers were in short supply.

“It was impossible to find out how much it was going to cost,” he said. “Doctors didn’t want to reveal the costs, because frequently they have different deals with different health insurers.”

Roth said HSAs should be viewed as a valuable tool for health care costs, but cautions they won’t drive down the costs.

But Triplett doesn’t see any down side. He said the insurance program, created during the Bush administration, benefits everyone.

“There is some angst,” he said. “People worry, ‘what if’ — you know, they go in the hospital within weeks of setting them up. What happens then? That’s why we encourage employers to contribute to the maximum level, that stops the anxiety.”

The concern about early hospital admission comes from the high deductibles typically associated with an HSA. The lower premiums come up very high deductibles — ranging from $2,000 to even as high as $10,000. Patients must come up with the deductible first, before charges are covered by the plan.

That’s one of the criticisms of HSAs, at least from a provider standpoint. John Suits, associate administrator of government affairs for Memorial Health System, said it’s a problem Memorial struggles with.

“We don’t have any problem with the HSAs themselves,” he said. “But the high deductibles, we have a problem with. We have to try to collect that money from people, and many people don’t have it — particularly with extremely high deductibles.”

It’s not that the hospital doesn’t view HSAs as a valuable tool in the long term, but they do worry about their own finances in the short term.

“We had to lower our costs for out patient radiology, for example,” Suits said. “We couldn’t compete with the free-standing facilities. So we can not just pass along the costs of bad debt to patients — we’ve hit that ceiling. And we hit it a few years ago.”

People who are wealthy enough to contribute the maximum amount every year don’t have problems, Suits said.

“But I would guess — we don’t track this — but I would guess that the majority of people aren’t maxing out their contributions,” he said. “And that means they don’t have the money in their account to cover hospital expenses when they happen.”

But his worries could be falling on deaf ears. HSA use is rising, particularly in Colorado. Many are attracted to the very low monthly premiums — and the promise of saving on their taxes.

According to America’s Health Insurance Plans, an industry group, there are more than 11.4 million people with HSAs in the country. That’s up from 10 million last year.

“It’s an important part of a portfolio,” said Roth. “It’s beneficial because the money’s never taxed, so it benefits your tax bill too.”

Suits doesn’t contest any of that — he believes HSAs are important to keep people insured.

“If people are wealthy enough to invest to the maximum level, that’s great,” he said. “We’d have no problem with that. We just struggle to get paid with these plans, and that makes a huge difference to us.”