Health Savings Accounts Tiptoe Into The Market
So, are health savings accounts ready?
The short answer, for producers who want to set up relatively simple HSA programs, is, “Sure.”
The long answer is, “The new guidance that the Internal Revenue Service hopes to release this summer could come in handy.”
When President Bush signed the Medicare Prescription Drug, Improvement and Modernization Act of 2003 on Dec. 8, 2003, he ignited a firestorm of debate about how the United States should and should not help retirees with prescription drug costs.
He also brought HSAs to life. HSAs, which resemble the old Archer Medical Savings Accounts, join a third kind of account, the 18-month-old Health Reimbursement Arrangement.
Employers can deduct contributions to both HSAs and HRAs from taxable income, and employees can roll unused assets over from one year to the next without paying federal income taxes on the assets.
Employers can contribute whatever they want to HRAs, but the maximum combined HSA contribution for employers and employees is the same as the deductible for the health insurance that accompanies the HSA. The current maximum is $2,600 for individuals and $5,150 for families, according to early Internal Revenue Service guidance.
HSAs replace Archer MSAs for employers that want new, MSA-like health benefits programs.
Some health insurance experts, including analysts at the Employee Benefit Research Institute, Washington, question whether account-based health plans will have much effect on health care costs, or much appeal for employers.
Although participation in consumer-driven, account-based plans probably has doubled in the past 12 months, Meredith Rosenthal, a Harvard University researcher, estimates total enrollment may be only about 600,000.
Many Blue Cross and Blue Shield plans are just starting to introduce health plans based on the older HRA account design.
In the central California area, sales of HRA-based plans have been slow, according to Susan Polk, a San Luis Obispo, Calif., health insurance broker.
But Polk, who has been in the insurance industry long enough to remember when employers paid $9 per month for health coverage for single employees, says she thinks the HSA law could lead both to strong sales of HSAs and stronger sales of HRAs.
“Sometimes, when you offer 2 things, its easier to sell 1 thing,” Polk says.
Janet Trautwein, a former benefits broker who now serves as vice president of government affairs at the National Association of Health Underwriters, Arlington, Va., says she thinks HRAs and HSAs could end up having a far more powerful effect on the U.S. health finance system than the managed care movement.
Once a company negotiates tough provider contracts and sets up review systems to discourage use of unnecessary care, it has pretty much wrung all the cost savings that it can wring out, Trautwein says.
When, on the other hand, employers set up HRAs and HSAs for their employees, “people will continue to become more savvy consumers,” Trautwein predicts. “Youre completely changing the way people decide to make their purchases.”
How does this translate into a sales strategy for producers in the trenches?
For one thing, experts interviewed say, the flavor of the day is “plain vanilla.”
On the surface, the language of the new HSA looks reasonably clear, but lawyers and accountants at organizations such as the AAHP-HIAA, Washington, are poring over the text of the HSA bill and the IRS guidance to find out what questions they should be asking.
“Our members our working through the issues, and we will be submitting a request for further guidance,” says AAHP-HIAA spokesman Mohit Ghose.