Although it seems counterintuitive, unhealthy individuals are not disadvantaged by the combination of a high-deductible health plan with a health savings account. In fact, they may stand to gain the most. Whether you are healthy or unhealthy, HSAs have advantages, but for different reasons.
All employees benefit from the efficiency of health savings accounts. Traditional health care benefits actually combine features of insurance with features of prepayment programs. By definition, insurance is the transference of a catastrophic risk to a third party. Few can argue that most routine physician visits or prescription drugs don’t meet that definition. These expenses are typically predictable and the benefit program provides a convenient, although fairly expensive, way to fund them.
The portion of the health premium that reimburses catastrophic losses is very appropriately funded by insurance, an efficient funding vehicle for unpredictable risks. However, the administrative costs of insurance, makes it a less attractive vehicle for funding predictable costs. Most insurance policies include administrative costs of 15% to 25%. As a result, if $1,000 of health premium is put towards funding these routine expenses, only $750 to $850 is actually available to reimburse claims.
In contrast, HSAs are a very efficient funding vehicle for routine health care expenses. Most accounts have a very nominal fee, typically only a few dollars a month. Therefore, $1,000 deposited into an HSA is available to reimburse almost $1,000 of expenses, a substantial increase over what could be reimbursed if funded by insurance.
It is obvious to most that healthy individuals will benefit from the HDHP/HSA combination. They will find that they can accumulate funds for current and future health care needs. This plan design rewards the healthiest employees, who are typically also the most productive. These are employees who rarely, if ever, use their health benefit, yet they have paid the same premiums and even accepted lower salary to ensure coverage.
Employees with moderate health care expenses will also fare well with a health savings account over time. They will appreciate the ability to use the tax-free HSA on a broader range of medical expenses than allowed by most insurance policies or self funded plans. In addition, they can directly benefit by becoming engaged in improving their health and making wise health care decisions.
But what about the unhealthy, the chronic and acute portion of our population? These individuals benefit from the HDHP/HSA in many different ways. Most will find that they actually have fewer out-of-pocket expenses and lower premiums with this arrangement than they would have with a traditional health benefit program.