Like many other people, I thought up the health savings account (HSA) before HSAs existed.
It seemed pretty obvious to me when I got my first real job, back in 1988, that giant insurance plans ought to exist to cover giant bills, and that people should take care of small bills out of their own personal savings. Especially in the days before the Internet, it seemed unlikely that having an insurance company pay a $10 claim was a good idea. What could be simpler than cutting insurance administration costs by setting $100 aside every month and earmarking that for everyday medical expenses?
Congress has tried to get health insurers out of paying $10 claims, and even many $1,000 and $2,000 claims, by creating the HSA program. But the Democrats got their wonks to go after the Republicans’ wonks, and, eventually, the wonks created an HSA structure that only a wonk could love.
To get the HSA tax break, the taxpayer has to combine the HSA with a health insurance plan that has a deductible that’s high, but not too high. The HSA-compatible high-deductible plan must provide coverage for the preventive services required by the Patient Protection and Affordable Care Act of 2010 (PPACA) without imposing out-of-pocket cost-sharing requirements, but the plan cannot provide zero-dollar coverage for any preventive or “penny foolish, pound wise” services other than those in the PPACA preventive services package.
Because if, say, an HSA-compatible plan decided that every enrollee should be able to get one funny-looking mole biopsied “for free,” just to reduce mole-related anxiety, that would make HSA-hating wonks very, very angry, for reasons I no longer recall.
The Internal Revenue Service (IRS) never came up with fabulous, clear-cut guidelines consumers could use to show whether they’d been making acceptable use of HSA funds, so, many consumers put the receipts in a shoebox and hope for the best.
Tango Health Inc., Austin, Texas — a company that tries to help employers move from shoebox-based HSA management systems to those involving computers and software systems — recently introduced an entire compliance program to respond to employers’ vague suspicion that they might be doing the HSA thing incorrectly.
The consultants at Tango are shaking their heads sadly and warning employers that, in many cases, they very much are not doing the HSA thing correctly.
Many times, for example, employees no longer summon up the energy to open the HSAs. The employer withholds payments from paychecks, but the payments have nowhere to go, because there is no HSA, Tango says.
In other cases, employees contribute too much to the HSA, because no one tells them not to, or employers let employees who are not even eligible to open HSAs, Tango says.
I think that people in the insurance industry who like the plank in the new Republican platform that calls for shifting Medicare and Medicaid toward defined contribution funding strategies, and away from defined benefit strategies, should strongly support efforts to help people make sense of the HSA system.
For most consumers and employers, using the HSA system or the health reimbursement arrangement (HRA) system is the only opportunity to see a defined contribution health finance program in action. How well HSAs and HRAs work in the field may affect how much public support there is for expanding use of defined contribution strategies.