Health savings accounts look poised to play an even more prominent role as a health care option as both the House and Senate recently introduced health care reform bills that seek to double health savings account contribution limits.
The Chicago-based fund research firm Morningstar predicts in a recent research report that HSA plans “will become crucial as investors and policymakers strive to better understand the provider marketplace.”
While HSAs are increasing in popularity, investors have “few resources at their disposal to navigate the hundreds of plans available to them,” said Leo Acheson, Morningstar’s lead research analyst for health savings accounts, in a recent statement announcing release of a Morningstar study that establishes metrics investors should consider when choosing an HSA.
Citing Devenir, an HSA consultancy, Morningstar’s research found that HSAs held more than $35 billion at the end of 2016. “With increased adoption of employers showing no signs of slowing,” Devenir projects the figure to increase by more than 40% by the end of 2018.
Devenir further projects assets under management on the investment side to grow at a faster clip, Morningstar states.
Why have employers increasingly favored high-deductible health plans, which typically feature a health savings account?
“Companies believe that greater use of HDHPs will reduce inflationary pressure on health care spending, and, in turn, lower their health insurance expenses,” the Morningstar research states.
Health care costs have significantly outpaced general inflation in recent decades, averaging 1.4% above the Consumer Price Index during the past 10 years.
According to Morningstar, the economic theory behind HDHPs is simple: “If participants in these plans have more ‘skin in the game’ vis-a-vis higher deductibles, they will seek out preventive care, price shop for lower-cost services, and forgo unnecessary discretionary care.”
Analysts also note that most plans on public health exchanges meet the statutory definition of a high-deductible plan and are therefore eligible to be accompanied by HSAs. The “Cadillac plan tax,” an excise tax imposed upon expensive health care plans by the Affordable Care Act, explicitly favors lower-premium, higher-deductible plans, Morningstar says.
“Though Congress has delayed the implementation of the Cadillac Tax until 2020, the continuing shift toward high-deductible plans seems unlikely to change,” the firm says.
With the future of health care reform difficult to predict, “Republicans have signaled that it remains a legislative priority, and HSAs are likely to play a prominent role in any reform,” the firm says.
The American Health Care Act proposes roughly doubling the annual contribution limits, while the Empowering Patients First Act proposes raising HSA contribution limits by $2,000 and expanding access to HSAs to those covered by Medicare or Veterans Affairs health care plans.
Acheson noted that participants using HSAs to invest and save for future medical expenses “should seek plans that offer a well-designed investment menu of cheap, high-quality funds.”
Analysts found that HSA plans from four providers — Bank of America, Health Equity, Optum and The HSA Authority — “came closest to attaining that high standard,” Acheson said.
The report provides “key context to understanding the HSA as an investment vehicle but also utilizing it as a spending vehicle,” according to Jake Spiegel, senior analyst for policy research. “Investors using HSAs to cover current medical expenses should pay attention to maintenance fees, which vary by provider and can eat into savings account balances over time.”
— Related on ThinkAdvisor: