Use of health savings accounts grows

In a market where health insurance costs continue to rise for employers, more companies are turning to high-deductible health plans – and the accompanying health savings accounts – to help defray costs.

An estimated 7 million people are covered by 2.2 million health savings accounts as of the beginning of 2008, according to a survey by industry publishing company Atlantic Information Services Inc. Those accounts hold $3.2 billion, up 60 percent from $2 billion at the beginning of 2007.

Several banks that offer HSAs say the accounts’ popularity is growing – especially among small businesses that want to reduce their costs while still offering insurance benefits to employees.

The advantages

Kansas City-based UMB Bank, which has four branches in Springfield, passed the $100 million mark for HSAs systemwide in January, marking a 52 percent increase in account balances compared to the previous 12 months.

Dennis Triplett, president of UMB Financial Corp. Healthcare Services, said health insurance premium costs have been outpacing inflation – average premium percentage increases have hit double digits each of the last five years, while inflation has averaged only 2.8 percent – making companies eager to reduce insurance expenses.

“One thing (employers) can look at is increasing co-pays and deductibles, and having employees pay greater shares of the premium,” said Triplett, who is based in Kansas City but was scheduled to visit Springfield April 11. “They’ve done some of that, but now they’re looking at other things that can be done, and one is consumer-directed health care with a higher deductible.”

Higher deductibles mean higher risk for employees, but Missouri State University finance professor Stanley Adamson said that increased risk means lower premiums, making the trade-off attractive to employers and some employees.

He added that health savings accounts allow individuals to have total control over their money – how it’s invested and what it’s used for – and can accumulate funds over time.

“If those monies aren’t used entirely in a year, you can continue to accumulate the money and draw interest on it, saving it for when and if you need it,” Adamson said of HSAs. “With a traditional flexible spending account, when you put money aside, if you don’t use it (before year’s end), you lose it.”

On the downside

Despite such advantages, Adamson said employee perception is among the drawbacks to HSAs.

“If you’re dealing with an employee that is relatively low-income, these increases in front-end deductibles are going to be viewed as a reduction in benefits,” he said. “It’s not going to be well-received by any employee probably, but certainly not those with lower incomes.”

He noted that reductions in taxable income aren’t a big incentive for low-income employees, as 40 percent of all Americans don’t make enough money to pay income taxes at all.

Adamson also said that some companies offer the high-deductible health plans and accompanying HSAs in addition to a traditional insurance plan – but this, too, has its risks.

“The higher-income people, or the younger and healthier people, would opt for the high-deductible plan, leaving the older and higher-risk people in the other plan, which would cause premiums to increase,” he said.

UMB’s Triplett said the biggest challenge associated with HSAs is educating consumers to think differently about health care.

“The biggest challenge is how to communicate the concept, because it is a change in the basic way people look at health care,” he said. “How do you get the employee to understand that they are now engaged in the process, that these are their dollars and they have control over how they can be spent?”

Growing demand

Challenges aside, demand for HSAs is only expected to grow. The U.S. Treasury Department estimates that, assuming the laws regulating HSAs are unchanged, up to 30 million people will be covered by HSAs by 2010.

“I can think of no disadvantages to the accounts,” said Doug Marrs, chief operating officer for Great Southern Bank. “If you qualify for it and can possibly scrape together the funds for an HSA – and I don’t care where it is or who it’s with – it’s a huge advantage.”

Marrs said Great Southern began offering HSAs shortly after they were created in 2004. He declined to say how many accounts the bank had, though he said it was “several hundred.”

Even banks that don’t offer the accounts see the benefits. While Commerce Bank doesn’t offer HSAs, Vice President Karen Favor said they are being considered for the institution’s portfolio.

The bank is particularly interested in HSAs targeted at small businesses rather than individuals.

“I think there’s a lot of educational issues that go along with the (individual) offering,” Favor said. “Customers drive by a branch, see that we offer HSAs and might think they can have one, when in truth they’re going to have a certain type of health care plan and there’s a lot of tax implications and ramifications. That’s I think why the employer channel is more attractive to Commerce, because we’ll know we’re targeting the right audience.”

What is an HSA?

The federal Medicaid reform law that took effect Jan. 1, 2004, created the ability to open health savings accounts. To be eligible for an HSA, individuals must be enrolled in a high-deductible health plan, which is defined as a plan with an annual deductible of at least $1,100 for individuals or $2,200 for family coverage.

Health savings account holders can deposit pre-tax money into their account to be used for accepted health costs, including doctor or hospital fees and medication expenses that must be paid in order to meet the deductible.

Source: www.irs.gov