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A new study on health savings accounts says these 401(k)-like vehicles may not provide the medical spending relief some executives expect.
Marie Leone, CFO.com | US
July 14, 2006
Health savings accounts (HSAs), the employee medical plans created by the Medicare Act of 2003, are under fire again, this time for not delivering on their promise to help companies trim health-care spending.
A new study, sponsored by the Commonwealth Fund and published this week in the policy journal Health Affairs, concludes that compared with traditional health-care insurance, HSAs — and their accompanying high-deductible health plans (HDHPs) — would reduce cost sharing among many employees, rather than stimulate it. Corporate executives had hoped that if employees were offered HSAs/HDHPs, they would pick up more of their own health-care costs, thereby reducing corporate health insurance expenses.
Under the Medicare Act, HSAs allow workers to set aside pretax dollars they can later use toward their out-of-pocket medical expenses. But an HSA must be offered in tandem with an HDHP, in which an employee pays at least $1,000 for health care ($2,000 for family coverage) before insurance kicks in. Because employees pay so much out of pocket, their employers pay much lower premiums than they would for traditional insurance.
The study, "How Much More Cost Sharing Will Health Savings Accounts Bring?" — penned by Dahlia Remler, a professor at Baruch College's School of Public Affairs, and Sherry Glied, a professor at Columbia University's Mailman School of Public Health — says that typical health plans in the market today already incorporate substantial cost sharing, and companies conduct periodic reviews of their traditional plans to control consumer spending. So the reduction in medical spending that most company executives expect from implementing HSA/HDHP will not likely materialize.
What's more, the only growth in cost sharing is likely to come from the midrange spenders, those employees that spend between $700 and $6,100 on health care during the year. "There just isn't enough money [in that midrange group] to provide anything more than a modest increase in cost sharing," Remler told CFO.com.
More important, big spenders — the workers responsible for half of all medical spending — would see no change, or a decline, in cost sharing at the margin and on average. That's because introducing maximum out-of-pocket limits while raising deductibles — a trend that is happening in many companies — allows big spenders to quickly reach the threshold at which insurance coverage kicks in.
The new findings probably won't stop the migration to HSAs/HDHPs, however. In January, enrollment by employees and individual consumers in HSA-eligible insurance plans topped 3 million, more than triple the number in March 2005, according to America's Health Insurance Plans, an association of insurers. The total accounts for 2 percent to 3 percent of all health-care insurance plans in the country, estimates Mike Thompson, a principal with PricewaterhouseCoopers.
Thompson expects the percentage to rise to 25 percent in the next five years, and does not think the study's findings will dampen the enthusiasm for the accounts. For one thing, he says that in terms of taxation, HSAs are "perfect," as they allow employees to deposit and withdraw money on a tax-free basis, as long as the funds are used for medical expenses.
More broadly, Thompson says that studies like the Commonwealth-sponsored report "help get beyond the rhetoric and promote a richer discussion of the matter." He contends that by revisiting the study, and other research like it, plan designers may be able to come up with better solutions.
In the end, says Remler, there may be a few companies that design plans that meet their cost-sharing goals, but most will be disappointed. "There is a limit to the amount of cost sharing you can have and still offer protection [to employees]," she asserts.