The voices of critics of consumer-directed health plans are fading into the background as such plans and their accompanying health savings accounts are enjoying strong growth. And looser federal restrictions on HSAs are likely to send those numbers even higher.
The fact that the government is looking for better options in HSAs is a sign theyre here to stay, says Shawn Jenkins, co-founder, president and chief executive officer of Benefitfocus, which provides technology for health plans, financial institutions and individuals to help manage HSAs. And theres no doubt it will strengthen the niche market that HSAs already serve, Jenkins says.
However, It wont be the tipping point to create a mass adoption of HSAs, Jenkins says.
Insurers seem to be embracing the movement: Most of the big plans have rolled out their own versions of consumer-driven plans, including Blue Cross and Blue Shield, says Wayne Sensor, CEO of healthcare provider Alegent Health in Omaha, Neb. In the meantime, the trend is causing the provider community to pause a moment and consider how they want to react, he says.
Theres good reason for that, as arrangements such as HSAs could put providers in the position to accumulate bad debt, Jenkins says. Providers arent geared to collect payment from individuals in the same way they can collect from the government or insurers, Jenkins says. A remedy for this is to train the provider community on point-of-sale strategies, to collect payments directly off debit or credit cards, Jenkins and other sources recommended.
HSAs are tax-exempt accounts in which individuals deposit funds to pay for medical expenses. The accounts are usually partnered with a high-deductible health plan intended to cover serious illness or injury once the deductible is met. The HSA in turn would be used to cover small or routine medical expenses until the deductible is met. The plans also can mean much higher out-of-pocket costs for patients, another risk to them as well as providers.
Previously, there were limits on how much consumers could contribute to the HSAs, and maximum contributions were prorated based on the number of months that an individual became eligible for the plan. People were somewhat held back under the old rules, Jenkins says. There were restrictions on who could get access to them, the contribution amounts were kind of low, and there were timing elements to them, he says.
The new lawthe Health Opportunity Patient Empowerment Act of 2006, effective as of Jan. 1made HSAs more user-friendly and accessible by loosening the strings on those restrictions, Jenkins says. For example, it eliminated the requirement that an annual contribution can be no higher than the HSA plan deductible. Previously, you could contribute only up to the amount of your deductible, and there was a cap on that, Jenkins says. If your deductible was $2,000 but the cap was only $1,400, you could only put in $1,400, he says.
Under the new law, the maximum contribution for individuals in 2007 is $2,850 and $5,650 for families, limits that are indexed for inflation. It also made it easier to make transfers to HSAs from other types of accounts such as individual retirement accounts, flexible-spending accounts, and health reimbursement accounts, or HRAs, the latter of which operates like an HSA but have use it or lose it strings attached. HSAs by comparison have a use it or save it approach, a far better choice for consumers, says John Goodman, president and founder of the National Center for Policy Analysis.
For people seeking a high-deductible insurance plan, the new law probably tips them toward making that decision, says Michael Gantt, president of the insurance group at Fiserv, an information and management services company for the financial and health benefits industries. Specifically, the company supports HSAs and the banks that post deposits for HSAs.
But Gantt notes that the full effects of the law probably wont be felt for another year since it took effect at the beginning of the year. Most companies dont make changes to their insurance plans and have their open-enrollment periods until November or December. Next year, well know more, he says.
Gantt says that the new law essentially tweaked the broader provisions under the Medicare Modernization Act of 2003 that authorized the use of HSAs. Its not anywhere grand on a scale of change, he says.
Purchasers of HSAs are aware of the changes, however, and are interested in how they will affect their bottom line, says Kirk Hoewisch, president of HSA Bank, Sheboygan, Wis., a provider of HSAs. Hoewisch says he was inundated with calls from employers and individuals when the law took effect in January, asking the bank for our opinion on how these changes would affect their accounts and how much they should contribute to it.
Employer interest in HSAs is huge, Goodman says. While it might be easier for a smaller employer to switch to HSAs, larger companies like Wendys International and Whole Foods Market have been putting all of their employees into HSAs or related accounts, he says.
In Omaha at least, the market is becoming very penetrated with consumer-driven plans, Alegents Sensor says. In addition, a larger number of employers have rolled out consumer-driven plans, including ConAgra Foods, Mutual of Omaha Cos., Union Pacific Corp. as well as Alegent. Of the healthcare systems 8,500 employees, at least 88% are either in an HSA or an HRA, even those for whom a PPO is still available, Sensor says.
Goodman believes the new provisions will definitely encourage growth, although HSAs have been growing pretty fast anyway. An Atlantic Information Services report on Blue Cross and Blue Shield plans that was released in March reported that Blues plans were currently covering 2.5 million enrollees with a consumer-driven focus, a 67% increase from 2006. That includes HRAs and HSAs, says Vicki Lundy, marketing manager for specialty products for Blue Cross and Blue Shield of South Carolina. In explaining the reason for the big jump in consumer-driven plans, I think its become more mainstream, Lundy says.
As for the number of people enrolling in the plans, the numbers vary depending on the source, although evidence is building that the numbers of enrollees are climbing steadily. Goodman estimates that at least
10 million to 13 million people are currently enrolled in HSA plans, whereas a recent survey from Americas Health Insurance Plans reported that 4.5 million Americans are covered by high-deductible health insurance plans offered in conjunction with HSAsa 43% increase from 3.2 million in 2006. In the individual market alone, HSA enrollment rose 29% to 1.1 million in January from 855,000 in January 2006, according to the census report released by AHIP.
More than one-fourth of those purchasing HSA plans in this market were previously uninsured and almost half of those enrolled in such plans were over the age of 40. In the group market, enrollment rose to almost 3.4 million in January from 1.4 million a year ago.
Jenkins estimates that roughly 7% of those covered by employer-based health plans have HSAs, although that percentage may rise to 10% by the end of 2007. A small part of that may be driven by the new law, but the impetus for an increase in HSA enrollment will be the cost of health insurance, he says. Full-blown traditional health coverage is expensive, and the reality is that employers are looking to pass along more costs to employees, Jenkins says. Theyre saying: Cant afford the premium? Heres a way to buy less insurance and have a little safety net with a high-deductible plan.
Some people, under the assumption that Medicare and Social Security might not be around by the time they retire, may decide to use their HSAs as a reserve fund over the years, HSA Banks Hoewisch says. The option of putting in thousands of dollars tax-free over the years would appeal to the young and the old, he contends, because they could decide either to use that money for medical expenses or for other retirement needs.
Like any other healthcare solution, however, HSAs cant be constructed to help everyone, Gantt says. For now, mostly healthier people are going to gravitate toward the plans more quickly because they dont see themselves going to the doctor frequently, and since that money wont be tapped anytime soon, they can conserve it. High-deductible health plans are less likely to attract people with chronic conditions such as diabetes because the incentives for preventive care and disease management are not as sophisticated as they need to be, Gantt says.
In a policy brief issued in February, the Center for Studying Health System Change concluded the new law would actually pose barriers to improved patient compliance with chronic condition treatment regimens. For example, deductible waivers for many expenses required for effective disease management, such as diabetes testing supplies, are still not permitted. Meanwhile, a recent article in the Journal of General Internal Medicine contends that HSAs and other consumer-driven health plans create an unfair burden on women because of the higher amount of medical services they often need.
The recent changes may have gotten employers of highly paid people interested, but the new law only makes HSAs into more of a tax shelter than ever before, says Paul Ginsburg, president of the Center for Studying Health System Change. In looking at HSAs in the context of the larger healthcare industry, its not the most important trend to watch for, Ginsburg says. Youre contrasting the few million people enrolled in HSAs vs. the 160 million privately insured people experiencing changes in structures involving patient cost-sharing. The latter is whats going to have an effect on the healthcare system. HSAs are really just a sideshow.