Are Health Savings Accounts (HSAs) the wave of the future? It appears that way. HSAs have been referenced by President Trump, the new Secretary of Health & Human Services, and Congress as part of the “healthcare solution." With this type of near-consensus, it seems likely we will see an expansion of HSAs with the proposed replacement of the Affordable Care Act (ACA).
HSAs are not a new concept. In fact, tax laws creating HSAs were signed by former President George W. Bush back in 2003. Initially, employers were slow to adopt these tax-favored savings accounts that are used to pay for out-of-pocket medical expenses. However, HSAs have become much more popular in today’s turbulent healthcare environment. Our most recent NC Healthcare Benefits & Cost survey, conducted with Capital Associated Industries (CAI), determined approximately 30% year over year growth in Consumer Driven Health Plans (CDHP) since 2010. As a result of the recent growth, about 40% of North Carolina employers now provide a CDHP to their employees.
Why is there renewed energy and enthusiasm around HSAs? Republicans now want to make the HSA accounts more appealing to all Americans and also allow individuals to save money now to help pay for future healthcare.
Under current regulations, an individual must be enrolled in a Qualified High Deductible Health Plan (QHDHP) to either receive or make pre-tax contributions into their HSA. Currently, a QHDHP must meet a minimum deductible of $1,300 before medical expenses would be covered for “single” coverage; or a minimum $2,600 deductible for “dependent” coverage. There have been recent political discussions of removing this minimum deductible requirement and allowing individuals to make HSA contributions even if they are enrolled on a medical insurance plan that has “copays” for medical services and medications (not subject to the deductible). This proposal would make HSAs much more appealing for many Americans.
There’s also been discussion of increasing the contribution amounts allowed into a HSA. For 2017, an individual is generally limited making contributions of $3,400 for those with single coverage or $6,750 for individuals with dependents into their HSA. One proposal calls for significantly increasing the maximum HSA limits to $6,550 and $13,100 respectively. Individuals would continue to contribute funds into their HSA tax-free. Those funds would grow tax-free and come out tax-free to pay for qualified medical expenses, and individuals would still be allowed to roll-over their HSA funds year-to-year, just like they do currently.
Finally, will the expansion of HSAs be a “silver bullet” leading to lower healthcare cost? The jury is still out, trying to determine if we – as a population – will become better consumers of healthcare and take better care of ourselves if we pay for medical services from our own HSAs. Our study, with over 600 employer respondents, showed only slightly (1.8%) lower medical insurance renewals on QHDHP when compared to a standard PPO copay plan. One reason for the limited impact of the QHDHP, is that approximately 5% of the population is driving close to 60% of the cost of care. Once these high claimants reach their out-of-pocket maximum, there is little incentive for them to try to and control their cost at that point. They simply want to get healthier and are not concerned about the underlying medical cost since they are covered at 100% by the insurance company once their out-of-pocket maximum has been met.
If you have questions about Health Savings Accounts or you are interested in implementing Qualified High Deductible Health Plans for your employees, please contact your HCW consultant.