By Cyril Tuohy
Financial advisors scheduling appointments for midyear check ups with clients might want to have them consider a health savings account (HSA) over the health reimbursement arrangement (HRA).
HSAs, which are offered only to people with high deductible health plans (HDHPs), are more likely to influence employees to engage in cost-conscious behaviors related to the consumption of health care services, according to new research from the Employee Benefit Research Institute (EBRI).
“The data show that those with an HSA were more likely to respond to health pricing than were those with an HRA,” said Paul Fronstin, director of EBRI’s Health Research and Education Program.
The basic premise of the HSA/HDHP model is that no one cares more about how you spend your money than you do because the funds are coming out of your account. Employers don’t reimburse employees for their medical spending.
If a doctor prescribes a brand name drug that ends up costing $100, alert consumers can insist on a $15 generic knowing that they won’t be reimbursed for spending $100.
When a doctor recommends patients go for a simple elbow X-ray at a hospital, and the hospital charges $200 for the service, consumers have more incentive to book an appointment with a diagnostic service charging $30 for the same procedure.
In an HSA arrangement, an employer will contribute, say, $600 for an individual annually, and the rest comes out of the employee’s payroll. The employee owns the funds in the account and is responsible for how they are spent.
HSA accounts are portable from job to job and are “triple tax-free” in that accounts are funded with pretax contributions, interest accumulates tax-free and the withdrawals for qualified medical expenses are untaxed.
Distribution from HSAs can be made at any time, and individuals need not be covered by a HDHP to withdraw money from an HAS. This means that money left over in the account during an employee’s working years can be used to pay out-of-pocket expenses when they are retired, EBRI said.
Some experts have called HSAs the health care equivalent to the 401(k).
By contrast, under an HRA model, an employer-funded health plan reimburses employees for medical expenses but the employer isn’t required to make the unused balance available to workers then they leave the company.
Approved by Congress in 2003, HSAs have grown to more than 10.7 million accounts nationwide, according to Devenir Research’s Year-End 2013 HSA Market Survey.
Assets in HSAs totaled more than $19.3 billion at the end of last year, an increase of 25 percent over the end of 2012, Devenir Research also reported.
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].
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