Could The Uber Popular HSAs Be The Face Of Health Care Reform?

During a recent webinar hosted by the Employee Benefit Research Institute (EBRI), several industry executives took part in a “healthy” discussion of health savings accounts (HSAs).

Taking cues from EBRI's database of more than 11 million HSAs, they shed light on ways account holders contribute to, withdraw from, and invest their HSAs. They also shared real-world observations about behaviors surrounding HSAs, as well as a few public policy ramifications for these versatile tools.

One of these executives was Jake Spiegel, research associate, health and wealth, EBRI. According to Spiegel, the EBRI database is now in its eighth year and has grown to contain data on over 11.4 million HSAs, with assets totaling more than $32.9 billion as of the end of 2020.

Most accounts in the database are relatively new, reflecting the recent proliferation of high-deductible health plans (HDHPs). About half of the HSAs in the database are fewer than four years old.

With regard to balances, continuing the upward trend observed during the past few years, average HSA balances increased once again to $3,622. New accounts had relatively smaller balances, while older accounts had higher balances.

Regarding contributions, the average individual contribution decreased slightly from the all-time high observed in 2019, and employer contributions declined slightly as well. In general, Spiegel pointed out, contributions tend to increase with the age of the participant, and older workers are more likely to incur medical expenses than their younger counterparts. They also tend to earn more.

The average distributions declined to the lowest levels observed in EBRI’s HSA database. This may be the result of the reduction in health care services during the height of the pandemic.

The share of HSA holders with invested assets is different from the share of HSA holders without invested assets, Spiegel added. The share of account holders with invested assets increased over the years, reaching 9% in 2020. In general, HSAs with invested assets have higher average contributions, higher balances and higher net contributions than those without invested assets.

A DEI Lens On HSAs

During his presentation, Spiegel also offered a Diversity, Equity and Inclusion (DEI) lens on HSAs. EBRI recently examined the extent to which account holder behavior—in terms of contributions, distributions and investments—varied along demographic lines.

In general, the organization found that account holders who live in disproportionately White or Asian zip codes, for instance, had higher average balances and higher average contributions than their counterparts in disproportionately Black or Hispanic zip codes. Also, male account holders made higher contributions and had higher balances, on average, than their female counterparts.

The Present And Future State Of HSAs

Roy Ramthun, president and founder of HSA Consulting Services, described the present and future state of HSAs, which were created by legislation and are highly regulated.

There is an ongoing debate between the government and the private sector for control of health care. Conservatives want HSAs to be “the health reform” and would like them to replace employer-sponsored health coverage and its tax preferences.

Insurance would be individually-owned, portable and not job-dependent, just as HSAs are, Ramthun added. Also, HSA contributions would be increased, and funds could be used to pay for premiums and out-of-pocket expenses. HSAs would be offered in Medicare, Medicaid, etc., and consumers would drive competition, lower costs and improve quality.

On the other end, liberals want the government to provide universal coverage in a system that is like or is built on Medicare. Employer-sponsored coverage will be replaced and tax savings would be used to subsidize coverage. Insurance would be individually owned, portable, and not job-dependent. The government would regulate the cost and quality of health services.

Ramthun then posed an interesting question: Would universal health coverage provided by the government mean the end of HSAs? The two systems do not have to be mutually exclusive, he responded. In Singapore, for example, HSAs are compatible with government-run health care, and contributions are compulsory.

Divided control of the federal government means that neither liberals nor conservatives will likely get what they ultimately want.

“I don’t see dramatic change anytime soon,” Ramthun said. Instead, he added, “the political battle will happen in the middle and change will probably be incremental.” Large changes, he pointed out, are difficult to achieve, except once every few years.

Possible Incremental Changes To HSAs

Ramthun then shared some possible incremental changes to HSAs. They include:

• Changes to eligibility (who can have an HSA—Medicare, Tricare, VA, Indian Health Service, Direct Primary Care, Health Care Sharing Ministries and dependents).
• Changes that make HDHPs more “attractive”:
  --Change HDHPs to HSA-qualified plans.
  --Expand first-dollar coverage below the deductible.
  --Expand preventive care.
  --Have options to allow more plans to be paired with HSAs.

Other possible changes based on House/Senate bill introductions include:

• Telehealth—This needs a permanent fix.
• Fitness and exercise equipment
• Nutritional and dietary supplements
• Allow both spouses to make catch-up contributions to the same HSA.
• Changes to contribution limits
• Larger catch-up contributions

Ayo Mseka has more than 30 years of experience reporting on the financial-services industry. She formerly served as Editor-In-Chief of NAIFA’s Advisor Today magazine. Contact her at [email protected].

Ayo Mseka has more than 30 years of experience reporting on the financial services industry. She formerly served as editor-in-chief of NAIFA’s Advisor Today magazine. Contact her at [email protected].