The Health Savings Account Might Have Its Moment

Jan. 31--Questions continue about what will replace the Affordable Care Act as the GOP makes good on promises to unwind President Barack Obama's signature health care reform law, but experts say two things are certain: consumers will shoulder a bigger share of health care costs in the future and health savings accounts will get their day in the sun.

HSAs were created in 2003 to allow people to put aside tax-free money to pay medical expenses that are not covered by health insurance such as co-pays and deductibles. The accounts are usually paired with approved high-deductible health insurance plans, which are growing in popularity nationwide but have been slower to get traction in Western Pennsylvania.

"HSAs are the cornerstone of GOP plans," said Carolyn McClanahan, a physician-turned-financial counselor and director of St. Augustine, Fla.-based Life Planning Partners Inc. "We're definitely going to see them focus more on HSAs, which shift more financial responsibility to the consumer."

Despite health savings accounts' tax advantages, experts say they have a number of shortcomings, although some could be softened through legislation. In addition, giving consumers more control over of their health care dollars doesn't mean they will make smarter decisions about medical expenditures because comparative pricing information is sorely lacking.

"We're moving to more of a consumer-based decision making model," said Thomas West, partner at Signature Estate & Investment Advisors LLC in McLean, Va. "But there's no comparative reporting on different medical procedures. You don't know anything about quality at all. That's the biggest challenge of HSAs."

The savings accounts were created in 2003 as a tax-exempt tool funded by individuals and, sometimes, their employers. The accounts are often funded through payroll deductions and paired with eligible health insurance plans that have annual deductibles of at least $1,300 for an individual or $2,600 for a family, and out-of-pocket maximums of $6,550 for individuals and $13,100 for families.

HSA-eligible health insurance plans cover 20 million to 22 million people and their dependents, and $30.2 billion was held in health savings accounts as of Dec. 31, 2015, according to the Washington, D.C.-based Employee Benefit Research Institute. Nearly 30 percent of employers offered an HSA-eligible plan in 2015, a percentage expected to rise as companies look for new ways to cut costs.

A person's medical history and income are among the factors that determine how much should be saved in an HSA, but the average account balance was $1,844 at the end of 2015, according to the research institute. Distributions from HSAs depended on age, from $634 for people under age 25 to $2,365 for people ages 65 and older during the same year.

Contributions to health savings accounts are tax deductible from gross income and interest on the accounts accumulates tax-free, which are among their advantages. Also, money in the accounts rolls over from year to year and can be invested.

But the health savings accounts require people to save, something that Americans are not very good at.

In November, household savings were just 5.5 percent or about $5.50 from every $100 of disposable income, according to the U.S. Bureau of Economic Analysis. For people in higher income brackets, putting aside extra money may not be much of a stretch, yet families living paycheck to paycheck may find that upping their savings for health expenses isn't possible, experts say.

"Somebody has to fund the HSA," said Dennis Spingola, vice president of broker relations at Bethel Park-based brokerage Emerson, Reid & Co. "For the average working person, it's going to be difficult."

Families with children, who are likely to have higher medical expenses, also may not like relying on a health savings account, Mr. Spingola said, because of the difficulty in saving enough to cover high out-of-pocket medical expenses from a high deductible plan coverage.

"If you use your plan a lot, you're not going to like the HSA," he said. "You'll never be able to save enough money in that account."

Still, the health savings account is having its moment.

It's a feature in the Patient Freedom Act, a bill introduced in January by U.S. Sens. Bill Cassidy and Susan Collins. The legislation tweaks rules to expand allowable uses of HSA money to include insurance premiums.

The role of the health savings account is also expanded in the Empowering Patients First Act, which was introduced in 2015 by U.S. Rep. Tom Price, an orthopedic surgeon and President Donald Trump's nominee for Health and Human Services secretary.

Mr. Price's bill called for granting a one-time $1,000 tax credit to open a health savings account and raising the annual individual contribution limit to $5,500 from $3,350 while also increasing the fund's allowable medical expenses.

Health savings accounts have helped increase consumer awareness about the cost of medical procedures, prompting consumers to choose urgent care centers over higher cost hospital emergency rooms for minor issues, for example, said Doug Moore, director, benefits division at North Shore-based Seubert & Associates, which has offered an HSA and high-deductible health plan to its employees for eight years.

Consumers have also become quicker to question doctors about the need for costly medical tests. But putting enough money away cover medical expenses may still be a challenge.

"It's a great way to save money," Mr. Moore said. "But you have to have money in the HSA in order to spend it."

Kris B. Mamula:[email protected], or 412-263-1699

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