Charting the Unknown Water of HSA’s in the Health Insurance Exchanges

By Reed Erickson, VP of Compliance & Risk Management

Most benefits professionals agree that the health insurance exchanges have the potential to create real change in the health care industry. But the high degree of unknowns related to the long-term implementation of the state-run and federal exchanges is dampening the excitement for many people and creating a wait-and-see attitude among employers and industry professionals.

What we know, and what we don’t know
Health insurance exchanges, as laid out in the Affordable Care Act (ACA), are new for 2014, which means there is a tremendous amount of work being undertaken by states and health insurers to develop the infrastructure to support this type of purchasing system. And what worries many critics as well as supporters is because there is little history for the exchange system the industry has no baseline for predicting what kind of results will be realized.

The majority of the discussion related to health insurance exchanges has centered around the health plan design and pricing. And while little has been publicly said about health savings accounts (HSAs), we do know that the exchanges will feature HSA-compatible health plans.

The HSA is a valuable complement to the high-deductible health plan (HDHP), because it allows and encourages individual consumers to set aside money for future health care needs, and it can provide a short-term buffer for medical emergencies.

This is important, because it’s anticipated that health care costs will at least initially increase once the exchanges go into effect. A report from the Society of Actuaries predicts that insurance companies will pay 32 percent more in claims costs once the exchanges go into effect. The upside of this is that millions of people will have access to health coverage who previously were uninsured.

Although the health insurance exchanges will initially roll out without HSA selection as an option, some experts predict that employers and individuals will continue to choose the HDHP option because it will be less expensive to start, and it can be coupled with an HSA for added savings potential.

Consider the recent study from TowersWatson and the National Business Group on Health, which states that 66 percent of large companies (with 1,000 or more employees) offered at least one account-based health plan option in 2012. That number is expected to increased to 80 percent in 2014.

Account-based health plans are expected to see growth within the exchanges because HSA plans have been proven to slow the growth in health care spending. For example, a 2012 study from the Rand Corporation, a policy research institute, found that families with consumer-directed health coverage like HSA plans spent an average of 21 percent less on health care the first year after switching from traditional coverage. Consequently if half of those with employer-sponsored coverage were in account-based plans, it’s estimated that health care costs would fall by $57 billion.

Educating consumers about HSA compatible health plans
While the popularity of HSAs has soared in recent years – in 2012, 11.6 million people owned HSAs nationwide, according to the Employee Benefit Research Institute many consumers who are new to purchasing health insurance will have to overcome a learning curve before they realize the potential value of the HSA as a health care savings tool. That will call for a concerted and ongoing education effort.

The responsibility for educating individuals about their option to open an HSA and how this could benefit them will fall soundly on the shoulders of health plans and HSA administrators, since there will initially be no direct visibility on the exchanges. Here’s what individuals will need to know in the short term:

* The basics of how the HSA works
* How much the individual can contribute
* Contributions to the HSA reduce tax liability
* How to get money from the account to pay for expenses
* What the HSA can be used for (eligible expenses)
* Tax-free withdrawals for eligible expenses
* Where to go for more information about HSA rules
* How to open an HSA and how to find an HSA administrator
* What kind of service and support to expect from an HSA administrator

Establishing transparency for long-term success
To be successful in the long term, individuals should be able to shop for an HSA when they choose a qualified, high-deductible health plan from within the exchanges.

Once the initial rollout of the health insurance exchanges is complete, it will be essential for those HSA choices to be transparent within the framework of the exchanges. This will allow one-stop shopping for an entire health package. Just as with the health plan, the HSA selection needs to provide visibility into the available HSAs, their costs, their benefits, and educational tools that enable consumers to make the best choice possible.

Available HSAs Consumers should be able to see a list of companies that offer HSAs and compare the HSA plans offered by each company.
Costs Individuals should be able to clearly see what, if any, monthly administrative fee they will pay for their HSA. In addition, they should be able to see a detailed list of extra fees that some HSA providers charge, such as account opening and closing fees, non-sufficient funds fees, and debit card swipe fees.
Benefits It will be important to spell out the financial benefits of the HSA to the consumer. From understanding the tax advantages of the account (reducing taxable income and paying no tax penalty on withdrawals for qualified expenses now or in retirement), earning interest on account balances, the long-term savings potential of the HSA, and the potential to invest unused HSA dollars into a variety of stocks, bonds and mutual funds, will help individuals make informed decisions.
Educational tools Individuals should be able to connect to information and tools, such as online cost calculators, that help them understand how the HSA saves them money and contributes to long-term savings, in addition to instructional videos and tips on how to use the account.
For individuals who choose a qualified high-deductible health plan, embedding these features into the health exchange infrastructure will deliver the best experience possible, because it will enable them to choose a health plan that best fits their health care needs and budget, while building a foundation for a financially sound and healthy future.

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