Myths about Account-Based (HSA-Type) Plans

There are a lot of myths about HSAs and other account-based plans. I have compiled a list of the top myths and done my best to debunk those myths in the article below..enjoy!

Top 5 Myths of Account-Based Health Plans (Health Savings Accounts (HSAs) and Health Reimbursement Arrangements (HRAs)).

Myth #1: Account-Based Health Plans are not good for “sick” people with chronic diseases.

Truth: People with higher medical costs are typically better off with account-based health plans. Why? Because according to the Kaiser Family Foundation’s 2008 Employer Health Benefits Study, (see: http://ehbs.kff.org/) the average employer contributed $2,073 to a family’s healthcare account and the average deductibles for families with account-based plans were $3,559 compared to a weighted average for all other plan deductibles is $1,213 (HMOs $1,053, PPOs: $1,344, and POS plans $1,860). The employer’s healthcare account contribution, coupled with the significant tax savings for out-of-pocket expenses that are enjoyed by people with account-based health plans, make these plans better for “sick” people. Additionally, according to a report by the American Academy of Actuaries, people with chronic diseases tend to use preventative and maintenance care as much or more often that people in traditional plans (see: . http://www.actuary.org/pdf/health/cdhp_may09.pdf).

Myth #2: Account-Based Health Plans are growing slowly in popularity.

Truth: Account-based health plans are growing faster than other major historical offerings in employee health benefits, namely 401(K) plans and HMOs. The graph below shows the adoption of account-based health plans (ABHPs) relative to 401(K)s and HMOs in their respective first 5 years.

Myth #3: Account-Based Health Plans are not effective for large employers.

Truth: According to the country’s largest employer benefit consultant, Towers Perrin, more than 50% of the largest companies in US are currently offering account-based health plans to their employees (see: http://www.businesswire.com/news/google/20080924005308/en). Currently over 8% of all employees are enrolled in account-based plans, with the fastest growing segment being large employers. The reason for this appears to be the fact that large employers can save millions of dollars by implementing an account-based health plan. A recent Watson Wyatt National Business Group on Health survey finds that employers implementing account-based plans have premiums that are 18-20% lower than for HMOs and PPOs (see: http://www.watsonwyatt.com/research/resrender.asp?id=NA-2009-11478&page=1).

Myth #4: Account-Based Health Plans are only tax shelters for the rich.

Truth: The majority of people with account-based health plans (specifically HSAs) come from households with average incomes. A recent study by America’s Health Insurance Plans (AHIP) studied census-track data on over one million households with HSAs and found that 83% of these households live in neighborhoods where the 1999 median annual income was less than or equal to $75,000 (see: http://www.ahip.org/content/default.aspx?docid=26986).

Myth #5: People with Account-Based Health Plans avoid necessary medical care and risk good health.

Truth: The American Academy of Actuaries study mentioned above found that people with account-based health plans receive appropriate, evidence-based care as much or more often than people in traditional plans. Many studies, including one by Health Partners in Minnesota (see: http://www.healthpartners.com/files/39058.pdf) have found that people with account-based health plans are much more engaged in their own health decisions than those in traditional plans. Furthermore, many health plans such Aetna’s HSA plans offer first dollar coverage for medications for many chronic disease, thereby helping to save money and improve health for account holders (http://www.aetna.com/data/preventive_med_list.pdf).

Compiled and updated by Steve Neeleman, MD, CEO of HealthEquity August 2009.

Top 10 Reasons to have an HSA

Recently, friend of mine asked me for my short list of reasons to have a health savings account (HSA). In true David Letterman style, here are my Top 10 reasons:


Top 10 Reasons HSAs Make Sense for Business Owners and their Employees

1. HSAs help provide lower cost insurance for employers and their employees.
2. HSAs help employers save payroll tax dollars. Due to the tax structure of these accounts, employees are incentivized to put more money into their accounts that in-turn, saves employers’ payroll tax dollars.
3. HSAs help employees to avoid taxes. For employees, HSAs are “triple-tax advantaged” meaning deposits placed in these accounts are pre-tax, they grow tax-free, and they can be spent tax-free as long as they are spent on healthcare related products and services.
4. HSAs encourage the use of preventive care—most policies allow for free or low cost preventive care which helps people become healthier and spend less money.
5. HSA dollars can be invested and provide long-term, employer sponsored saving accounts for their employees.
6. Better use of healthcare dollars—HSAs encourage employees to better save and spend their healthcare dollars resulting in lower costs for everyone that is paying the bill.
7. No “Use it or Lose it”—Unlike Flexible Spending Accounts (FSAs), HSAs continue to accumulate at the end of the year. This increases savings and decreases unnecessary spending while maintaining tax advantages.
8. HSAs promote better value among healthcare providers. Healthcare providers will provide better quality services for lower cost (more value) when consumers are spending their own healthcare dollars.
9. HSAs are portable from job to job and can be used for COBRA payments. This is better for employees as they transition between jobs and better for employers to recruit quality employees.
10. Even the Democrats support HSAs—Current HHS Secretary Kathleen Sebelius, Senate Finance Committee Chairman Max Baucus, and even President Obama have all expressed support for either HSAs or “tax-free universal savings account for all Americans.”

Compiled June 2009 by Steve Neeleman, MD, CEO of HealthEquity and Co-Author of the Complete HSA Guidebook

8 Million and Counting

I spent some time earlier this in Washington DC meeting with several members of Congress. I went with a group of other companies that do HSA administration. Our goal was to present the lawmakers with some of the data I will mention below and to take their temperature on how the think Obama’s efforts on healthcare reform my effect HSAs. The general feedback from the Republicans was that they don’t know what to do because their minority only seems to be getting larger—they encouraged us to get people with HSAs ready to right letters and make calls to their leaders in Congress if a bill comes up that could harm HSAs. They also encouraged us to meet with moderate Democrats to make sure they know the data that is emerging from the market studies on HSAs. In our meetings with some of these Democrats, I was surprised at their general lack of knowledge on the accounts and their seemingly open minds on considering them as an option—more on this in future blogs.

AHIP (American Health Insurance Plans) new HSA census study was released May 13th. They stated that there was a 31% increase in health savings account (HSA)-eligible insurance plans, totaling 8 million Americans enrolled in HSA-type insurance plans.

Another interesting study was also released at the same time the annual census was release. This study was the economic class status’ of individuals who are enrolled in HSAs, the findings show that among the over 1,000,000 accounts in the sample, 83% of HSA account holders were estimated by to be mid-to-lower income levels ($75,000/yr or below by 1999 census levels). The data also showed that most employers and employees are not only contributing to their HSAs, but that on average the account balances grew on an annual basis. This is great news, no longer can it be said that HSAs are for the “healthy and the wealthy” but I still think they are for the wise!

Additional interesting facts include in the studies include:

· There was an increase of approximately 1.9 million Americans enrolled in an HSA-type plans since January 2008. Previous AHIP census reports found that 6.1 million were enrolled in January 2008, 4.5 million were enrolled in January 2007, 3.2 million were enrolled in January 2006, and 1.0 million were enrolled in March 2005.

· 30 percent of individuals covered by an HSA plan were in the small group market, 47 percent of individuals covered by an HSA plan were in the large-group market, and the remaining 23 percent were in the individual market.

· A majority of HSA enrollees are covered by Preferred Provider Organization (PPO) products (83 percent) and Health Maintenance Organization (HMO) products (10 percent). In the individual market, almost 92 percent of enrollees in HSA plans were in PPO products, while approximately 85 percent of enrollees in large-group and 76 percent of enrollees in small-group HSA plans were in PPO plans.

· States with the highest levels of HSA/HDHP enrollment were California (854,000), Florida (524,000), Illinois (497,000), Texas (476,000), Ohio (464,000), and Minnesota (388,000).

· Households with a wide range of incomes hold HSA accounts, with almost half (49 percent) of accountholders living in neighborhoods with median incomes under $50,000 (incomes based on 2000 Census data).

· Average total deposits (including personal deposits, employer contributions, and interest) for all HSA accounts were $1,634 and average total withdrawals (including fees) were $1,063.

At HealthEquity, we see the growth of HSA use on a day to day basis, but to see numbers spread over 1M accounts is pretty exciting.

To read the AHIP Census Study visit: http://www.ahip.org/content/pressrelease.aspx?docid=26989

Sliding Economy, Rising Consumerism

Our current economic downturn is affecting all Americans in one way or another, whether it be a small or large impact, yet research shows consumerism is up!

Consumerism within the healthcare industry has seen a rise over the last year and is quickly gaining speed. I recently read an article published in Inside Consumer Directed Care (volume 7, number 7, April 3rd 2008, pages 5-6) which highlighted two interesting findings – 1) use of prescription comparison tools have spiked considerably within the last 6 months, and 2) employee contributions to their HSA have increased, despite employer contribution decreases in the last year. These two findings are not only interesting, but show the incredible growth seen within consumer directed (or driven) healthcare.

This article references that web-based prescription pricing tools from various companies have seen an increase in daily hits of 30% in comparison to last year and site traffic has jumped approximately 144%. We at HealthEquity have also seen similar usage spikes with our own prescription pricing comparison tools. What’s amazing about this is the return of patient responsibility. It’s a patient’s responsibility to fill the prescription their doctor has prescribed. In good economic times, to pay what the cashier tells them to pay. Now the responsibility for seeking out alternative drugs and prescription coupons is gaining significant popularity. HealthEquity’s real-time prescription pricing comparison tools have shown to be one of our most popular locations within our member portal. We have laid the groundwork for our members to continue to manage their healthcare finances responsibly, in turn improving their health equity.

The second portion of this article relates to the decrease in employer contributions to their employees Health Savings Accounts (HSA’s). Despite many companies cutting back costs by lowering their contributions to HSAs, many more employees increased their personal contributions throughout all of 2008. Times are tough, but many individuals and families are seeing the intrinsic value in HSAs which not only instill patient responsibility, but also ensure they are getting the right education from their doctors on treatments and costs, and can in turn do their own research for care alternatives with lower costs with equal quality of treatments. Not to mention, HSAs provide terrific ways to contribute, save, grow and spend your dollars—all tax free!

This report makes me hopeful that the work we have been doing in educating individuals and families on the importance of taking back control of their health and wealth is actually making a difference. We’re a long ways away from our goal, but this report is a great indicator to a bright future for HealthEquity and Americans alike.