Risks and Benefits: Health on Account

Health-savings accounts, yoked to high-deductible insurance policies, are being touted as the next big thing in cost containment. But employees might think twice before taking on so much financial risk when it comes to their health care.

If the covered person is hospitalized for more than two days, the insurer contributes a fixed payment for the third and later days; the amount depends on the size of the deductible and the month in question. Thus, for example, a person with a $5,150 deductible who is hospitalized during the plan’s first month could get $4,828.13, according to a benefits schedule of Medical Savings Insurance Co., an Oklahoma City company. The rider costs $65.

Two other features that could help employees feel easier about signing up are big employer HSA deposits and full medical coverage above the deductible, according to Perrin. Workers get mad if employers set up such money-saving plans but don’t share the wealth, he says, recommending that companies put enough money into the HSA in the plan’s first few years to cover the entire health-insurance deductible. On top of that, providing full coverage could help the plans look less scary when employees compare them with more-conventional benefit offerings. Another feature that helps make employees more comfortable is that they generally pay nothing out of pocket for certain types of preventative care.

Nevertheless, the diminished coverage the plans are likely to deliver seems certain to cause a stir. If an employer offers employees a simple choice between a traditional HMO and a high-deductible plan, employees would see an extreme difference in coverage, says Beauregard. In “pure actuarial terms,” an HDHP can be 15 percent to 20 percent less valuable than an HMO, he adds, although that that can vary depending on how much health care people use.

To encourage enrollment in the new plans, employers should give employees the feeling that they have a decent choice by offering a range of plans with differing levels of risk and costs, he suggests.

In any event, advocates argue, HSA-HDHP plans are a bold step in a direction the country needs to take to hold down health-care costs: the assumption of more risk by consumers. Since unused HSA funds roll over from year to year, employees can invest the money in stocks, bonds, and mutual funds with an eye to building up money in the accounts to pay for future health-care costs.

What happens, though, if account holders invest poorly, or the stock market goes into a severe downturn? Assuming that their employers don’t continue to sock away cash in the HSA, employees could find themselves coming up severely short in their health bills — and taking it out on their employers. Bad relations and the loss of good employees could result — and, in the worst case, lawsuits.

While inserting a large element of employee financial risk into benefit plans might help cool down medical spending, the promoters of the new plans may be asking a bit much of most employees in tying health benefits to the fate of a 401(k)-like account. The relatively small number of employees with a high risk tolerance and robust health prospects will no doubt enjoy the plans’ low premiums and the ability to choose where to spend their health-care dollars. Most workers, however, are sure to be wary of a plan that mixes the anxieties of investing in the stock market with those of paying for their health care.

David Katz’s column “Risks and Benefits” appears every other Thursday. Contact him at DavidKatz@cfo.com.

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