Employees are leery of them. Physicians deride them. And critics say they pull cash out of a cash-starved system. None of this, however, is keeping employers from offering consumer-driven health plans (CDHPs) to workers. According to a survey conducted by Mercer Human Resource Consulting, 14 percent of large companies say they will likely offer a high-deductible medical plan with an account-based funding mechanism this year. And more than one-fourth say they are likely to offer them by the end of 2006.
While the take-up rate is surprising, the bigger news may be the ongoing shift in the type of accounts companies sponsor. Currently, most companies with a consumer-driven plan offer health reimbursement accounts (HRAs). But health savings accounts (HSAs), which give more control to workers, are gaining in popularity. Within a few years, say experts, HSAs may well be the account of choice for consumer-driven corporate health plans.
So what’s the difference between an HRA and HSA? Mostly, who gets the money that goes into them. HSAs are fully owned by employees and can therefore be taken with them when they leave a company. In contrast, HRAs are funded solely by an employer and are generally not portable. The reason employers may begin moving to HSAs is to get employees to buy into the consumer-directed health concept, which some experts believe could eventually lower the cost of medical products and services. Says Alexander Domaszewicz, a consultant at Mercer: “HSAs are the next generation of consumer-driven health care.”
Here’s how they work: an employer or employee, or both, pay into an account, which is linked to a high-deductible (and thus cheaper) health-insurance plan. The first dollars used by the employee come out of the account. If the money in the account is exhausted, the employee is expected to pay additional costs out of pocket until the deductible is met, which triggers the insurance coverage. The hope is that employees, facing the prospect of using their own money—and armed with better price and quality information—will make decisions based more on value.
“The idea is to educate employees to the true cost of health care,” says Rahul Khanorkar, CFO of Equitrac, a Coral Gables, Florida, document-imaging company. Equitrac began offering HRAs in 2003. But Khanorkar says the company does not intend to move to HSAs. The reason, he says, is that HSAs need to be funded up front; HRAs are accrual accounts that affect cash flow only when the money is spent. In addition, money put into a reimbursement account stays there. “The liability doesn’t go with the employee when they leave,” notes Khanorkar.
That’s not the case with HSAs. Employers help participants set up the accounts, but they are controlled by the workers. They can be rolled over from year to year and may be invested in mutual funds or money-market funds.
Employers and employees can fund HSAs tax free, up to $2,650 for individuals and $5,250 for families. Deductibles for such plans run as high as $5,000. Typically, the accounts are tied to a debit card that can be used for all health-care purchases.