With health-care costs perched high on their list of worries, many CFOs see health savings accounts as a way to stanch the bleeding. But growing corporate interest in HSAs has been met by a growing backlash by critics and researchers.
A creation of the 2003 Medicare act, HSAs do offer employers the hope of curbing their insurance expense. Under the law, the accounts, which enable workers to set aside pre-tax dollars they can later use toward their out-of-pocket medical expenses, must be offered in tandem with a high-deductible health plan (HDHP).
In an HDHP, an employee pays at least $1,000 for health care ($2,000 for family coverage) before insurance kicks in. Because employees pay so much out of pocket, their employers pay much lower premiums than they would for traditional insurance.
Then there are the tax advantages. Employees who choose to deposit pre-tax pay into an HSA not only lower their taxable incomes, they also reduce the gross payroll upon which the employer is taxed. Likewise, any employer contribution doesn’t count toward the employee’s taxable income.
But the strongest argument for HSAs, their advocates say, is that they encourage employees to be more cost-conscious medical consumers. Employees who lose their own money on medical care of their choice, the reasoning goes, will be more prudent about spending it than if an insurance company foots the bill. Such employees, therefore, could help shift market power from the supply side (that is, health-care providers) to the demand side (patients) and let some steam out of the relentless rise of health-care costs.
But will short-term cost cuts be followed by larger longer-term expenses? Critics are arguing with increasing fervor that employees who control their own HSAs may be so cost-conscious that they delay medical care that they really need, only to incur greater costs when their conditions worsen. Indeed, new research confirms that ailing employees who have higher out-of-pocket requirements also end up in the hospital more often.
Other findings, however, leave little doubt that HSAs help make employees more cost-conscious consumers. People in HDHPs and similar plans are significantly more likely than people in more-conventional plans to consider the cost of care when they’re sick or filling a prescription, according to a survey of 1,200 insured Americans last fall by the Employee Benefit Research Institute. The non-partisan, Washington-based think tank also found that such people are also more likely to check whether expenses were covered, to ask about the price of care before receiving it, and “to discuss treatment options and the cost of care with their doctors.”
From the employer’s point of view, a benefit plan that encourages such doctor-patient conversations can be potent in its appeal. According to the Spring 2006 Duke University/CFO magazine Business Outlook Survey, which drew responses from 323 U.S. finance chiefs, the rising cost of health care trailed only global competition on the litany of concerns.
That worry is probably helping to fuel the current surge in HSA/HDHP participation. In January, enrollment by employees and individual consumers in HSA-eligible insurance plans topped 3 million, more than triple the number from March 2005, according to America’s Health Insurance Plans, an association of insurers.