Consumers can access HSA funds through a debit card, or they can pay for a service, then file for reimbursement.
An HSA should not be confused with a flexible spending account (FSA). Both are paid for by employees with pre-tax dollars; however, FSAs:
- Carry no insurance requirements;
- Are capped at $5,000 in annual contributions;
- Do not pay interest on the account balance; and
- Must be used—or forfeited—by the end of the plan year.
In contrast, an HSA:
- Is funded by the employee or jointly by employer and employee (known as a health reimbursement account, or HRA);
- Has insurance requirements on deductibles and out-of-pocket contributions;
- Pays the provider directly and submits receipts to the account administrator;
- Accumulates interest through a financial institution; and
- Allows unused funds to be carried forward.
Easy Business Decision
Employers are jumping on the HDHP bandwagon, largely to shift more health insurance costs to employees. HDHPs allow consumers to save on upfront costs (e.g., premiums and routine medical expenses) while allowing them to partner with their physicians when deciding how and when they will spend their HSA dollars.
Allowing patients to be involved in the testing, medication, and length-of-stay decisions relative to their care is a reversal from the status quo. Physicians working with hospitalized patients aren’t used to patients questioning treatment or asking for a cost analysis of medications. Another way to think about working with patients who have nontraditional plans: If you were eating at a soup kitchen, you probably wouldn’t complain about having to eat off of paper plates. But if you were dining at a five-star restaurant, you’d freely complain to the maître d’ if your soup was cold or the salad limp.
The 2008 National Study of Employer-Sponsored Health Plans, conducted by international human resources consulting firm Mercer, reported consumer-directed health plans, coupled with either an HSA or an HRA, are offered by 45% of companies with 25,000 or more employees (up from 22% in 2005). Nine percent of companies with 10 to 499 employees offer consumer-directed health plans, up from 2% in 2005.
Mercer partner Blaine Bos notes that raising deductibles is the fallback for employers faced with medical cost increases they can’t—or won’t—absorb. “The introduction of HSAs may have changed employers’ thinking on just how high a deductible can go without causing employees to revolt,” Bos says in the survey analysis. He predicts bad economic times will accelerate consumer-directed health plan uptake in small and large firms because they deliver substantially lower costs than PPOs and HMOs. In 2008, CDHP costs averaged $6,207 per employee, compared with $7,815 for PPOs and $7,768 for HMOs.
Data from ehealthinsurance.com indicate consumers are taking full advantage of HDHPs: Fifteen percent choose the highest deductibles, 48% the mid-range, and 37% the lowest deductible.