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Will the HSA Save the Day?

HSA DOLLARS

Many politicians have touted HSAs as a fix to our healthcare crisis. In fact, HSA expansion is a key part of the American Health Care Act, the legislation slated to replace Obamacare. But what are HSAs and how can they be used to fix America’s healthcare problems? Let’s take a deeper look and demystify the HSA.

HSA Defined

HSA stands for Health Savings Account. And, to the surprise of many people, it’s not health insurance but a tax favored bank account. So how does this connect to health insurance? Well, in order to open an HSA bank account, you first need to be enrolled in a Qualified High Deductible Health Plan (QHDHP). There are several requirements a plan must meet to qualify as a QHDHP. Here are a few key highlights:

  • They must have a minimum deductible of $1,300 for a self-only coverage and $2,600 for family coverage.
    • QHDHPs can have much higher deductibles, coinsurance and even copayments that apply after the deductible is met.
  • You pay 100% of your medical costs until the plan’s deductible is met.
    • So you foot the entire bill for things like doctor visits and prescriptions, instead of paying fixed copayments .
    • Some people even claim that it feels as if they don’t have health insurance while covered under one of these plans.
  • HSAs must cover select preventative care services at 100%, with no out of pocket cost to the policyholder.
    • Medical services treated as preventative care are very narrowly defined. See full list here .
    • This feature is not unique to HSAs. The Affordable Care Act requires that all health insurance policies cover preventative care the same way.

So, let’s put these two concepts, the HSA and the QHDHP (health plan), together. The idea is that policyholders will use the funds from their HSA bank account to pay for their QHDHP’s deductible and other out of pocket expenses. Throw in the incredible tax benefits and, on paper, this makes a lot of sense. However, back in the real world, things aren’t quite so rosy.

This fixes healthcare… how?

In their original development, HSAs were intended to have a dual purpose. First, encourage people to save money for future healthcare costs. Lawmakers gave HSAs incredible tax benefits in order to entice individuals to set money aside in these accounts. That way, when unavoidable medical problems arose, the policyholder would have the funds available to pay for them.

Next, their required high deductible plans would force people to become better healthcare consumers. In theory, here’s how it’s supposed to work…

  1. The policyholder, let’s call her Mary, needs to have a costly medical procedure, like a surgery or MRI.
  2. Under her high deductible health plan, required by an HSA, Mary will be responsible for the lion’s share of the bill.
  3. Mary, being a good healthcare consumer, calls several medical providers to find out how much they would charge for the procedure.
  4. Finally, with all of the numbers and information in front of her, Mary chooses the most cost effective provider.

So here’s the thing… Steps one and two are entirely plausible and literally happen every day. But step three, and consequently step four, almost never happen. And while it’s completely logical to seek the best price for your healthcare services, in practice, it’s nearly impossible to find out how much medical care actually costs! In fact, there’s a great interview, with a former health care industry insider, that sheds some much needed light on this subject. Sadly, without medical price transparency, HSAs can never live up to their expectations.

Complaints about the HSA, justified and not

Like most things these days, politicians are split on whether HSAs will help or hurt healthcare reform efforts. So let’s sort out the facts from the political spin.

Complaint #1

Some people feel that HSAs disproportionately benefit the wealthy. There is some validity to this, as affluent individuals can afford to fully fund their HSA accounts every year. Hence, they realize more tax savings than those who are in less favorable financial situations.

But the creators of the HSA didn’t expect it’s eventual users to make lump sum annual deposits. Instead they envisioned people accumulating money in their account over a long period of time. That’s why your HSA’s funds carry over each year. As opposed to other medical savings accounts, like the FSA, which have “use it or lose it” rules.

Complaint #2

As mentioned earlier, people who have QHDHP plans, to go along with their HSAs, often complain about all of the out of pocket expenses. And rightfully so! The actual price of doctor visits, prescriptions and diagnostic tests are shocking to many people. And while covered under a QHDHP, you are responsible to pay the entire amount for nearly all of these medical services.

On the other hand, these policies are, typically, far less expensive than traditional health insurance. So, if you don’t have any major medical incidents throughout the year, you can bank the savings in your HSA. And thus be better prepared for future healthcare expenses.

 

In conclusion…

HSAs could be a powerful tool in the battle to fix our broken healthcare system. But they’ll only be truly effective once we have price transparency for medical services. How can we expect Americans to become better healthcare consumers without giving them access to its costs? In essence, it’s like asking someone to get the best deal on a car, but the dealership won’t display or disclose any prices until after the purchase. Some medical providers are getting ahead of the curve and making it easier for potential patients to see their prices. But we can’t depend on doctors and hospitals to voluntarily make these changes. Instead, any healthcare reform legislation, worth the paper it’s printed on, should include strong medical pricing transparency rules. This will not only help HSAs become more effective but help our healthcare system as a whole.

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