Health Savings Accounts (HSA’s) were created in the early 2000’s as part of an overall Consumer Driven Health Care (CDHC) movement. It was thought that by getting individuals involved in the shopping process for health care they would make sound decisions and force providers to compete on price and quality.
HSA’s have their place in the market, but they are not an appropriate product for everyone. An HSA is paired with a High Deductible Health Plan (HDHP). Without the HDHP an HSA cannot be opened. The intended way for this combination to work is that consumers would be more thrifty because the money in the HSA is their money. The money in the HSA can be used towards meeting the deductible on the HDHP. Most HDHP’s are purchased by consumers who never end up funding the HSA. They have chased the lower premium of the HDHP, but do not take advantage of the savings opportunities of the HSA.
The HSA is the ultimate tax avoidance savings tool on the market today. Money goes in pre-tax, it accumulates tax free in the account, and as long as it comes out for qualified medical expenses it also comes out tax free. Most HSA owners who actually fund the account are typically wealthier than the general population.
The tools consumers need to be informed shoppers have not come online as quickly as expected. Physicians and hospitals have not been excited to get into the price shopping game. Without the appropriate cost transparency tools that can be used in conjunction with the appropriate provider quality tools a consumer is at a disadvantage in comparing hospitals and providers and making a reasonable value decision.
An argument against the HSA and HDHP combination is that if a consumer knows they are going to incur a claim that exceeds the deductible, or if the deductible has already been met, the incentive to shop goes away. Any savings the consumer finds once the policy coinsurance hits 100% only directly benefit the insurer. They do benefit the consumer indirectly since overall claim costs for the insurer may end up lower and result in lower rate increases going forward for the consumer, but there is no guarantee all of the other policy holders are being as diligent in the shopping process.
HSA’s are not the answer to the uninsured or health care cost problems we face in America today. HSA’s are however an important tool when sold in the appropriate market. The CDHC movement has caused many physicians and hospitals to be more forthcoming with price and quality information, but we have only scratched the surface.