HSA Changes Add More to Consider When Picking Plans

It has been almost eight years since health savings accounts entered the health care lexicon under the Medicare Prescription Drug, Improvement and Modernization Act of 2003. But penetration for the tax-advantaged plans, which can be rolled over unlike a flexible spending account, remains low.

Research from groups such as the Employee Benefit Research Institute and America’s Health Insurance Plans shows growth in enrollment for high-deductible health plans, or HDHPs, which are a necessary component of HSAs, but the increase is tepid. The EBRI, for instance, shows that 17.2 million people, or 14 percent, covered by private health insurance in 2010 had HDHPs. That compares with 13 percent in 2009. AHIP data show that, as of January 2011, 11.4 million people were covered by an HDHP/HSA, up from 10 million the year before.

Whether you view the enrollment trend as glass half-full or -empty, two elements of federal health care reform legislation passed last year could affect HSAs’ growth even further. Over-the-counter medications had been HSA-eligible, but now only those prescribed by a physician will be allowed. FSAs are also affected by this revision. The second change is an increase to 20 percent from 10 percent in the tax penalties on nonqualified HSA expense withdrawals, such as for cosmetic surgery.

These provisions could affect whether employees see HDHPs/HSAs as a good alternative to traditional PPO or HMO plans, as well as how workers fund and use their existing HSAs. But employees may focus on bigger issues than those changes, says Paul Fronstin, director of EBRI’s health research and education program. “I think the employer contribution relative to the deductible and the premium savings, if there are any, are the things that people really focus on.” As for HSA enrollment figures, he says, “The number is still growing. It’s got no place to go but up because essentially they’re still brand new.”

Given the complexity of HDHPs/HSAs and the changing regulations, employers are trying to educate their workers on the pros and cons of choosing these lower-cost, high-deductible plans.

Ellen Stone, benefits manager at Bellevue, Washington-based Symetra Financial, says the company introduced an HDHP/HSA for the 2010 plan year and provided plenty of detailed information. “We wanted to ensure that employees factored more than just premium savings into their decisions,” she says. “Our biggest concern was to avoid having employees enroll who were either ineligible for the program, did not fully understand the plan, or for whom the plan was not a good fit.”

Symetra offered online tools comparing the available plans as well as sample utilization models, where employees can plug in savings and spending data to see if they’re saving enough to meet future needs. Some employees didn’t want to change plans because they considered it financially risky or they simply preferred the familiarity of the more traditional offerings, Stone says. “We made a point to say that the HDHP/HSA was not a perfect fit for everyone.” But the HDHP/HSA rate of adoption among Symetra’s 1,100 employees has proven significantly higher than expected. “Nearly 50 percent of the employees [previously] enrolled in our PPO plan moved to the HDHP/HSA, and in 2011 it is our most prevalent plan,” Stone says.

Despite the health care reform law changes affecting HDHPs/HSAs, Folcomer Equipment Corp., a construction machinery dealer in Aberdeen, Maryland, no longer offers traditional PPO or HMO plans. Instead, it has moved its workforce of 40 employees entirely to its HDHP/HSA plan.

“There was initially a lot of confusion about the switch,” says Amanda Haddaway, director of human resources and marketing, especially among employees who had been on traditional HMO and PPO insurance plans, where in-network services didn’t have deductibles. “There was some ‘sticker shock’ when the new HDHP deductibles were explained,” she says.

A concerted education campaign helped Folcomer address employee concerns, Haddaway says. “Once we explained that the premiums, including their portion of the HSA funding, would be the same or less than what they were currently paying, most employees were very happy.”

Workforce Management, August 2011, p. 10 — Subscribe Now!