Panelists: Common Sense Reforms Would Help HSAs Thrive

What do an employer, a health insurance industry representative and a doctor have in common? They all apparently support various reforms to help health savings accounts thrive as an important savings vehicle to address short- and long-term health care costs.

Four panels of speakers at a June 12 public policy forum sponsored by the Employee Benefit Research Institute (EBRI) discussed the makeup of HSA-eligible plans and HSAs, potential enhancements that could be made to help grow enrollment, and the employer perspective on HSA-eligible health plans.

Enrollment in HSA-eligible health plans was estimated to be between 20 and 23 million policyholders and their dependents in 2016, with $37 billion in assets. Moreover, 77% of accounts have been opened just since 2013, according to EBRI.

However, while the data shows that there has been solid growth in the adoption of HSA-eligible health plans that is expected to continue as employers adopt these plans as both a choice and on a stand-alone basis, several panelists contended that HSAs are not reaching their full potential and offered recommendations on what can be done to help enhance the accounts.

Note: The ARA is supporting efforts to expand HSAs, and believes the triple tax advantages offered by the plans provide an excellent way to savers to set aside vital resources that will be needed to cover health care costs in retirement.

Checking Versus Saving

EBRI’s forum coincided with its release of the first-ever analysis of how HSAs are being used over time, which shows that most account owners use them more as specialized checking accounts rather than investment vehicles. The analysis also finds that very few account owners invested their HSA balance in investments other than cash, despite the tax saving possibilities. In 2016, 4% had investments other than cash, the report shows.

“HSAs offer a valuable tax incentive to set aside money on a tax-favored basis for current or future medical expenses,” said Paul Fronstin, director of EBRI’s Health Research and Education Program. “However, most account holders appear to be using the accounts to cover current expenses, such as deductibles, coinsurance and copayments, rather than fully taking advantage of the tax preference by contributing the maximum.”

EBRI’s report further notes that, over time, HSA owners appear to see the value in investing. In 2016, 11% of accounts opened in 2005 had investments other than cash, compared to only 1% among those opened in 2016. It is possible that rules requiring minimum balances may have prevented owners of relatively new accounts from investing as the accounts would not have reached the minimum balance requirement, EBRI explains.

Common Sense Reforms

Why are HSAs supposedly not reaching their full potential? Barbara Gniewek of PwC pointed to her firm’s 2017 Health and Well-being Touchstone Survey, explaining that “people aren’t enrolling in high deductible health plans at the rate we thought they would.” (In general, an individual must be enrolled in a high-deductible health plan, or HDHP, in order to start an HSA.) She noted that PwC’s numbers show that 73% of employers offered an HDHP in 2017, but this number is actually down from the two prior years, which stood at 80%.

Gniewek suggested that the delay in the so-called “Cadillac tax” may have contributed to the slowdown in the adoption rate. She also noted that the uncertainty over the past year with the potential repeal of the Affordable Care Act may have contributed to employers maintaining a “wait and see approach rather than making dramatic changes” to their plans.

However, she did review data showing that the percentage of employees contributing to their HSAs is going up, noting that people are “getting it” after being in the plan for a couple of years. “Once people understand them and if there is seed money put in by their employer, HSA plans make a lot of sense with the ability of individuals to accumulate tax-free wealth specifically earmarked for health care,” Gniewek said.

Roy Ramthun of HSA Consulting Services outlined current legislative proposals to expand HSAs, noting that there have already been 30 bills introduced in the current Congress. Ramthun explained that the “gold standard” bill is the version introduced in the House (H.R. 1075) by Ways and Means Committee member Erik Paulsen (R-MN) and in the Senate (S. 403) by Finance Committee Chairman Orrin Hatch (R-UT).

Most of the HSA provisions included in the House-approved American Health Care Act were taken from the Paulsen/Hatch legislation, Ramthun told attendees. The AHCA, which seeks to repeal much of the Affordable Care Act, would nearly double the contribution limits, permit catch-up contributions, and expand the range of allowable expenses, including purchases of over-the-counter medications and health insurance premiums. He explained that not all provisions in the Paulsen/Hatch legislation made it into the AHCA, but that could change in the coming months as policymakers seek further consensus.

(Note that on July 13, Senate GOP leaders released a revised version of its ACA replacement legislation which includes the expanded HSA provisions from the earlier legislation. Senate Majority Leader Mitch McConnell said the Senate will delay by two weeks its scheduled summer recess in order to complete work on the health care legislation. The Senate may begin consideration of this new, revised bill the week of July 17.)

Jon Kessler of Health Equity argued that “Congress and regulators should be out of the benefits design business” and that those who have “skin in the game” should be given the opportunity to make good decisions. He noted that the average retiree has $200,000 in their 401(k), yet they will spend $100,000 of that balance on health care. He agreed that HSAs need more flexibility in order to make the accounts work well for everyone.

Adam Beck of AHIP argued that one way to make HSAs more appealing is to decouple them from the requirement that they have to be pared with an HDHP. He noted that when the rules were written 13 years ago, the deductibles were much lower compared to now, adding that changes are needed to make them easier to use. Other suggestions included having educational efforts on the value of HSAs. Several panelists noted that many people still do not understand how HSAs work, with many believing they are subject to the “use-it-or-lose-it-rule” that applies to FSAs.

Mike Callender of FedEx said he believed that HSAs have been marketed wrong in the industry by way of stakeholders suggesting that the accounts will help push costs down, rather than giving individuals the ability to save to address health care costs in retirement. He added that many users of HSAs are currently taking out what they are putting in and thus missing an opportunity to save more and to benefit from investment earnings and the triple tax advantage that HSAs offer.

The bottom line: Expanding HSAs and making them more flexible are common-sense reforms that would help the accounts thrive in giving individuals the ability to prepare for their short- and long-term health care costs, but it’s going to take action from Congress and regulators. Will that happen? Stay tuned.

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