Employees enrolled in a high-deductible health plans and health savings accounts are finding two important changes in 2011. They no longer can use their HSAs to cover over-the-counter drug purchases unless they have a prescription and will be hit with a higher penalty for nonmedical withdrawals—20 percent up from 10 percent.
The health care reform law limits reimbursements for medications like pain relievers, cold medicines, antacids and allergy medications, from HSAs and other types of flexible spending accounts. Despite the new restrictions, benefits experts predict the popularity of medical pretax payment accounts will continue to expand.
Maureen Fay, a principal in Aon-Hewitt’s health and benefits practice, says she anticipates growth of 20 to 30 percent annually for HSAs in the coming years. Steadily rising costs and changes under the Obama administration’s health care reform legislation have spurred interest in high-deductible health plans coupled with pretax accounts, also known as consumer-driven health plans.
Since HSAs were signed into law in 2003, small-business owners have been driving the increase. Yet large employers comprise the fastest-growing market for these accounts, Fay says.
“In the large employer market, many have been investigating these kinds of plans and putting a toe in the water,” she says. “Most have been sticking with their PPOs and HMOs but a few things have happened over the past couple of years to create the perfect storm to drive enrollment in these plans.”
She says the flagging economy has increased pressure to cut costs, forcing employers to manage health care dollars by consolidating plans, passing along costs to employees and emphasizing health and wellness.
“They are running out of runway,” Fay says. “There’s only so much tweaking they can do. They are looking for new solutions.”
Some 10 million people were enrolled in HSAs as of January—up 25 percent from the previous year, according to a survey by America’s Health Insurance Plans, an insurance industry trade association based in Washington, D.C. According to a survey by the association, the number of large employers offering these plans increased by 33 percent between January 2009 and January 2010. By comparison, small-group coverage increased by 22 percent.
David Josephs, managing director and head of consumer-directed health care at JPMorgan Chase & Co. based in New York, predicts a big year for HSAs. Chase, one of the nation’s largest providers of the accounts, reported a 30 percent increase in its HSA business between February 2009 and February 2010.
“It’s still early in the (benefit) enrollment season. We’ll start to see exact volumes in the next week or so, but what we’ve seen so far is that we’ve tripled the number of employers and individuals we’re serving directly,” he says. “We’re going to have a very, very robust enrollment season in 2011.”
Like Fay, he cites the economy as one reason for the increase, but also notes, “People are getting a lot more comfortable with these products and how they can create a multiyear way to finance their health care needs.”
Unlike the “use it or lose it” nature of other pretax accounts like FSAs, HSAs allow individuals to set aside pretax dollars for medical expenses that can be rolled over each year without a penalty and can be invested in stocks and other accounts similar to those in an Individual Retirement Account.
Josephs says that as people become more comfortable with high-deductible plans and see the potential cost savings, enrollment will increase. However, he acknowledges that it may take time for people to accept a plan that means higher upfront, out-of-pocket costs.
Helen Darling, president of the National Business Group on Health, based in Washington, a membership organization representing large employers, says companies need to clearly communicate the potential cost savings to employees.
“It’s a huge paradigm shift for employees,” she says. Employees “have to pay attention. In some cases they may have to pay for their office visits. Americans have gotten used to having everything covered. You just pay a copayment and then you get your notice of benefits. This is a very different experience. It’s a major change management and communications challenge, and employers have to be ready.”