Wednesday, August 28, 2013

Full-replacement HSAs result in dramatic long-term savings for employers

... According to a recent report released by the Employee Benefit Research Institute, this type of consumer-directed healthcare plan may be the key to cutting back on overall expenses and increasing employee autonomy when it comes to managing wellness.

Conducted by Paul Fronstin, Ph.D., of the EBRI, and M. Christopher Roebuck, Ph.D., of RxEconomics, the study examined employer experiences with full-replacement HSAs over a period of five years – the longest observation period for this type of coverage option.

Used in conjunction with high-deductible health plans, HSAs are a tax-advantaged and convenient option for individuals and families to get the most out of their medical care plans and learn how to make decisions about their health with quality and cost in mind.

Fronstin and Roebuck discovered that within the first year of implementing a full-replacement HSA, employers substantially decreased their medical expenses.

"In the first year of the HSA, the employer's aggregate healthcare spending was reduced by $527 per person," wrote the study's authors. "Results show that spending was reduced significantly in the inaugural year of the HSA plan in medical, pharmacy and total-claims categories. Further, the magnitude of the cost savings was greatest in this first year but the cost savings continued over the succeeding three years albeit at a slower pace."

According to researchers, laboratory services spending was reduced by 36 percent, while expenses for prescription drugs declined by 32 percent. For four years after the full-replacement HSA was adopted, pharmacy spending decreases were the most substantial at between 40 to 47 percent for individuals.

The market for HSAs has grown substantially in recent years, with 8.2 million Americans in HSA-eligible health plans opening their own HSAs in 2012, according to Devenir, an investment firm. This figure is expected to increase by 73 percent by the end of 2015.

While HSAs can lead to significant savings for employers, a recent survey by Fidelity Investments has demonstrated that many Americans responsible for making decisions about family health services may be unsure about how HSAs actually work.

According to researchers, about two-thirds of participants in the survey noted that they do not understand how HSAs work or how they can benefit them.

"Health savings accounts provide a tremendous opportunity for American employees to take better control of their healthcare spending while also benefiting from the tax advantages afforded by the accounts," said William Applegate, vice president of Fidelity Investments. "The special tax advantages of these accounts allow employees to accumulate funds over their working life and withdraw funds tax-free for qualified medical expenses in retirement. With many Americans uncertain of the savings feature of the HSA, employers are in an ideal position to provide educational guidance on the many benefits of the accounts."

Distributing educational materials could be crucial for eliminating confusion, as the survey revealed that 73 percent of respondents to the survey were unsure or believe an HSA is essentially the same thing as a flexible spending account (FSA), which require that contributions be spent by the end of the year otherwise they will be forfeited. 

Advanced HSA and FSA administrators are using innovative and creative means to educate people about account benefits. Read more about ConnectYourCare's consumer-directed healthcare plans and tax savings videos.