Health Savings Accounts: Case Study
The United States has arguably the most advanced health care in the world. And yet, a large proportion of Americans do not have access to this care due to its high cost. Providers, consumers, and the government have long searched for a way out of this paradoxical situation. HSAs offer one solution.
The American health care system is complex. A part of the population has access to health care through Medicare and Medicaid. Another part simply pays for care out of pocket. A substantial proportion of the population uses third-party payers to pay for care.
Payers have reacted to the rising costs of care by introducing various gatekeeper mechanisms. These have not been popular with consumers who see them as restrictive. The American population is aging and the need for care is likely to increase over the next decade.
While the earnings of health care professionals have been increasing, insurance premiums have also increased. Among hospitals, many are non-profit organizations offering substantial charity care. But for-profit and non-profit hospitals alike must show return on investment to remain viable. Providers must also factor reimbursement policies of payers into their decisions, sometimes even clinical decisions. These groups of stakeholders-patients, providers, payers, and the government-have different goals and different responses to the rising cost of care.
Based on your understanding, response the following:
• In your opinion, can HSAs be aligned to the expectations of all these groups?
• Do you think HSAs can help improve health care cost, quality, and access? Why or why not?
Notes from class
The United States has arguably the most advanced health care in the world. However, a large number of Americans cannot afford the high cost of health care. Providers, consumers, and the government have long searched for a way out of this paradoxical situation.
In 2003, Health Savings Accounts were established in federal law. HSAs are tax-free financial accounts that are designed to help individuals save for future health care expenses.
There are four federal requirements to be eligible for HSAs:
• A person must be covered simultaneously by a qualified High Deductible Health Insurance Policy (HDHP).
For 2012, participants in qualified HDHPs are required to pay the first $1,250 of their medical expenses ($2,500 for family coverage) before insurance benefits begin.
• A person enrolled in HSA cannot be covered by any other health insurance plan, such as a spouse's plan.
• Persons over sixty five years of age are not eligible.
• The HSA enrollee cannot be claimed as a dependent on someone else's federal income tax return.
Other than these, no other limits on income, employment, or age are set in the federal law. The following are the pros and cons of HSAs (Mayo Clinic, 2010).
Advantages Disadvantages
You control how your HSA money is spent. Any unused funds carry over to successive years and can be used for future medical expenses. People who are old and sick may not be able to save as much as young, healthy people who need less medical care.
You decide how much money to set aside for health care costs. Accurate budgeting is hard, as illness can be unpredictable.
You can shop around for care based on quality and cost. Some information, including cost and quality, can be difficult to find.
Your employer may contribute toward your HSA. The temptation to keep money in the savings account might lead you to forgo care.
The amount and interest in the HSA is tax deductible. If you withdraw money from your HSA for nonmedical expenses, you'll have to pay taxes on it. If you're younger than age 65, you'll have to pay a 10 percent penalty, too.
HSAs in a nutshell and applicable Internal Revenue Service (IRS) Law:
Industrial Relations Commission (IRC) Section 223, PL 108-173
Account Overview:
• Tax-exempt trust or custodial account created to pay for qualified medical expenses of the account holder and his or her spouse or dependents.
Eligibility:
• Someone who is enrolled in a qualified HDHP.
• Has no other health plans in place, other than for workers' compensation, specific disease or illness, accidents, dental care, vision care or long term care.
• Is not enrolled in Medicare (can be eligible for Medicare).
• Is not claimed as a dependent on someone else's tax return.
Funding:
• Individual and/or an employer, and/or family.
Withdrawals:
• As of January 1, 2011, funds not used to pay for qualified medical expenses may be withdrawn but are subject to an additional 20% tax penalty except when an individual is 65 or older, disabled or has died during the year.