Reports Document Growth of HSAs

Increases in Enrollment and Assets Continue

Led by growth among large-group insurers, enrollment in high-deductible health plans (HDHPs) and associated health savings accounts (HSAs) exceeded 10 million this year. Separate research projects recently conducted by America’s Health Insurance Plans (AHIP) and the Employee Benefit Research Institute (EBRI) quantify expansion in both the number and value of HSAs. After several years of increases, the continued expansion of HDHP/HSA arrangements may depend on how new regulations issuing from national healthcare reforms influence the type of insurance consumers choose to purchase.

HSAs were first introduced in 2004 after passage of the Medicare Prescription Drug Improvement and Modernization Act of 2003, but according to the EBRI, account-based health plans were first offered by employers in 2001 as health reimbursement arrangements (HRAs), a type of employer-funded health plan that reimburses workers for qualified medical expenses. Consumer-driven health plans (CDHPs) allow enrollees to use HRAs, HSAs, or similar accounts and are offered by most insurance companies.

HSAs were designed to help individuals save for future qualified medical and retiree health expenses on a tax-free basis. These accounts are owned by an individual and are used to pay for current and future medical expenses. The accounts can also be used to mitigate the tax burden on individuals who choose to use HSAs to save for health expenses after retirement.

AHIP Census
AHIP has conducted a periodic census of health plans participating in the HSA/HDHP market since 2004, and this year almost all plans in the United States that sell HSA/HDHP products in the United States participated. AHIP’s 2010 census gathered data from 93 insurance companies. The census was compiled by Hannah Yoo of AHIP’s Center for Policy and Research.

“HSA plans continue to be an important coverage option for families and small businesses across the country,” said Karen Ignagni, president and CEO of AHIP.
The census found that as of January 2010, the number of people covered by HSA/HDHP products increased by 25% compared with last year, to about 10 million. A higher percentage of the accounts were held by men (52%) than by women (48%). Growth was fastest in the large-group coverage market, at 33%, and in the small-group market, at 22%. The number of people with HSA/HDHP coverage was 8 million in January 2009 and 6.1 million in January 2008.

In the individual market, 2.1 million people had HSA/HDP coverage in January 2010 compared with 1.8 million in January 2009. More than half of these enrollees (52% including dependents covered under family plans) were aged ≥40 years.
EBRI Survey

Coinciding with increases in HDHP/HSA enrollment, assets in HSAs and HRAs have grown in recent years and totaled $7.1 billion in 2009, up from $835.4 million 3 years earlier, according to survey results published by EBRI. The study, based on findings from the 2009 EBRI/MGA Consumer Engagement in Health Care Survey, was published in the June 2010 EBRI Issue Brief and examines HSA and HRA assets, account balances, and rollovers from 2006 to 2009. The brief was prepared by Paul Fronstin, director, Health Research and Education Program, EBRI.

The EBRI/MGA Consumer Engagement in Health Care Survey is an online survey of privately insured adults aged 21 to 64 years that is conducted via the Internet. The survey found that in 2009, 4% of the population was enrolled in a CDHP, up from 3% in 2008. Enrollment in HDHPs increased from 11% in 2008 to 13% in 2009. Among the 16.2 million individuals with an HDHP, 38% said they were eligible for an HSA but did not have one.

According to the EBRI report, increases in average account balances appear to have leveled off. In 2006, account balances averaged $696. They increased to $1320 in 2007, a 90% increase. Account balances increased by 3% to $1356 in 2008 and by 5% to $1419 in 2009. The number of people with a rollover, as well as the total level of assets being rolled over, have also been increasing. The average rollover increased from $592 in 2006 to $1295 in 2009.

HSAs and Reform
Although HSAs were not a focus of the debate on healthcare reform, the recently passed Patient Protection and Affordable Care Act (HR 3590) does include some language that makes changes to how HSAs can be used. After 2010, HSAs cannot be used to purchase over-the-counter drugs that are obtained without a prescription. And the penalty for use of HSAs to pay for nonmedical expenses will increase from 10% to 20%. Also beginning in 2011, employees may not elect for any taxable year to have salary reduction contributions to HSAs in excess of $2500.

In a May blog post on NationalJournal.com, Mr. Fronstin expressed uncertainty about the extent to which CDHPs would be affected by the new healthcare laws. “The future of CDHPs in a post–health reform world is anyone’s guess at this point. Employers are currently addressing the short-run implications of health reform, such as lifetime limits, coverage for adult dependents, the early retiree reinsurance program, and subsidies for small employers.”

The use of HDHPs/HSAs could be indirectly affected by new out-of-pocket spending limits, minimum actuarial values, medical loss ratios, and other aspects of the newly passed healthcare laws. In addition, a provision would prevent small employers from offering plans with deductibles that exceed $2000 for single individuals and $4000 for families. Another provision of the new laws that could impact HSAs is a requirement that plans provide first-dollar coverage for at least 3 primary care doctor visits for beneficiaries.

The new healthcare laws also impose a tax of 40% on high-value employer health plans with a benefit value of $8500 for individuals and $23,000 for families. Contributions from HSAs or HRAs will be included in these calculations.

The full impact of these provisions may not be known until new regulations are issued by the secretary of the Department of Health and Human Services (HHS). Also posting on NationalJournal.com, John C. Goodman, president and CEO of the National Center for Policy Analysis and Kellye Wright Fellow, said that although the new healthcare laws do not “excessively limit the use of HSAs,” the legislation “opens the door to death by regulation.”

Mr. Goodman said that the new powers given to the HHS secretary make it unclear how HSAs will ultimately be affected. “Each year the secretary of HHS will decide what benefits must be included in all plans and which ones count as primary care (requiring no patient cost-sharing),” Mr. Goodman said. “With the stroke of a pen, the secretary could make the mandated health insurance plan inconsistent with the requirements of the HSA law, thus effectively outlawing any new contributions to HSAs.”—Charles Boersig