Health care spending in the United States has been spiraling upward. As we noted in an earlier blog post, studies show that consumer-directed health insurance plans like Health Savings Accounts and Health Reimbursement Arrangements have shown great potential in reducing health care spending.
Health Savings Accounts have been available since 2004 and the enrollment rate in HSA-qualified health insurance plans has tremendously increased over the years. As of January 2012, about 13.5 million people were enrolled in an insurance plan that allowed them to start a tax-advantaged HSA. That’s an 18-percent increase from the number of HSA owners last year – 11.4 million. A big part of that comes from an increase in the number of employers offering Health Savings Accounts to employees.
Health Savings Accounts are increasingly popular because they can be combined with health insurance plans that only cover recommended health care until a deductible has been met. These plans tend to have lower premiums than full-coverage plans. Both employers and employees are allowed to make contributions to the employee HSA. If the employee does, he or she can claim a tax deduction when filing his or her income tax returns.
HSA money from the employer cannot be reclaimed by the company if the employee resigns, retires or loses that job. HSA funds that are not withdrawn to pay for qualified health care, and qualified expenses include a fairly comprehensive list of services and products, can still be used in later years. The funds simply roll over at the end of the year and continue to be eligible to grow with tax-free earnings.
Research indicates that such arrangements correlate with decreases in health care spending (see: Heatlh Care – It’s All About who Pays), and one of the reasons cited as an explanation is that HSA plans motivate people to use health care resources less often. HSA-qualified plans, known as consumer-driven health plans, offer employees an incentive to save HSA money rather than spend it for medical care because the funds belong to them rather than the employer. It also adds to the likelihood that people will look for lower charges when seeking health care, which translates into lower rates of health care spending.