In authorizing tax-exempt health savings accounts (HSAs) for eligible individuals covered by high-deductible health plans, the Medicare Modernization Act of 2003, signed into law in December, has spawned a potentially powerful new vehicle in an increasingly consumer-driven health insurance industry. While questions remain about precisely how the accounts will function, insurers seeking to profit from HSAs have begun preparing to enter the market.
A study by Eastbridge Consulting Group (Avon, Conn.), "Health Savings Accounts: A First Look," reports that insurers in the employee benefits business are moving quickly to make HSA product offerings available. Forty-two percent of the companies Eastbridge polled either have an HSA product ready or have one under development. An additional 25 percent were studying the issue and had made no decision, and the remaining third of the companies said that they didn't plan to offer an HSA.
While companies are reacting quickly, most are initially introducing basic products with limited options for managing the funds within HSAs. "Most companies are starting very cautiously in terms investing in HSAs," says Bonnie Brazzell, vice president, work site marketing, Eastbridge. "I believe it's going to be a slow process because companies first want to see the rulings on how HSAs will work, and based on that, figure out what the marketplace is really going to be."
Some points yet to be decided by rulings include how covered "preventive care" will be defined, and how HSAs will link to other health-related accounts, such as FSAs (flexible spending accounts). But Indianapolis-based Anthem -which is consulting with the U.S. Treasury Department on those questions - has decided to go forward with an HSA option, according to Mark Boxer, the insurer's chief strategy and business development officer. "While there are some open questions on these accounts, we think there's sufficient clarity to bring an HSA option to market to meet anticipated individual and employer demand, which is starting to emerge" for HSAs, he says.
"We think HSAs will offer consumers greater flexibility [than other health-related account instruments] for a lot of reasons," Boxer adds. FSAs operate on a "use-it-or-lose-it" model; HRAs (health reimbursement accounts) build only notional dollars, and neither is portable, Boxer explains. "HSAs [accumulate] real dollars - they're owned by the individual and are fully portable. To our mind, [HSAs] combine the pre-tax treatment of an FSA, the portability and rollover characteristics of a 401(k) plan, and the tax-free distribution of a Roth IRA - it's sort of a 'best of all possible worlds.'"
Those attractions mean that HSAs are likely to act as a catalyst to drive further market transformation to consumer-directed healthcare products, Boxer opines. Because HSAs are portable, larger health plans will need to develop trustee account management competencies, and partnerships are likely to emerge between health plans and financial institutions, he adds. "I also think you'll see health plan product portfolios beginning to reflect multiple spending account options, with even tighter integration between those options [such as FSAs and HSAs] over time," Boxer predicts.
Pressure to Invest
These market developments will require greater technology investment, in order to offer consumers the convenience, access and simplicity necessary for the success of consumer-directed offerings, asserts Don Sacco, chief strategy officer of MyHealthBank, a Portland, Ore.-based vendor of healthcare account management technology. "In the context of HSAs, insurers need to be linked to financial institutions so that consumers can manage their contributions appropriately - the technology linking the right information to the right parties will become critical in this process," he says. "Many insurers have been investing in the kind of technology to make this possible, but I think the emergence of HSAs speeds that up."
Anthony O'Donnell has covered technology in the insurance industry since 2000, when he joined the editorial staff of Insurance & Technology. As an editor and reporter for I&T and the InformationWeek Financial Services of TechWeb he has written on all areas of information ... View Full Bio