Health savings accounts (HSAs) are maturing and gaining popularity with employers and employees alike.
Since debuting in 2003 as part of the Medicare Prescription Drug, Improvement, and Modernization Act, HSAs have slowly but steadily gained traction. In January 2007, a survey by America's Health Insurance Plans found that more than 4.5 million Americans were covered by HSAs -- an increase of 71 percent over the preceding year.
In the early days of HSAs, employers were trying to get their bearings in order to understand and utilize this new savings vehicle. Now, a solid group of HSA devotees has begun pairing other products and programs with HSAs so employees can better maximize the advantages inherent in these plans. These pairings must take into account that HSA-eligible individuals must be covered by a high-deductible health plan that meets IRS criteria and can have no other coverage that pays benefits before the IRS-established minimum deductible has been met. There are certain exceptions to the "no other coverage" rule, including insurance for a specified illness (such as cancer); insurance that pays a fixed amount for each day of hospitalization; and coverage specifically for accidents, disability, dental, vision, or long term care. These coverage exceptions can be important for pairing purposes since they can pay benefits before the high deductible has been satisfied.
Creative pairing of HSAs with other benefits can result in synergies that deliver better benefits and coverage.
Wellness programs
After a few years of educating employees on the benefits of wellness and lifestyle adjustments, many employers are linking their HIPAA-compliant wellness programs to an HSA. Such combinations often come in two forms: conditioning an employer's HSA contribution on participation in a wellness program or giving an employee extra HSA dollars for doing so. A couple words of caution -- first, giving different people different HSA contributions can cause employers to fail HSA "comparability" rules, which require that all similarly situated employees receive either an equal dollar amount or an equal percentage of the deductible under the high-deductible health plans. A solution may be to make the employer contributions through a cafeteria plan, which has different -- and more flexible -- non-discrimination rules. Second, wellness programs cannot offer much in the way of actual medical benefits; otherwise they could be considered impermissible "other coverage" unless the deductible has already been satisfied.
Matching contributions
Employers who want to encourage employee contributions to HSAs sometimes choose to establish matching contributions, similar to inducements to encourage retirement savings. Such matching programs can be either a straight dollar amount or a percentage. Since matching contributions by definition will not pass the comparability rules, employers must do this through a cafeteria plan. However, because even the more flexible cafeteria plan non-discrimination rules may be a challenge, employers must test these contributions for non-discrimination to make sure they comply.
Supplemental disease and accident benefits
Some insurance policies pay cash benefits when a policyholder has a covered accident, specific disease (such as cancer), or hospital stay. If they fall within the permitted "other coverage" exceptions discussed above, these policies are perfectly paired with HSAs, providing additional coverage in concert with a high-deductible health plan.
Prescription discount cards
Perhaps the most popular of all the pairings, prescription discount cards are often offered in combination with HSAs. The IRS has made clear that HSA owners can receive benefits through a discount card program regardless of whether they have satisfied the deductible under their high-deductible health plan. These discount cards provide either a percentage savings or a flat fee for prescription drugs.
Preventive care
Employers can also pair preventive care benefits with an HSA. IRS rules allow insurers or employers to pay for preventive care even though the HSA owner has not satisfied the deductible under the high-deductible health plan. This can include periodic health exams such as an annual physical, routine prenatal and well-child visits, and immunizations and diagnostic screenings.
Limited-purpose FSAs
Cafeteria plan health flexible spending accounts (FSAs) that can reimburse any uninsured medical expenses cannot be used with HSAs because they are considered "impermissible other coverage." Employers have responded by converting traditional FSAs into limited-purpose FSAs that cover only dental, vision, and preventive care. And once an employee reaches their deductible, the limited-purpose FSA can reimburse any medical expenses above that deductible.
As health savings accounts continue to grow in popularity, more and better pairings with new and existing products will no doubt emerge. You should help clients explore inventive and innovative options when it comes to maximizing the benefits of HSAs while recognizing that federal regulations may make certain pairings impractical or impossible.
Amy Chambers is the director of consumer-engaged health care for Priority Health. She can be reached at 616-464-8540 or amy.chambers@priorityhealth.com. Sue O. Conway is a partner at Warner Norcross & Judd LLP. She can be reached at 616-752-2153 or sconway@wnj.com.
