Playing the HSA Blame Game

It's not uncommon to hear negative things about Health Savings Accounts. In most cases, the criticisms are directed at the wrong target. Or are just plain wrong.

I recently ran across an infographic showing all the faults with Health Savings Accounts. It was one more example of the criticism of these accounts that I hear on my rounds on Capital Hill and on social medic (in both cases, mixed in with a lot of positive comments).

I'm a Health Savings Account industry guy, so I bring a certain bias to the battle. But I also know more about them than many people, particularly their critics. I'll concede an argument with merit. But all too often, the criticism are off-base or flat-out wrong.

Let's dissect a few of these arguments.

“HSAs Have High Deductibles”

No. Health Savings Accounts are financial accounts, like a checking account or Individual Retirement Arrangement. They have no deductibles - only cash balances that help owners manage their out-of-pocket medical, dental, vision, and self-medication costs, plus certain insurance premiums.

The medical plans with which they’re paired are called High-Deductible Health Plans. But the statutory minimum deductible is $1,400 for self-only or $2,800 for family coverage. That’s less than the average deductible among small-group employees who have a deductible (which is most of them) and a fraction of the average deductibles on Silver and Bronze plans in the nongroup market.

Yes, many people have premiums greater than the statutory minimum. Bu that’s by choice – either their company’s (one plan offered) or their own (choice among more than one employer-sponsored plan, or plan purchased in the nongroup market). Don’t blame the system (or the insurer) because an employer or individuals choose to reduce their premiums with plans with deductibles.

Blaming Health Savings Accounts themselves for high out-of-pocket costs makes no more sense than blaming your bank for the high price of a new car when you make each payment.

“HSAs Don’t Cover Anything”

Again, let’s start with the fact that Health Saving Accounts aren’t medical coverage. They’re financial accounts.

OK, now let’s focus on this charge. The problem here is the difference in definitions.

To a patient, covered means that insurance reimburses it. When a patient asks (as an employee asked me last week, through her employer) whether an MRI was covered on her insurer’s HSA-qualified medical plan, my answer was, “Yes . . . and no.”

Yes in the literal sense, because MRIs are included in the list of covered services in the schedule of benefits.

No, based on a typical person's definition of the term “covered.”

To an insurer, “covered” means that a service eligible for reimbursement under the medical plan – like a physician visit, physical-therapy session, MRI, or prescription. What “covered” doesn’t encompass is who’s responsible for paying the provider.

In the case of an MRI (or any other non-preventive service), the service is applied to the deductible (because it’s “covered”). If you haven’t met your deductible, you’re responsible for paying the provider. If you have, the in surer reimburses the provider.

It's no different from your auto insurance. If someone throws a rock through your rear-view window, replacing the window is a covered service. If your deductible is $1,000 and the repair costs $900, your insurer doesn’t reimburse the claim. If the repair costs $1,500, the insurer pays the last $500 of the bill.

“HSAs Are Too Confusing”

Again, let’s distinguish between the medical plan and the account. The medical coverage is easier to understand than many plans with a deductible. Many deductible plans cover physician office visits in full after a copay, rather than applying them to the deductible. So where does that leave occupational-therapy visits? Substance abuse outpatient services? Home-health visits? Retail-clinic visits? That’s confusing. In contrast, all these services (except for preventive visits like routine physicals and annual gyn exams) are applied to the deductible on an HSA-qualified plan. No confusion.

The accounts themselves can be confusing, just as any financial instrument can be difficult to understand. People’s basic financial knowledge is spread across the spectrum – some struggle with derivatives and other investment instruments, some don’t know the difference between a mutual fund and an EFT or a bond, and some don’t comprehend the distinction between a traditional and Roth IRA.

But there are resources to help them understand Health Savings Accounts– online articles and FAQs (like these – click here and then choose Health Savings Account), customer-service reps, their own HR team, open-enrollment materials, podcasts, videos, and many more sources. The truth is that the people who get a head financially learn about the accounts available to them. No genetic test of which I'm aware has identified a newborn with the “Health Savings Account gene.” You learn. You may learn faster or slower than someone else, but it’s not a race.

You put money in tax-free. You use your Health Savings Account like a checking account, paying for qualified expenses. You just need to know which expenses are qualified. If it’s something that medical, dental, or vision insurance covers but doesn’t reimburse, it’s qualified for tax-free reimbursement. If it’s an over-the-counter item that a healthy person wouldn’t use (ibuprofen, cough suppressant, and bandages, versus toothpaste, a multivitamin, and exfolient), it’s probably qualified. If you’re not sure, check with your account administrator, which probably post a list like this on its Web site.

“Only the Wealthy Have Enough Money to Fund an HSA”

This is a common argument that I hear when talking to Democrat members of Congress. (Incidentally, the forerunners of Health Savings Accounts were championed in the Senate by three Democrats, not Republicans.) Yes, it’s easier for wealthier account owners to fund their accounts and enjoy more tax savings. But if you have a sick family member who incurs $3,000 in expenses, you must find the funds to pay that bill – whether you’re rich or poor. When you have a Health Savings Account, you receive a tax break on every dollar that you contribute to and withdraw from your account – regardless of your income. Even if you don't itemize your deductions, which is the case for most Americans today.

“Most People Can’t Accumulate Balances in Their Accounts”

This is another argument that I hear on Capitol Hill. Many Democrats favor Health FSAs because they’re the “working man’s” reimbursement account, whereas Health Savings Accounts are for "the wealthy." Interestingly, industry surveys show that household income is nearly identical for each group. Whether someone has a Health FSA or Health Savings Account depends not on income (or general health or volume of claims), but rather which plan either employer offers. And if they’re self-employed, they can’t have a Health FSA, so a Health Savings Account gives them an option otherwise not available.

But the bigger issue is this: Yes, at the end of the plan year, many people have little or no balance in t heir accounts. A recent industry study shows that 18% of account owners have no (or zero) balance, and 49% have a balance less than $500. But this is just a snapshot in time. The same snapshot of Health FSAs would show many zero balances mid-year and nearly all zero balances at year-end.

Are Health FSAs therefore not beneficial? Not by a long shot. Someone with no balance in a Health Savings Account may have contributed $3,000 over the course of the year and spent the full amount. She most likely saved $800 to $1,200 in taxes. If she has a zero balance because she incurred no expenses, good for her. The account’s there for her when she needs to deposit funds to pay a bill. If she paid bills directly rather than funding her Health Savings Account and paying through it, then she needs to learn more about how these plans work.

But we should no more blame the account that generates tax savings for everyone who uses it for an owner’s failure to use it properly, any more than we should blame the manufacturer of a movie camera when it’s used to film porn.

The Bottom Line

Health Savings Accounts are a tool, like a power drill. Some people are high utilizer, some low. Some people use them comfortably, whereas others are reluctant to use them at all. But everyone who uses a drill – regardless of how often – achieves the same results: a hole. The same holds true for Health Savings Accounts.

I'm director of strategy and compliance at Benefit Strategies, LLC, an administrator of Health Savings Accounts and reimbursement accounts. You can read and subscribe to my Health Savings Account GPS blog here and read my weekly HSA Monday Mythbuster and HSA Wednesday Wisdom columns and occasional Healthcare Update column published on LinkedIn. My book, HSAs: The Tax-Perfect Retirement Account, is the definitive guide to navigating the intersection of Health Savings Accounts, retirement planning, and Medicare. It's available in paperback and e-book at Amazon.

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