Is a Health Savings Account Right for You?

Consumer-directed health plans (CDHPs), which include Health Savings Accounts (HSAs), have been part of the benefits landscape for more than a decade. According to the United Benefit Advisors’ 2012 survey of more than 17,000 health plans, nearly 15% of employers offer CDHPS with HSAs.

However, with a new study from the Employee Benefits Research Institute (EBRI), “Health Care Spending after Adopting a Full-Replacement, High-Deductible Health Plan With a Health Savings Account: A Five-Year Study,” finding that HSAs can effectively manage costs, that percentage may increase – especially as healthcare costs continue to rise.

A Health Savings Account (HSA) is a savings vehicle established to set aside funds tax free to pay for health care expenses. Created as part of the Medicare Prescription Drug and Modernization Act of 2003, HSAs allow individuals who have high-deductible health plans (HDHP) to save money for health-care expenses tax free.

Back to the findings. Studying data gleaned from a large Midwest employer that adopted a HDHP with a HSA for all employees in place of its traditional health care offering, EBRI found that a HSA linked with a HDHP reduced health spending initially, and over a four year period. In fact, the plan’s total health care spending fell by 25% in the first year, or $527 per person. And, the cost savings continued over the next three years, albeit at a slower pace.

More specifically, EBRI reported that each category of health spending experienced statistically significant reductions in the first year of the HSA plan with the exception of spending on inpatient hospital stays. Spending on laboratory services and prescription drugs had the largest statistically significant declines (36% and 32%, respectively).  However, only reductions in pharmacy and laboratory spending were statistically significantly lower throughout the entire four years with an HSA.

Notably, the IRS recently announced the new inflation adjusted amounts for HSAs. For calendar year 2013, the annual contribution limit for an individual with self-only coverage will be $3,250, up from $3,100 in 2012. The annual contribution limit for an individual with family coverage under a high deductible plan will be $6,450, which is an increase of $200 over the 2012 limit.

The annual deductible for self-only coverage for a high deductible health plan in 2013 can’t be less than $1,250 ($1,200 in 2012) and $2,500 for family coverage ($2,400 in 2012).

In 2013, the annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) for self-only coverage can’t exceed $6,250 ($6,050 in 2012), or $12,500 for family coverage ($12,100 in 2012)..

If you are a business owner, the HSA option may be worth adding. And, if your company offers this option, it may be worth considering.

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