Health Savings Accounts: American Idol?
October 25, 2007
 By Jim O'Connell, Ceridian vice president of Government Relations and HR Policy |
| The following is an excerpt from an article originally published by Benefits & Compensation Digest.
Millions of television viewers held their breaths last May as finalists Jordin Sparks and Blake Lewis went head to head in the 2007 American Idol competition. Sanjaya Malakar, Melinda Doolittle and LaKisha Jones had already been voted off when Glendale, Arizona teenager Jordin broke through to be crowned American Idol. Now, as 2008 begins and as a presidential campaign heats up that will end with the Inauguration of the 44th President of the United States one year from now, an American Idol contest of a different kind is underway. Out-of-control health costs and growing numbers of uninsured have fueled speculation that Health Savings Accounts (HSAs) and Consumer Directed Health (CDH) will emerge as the future "Star" of U.S. health care policy. Are HSAs destined to become the "Jordin" of our country's health care system? Health care megatrends Payroll, HR and employee benefits professionals are evaluating Health Savings Accounts in the context of five "megatrends" expected to redefine U.S. health care policy from 2008-2012:
Consumer-directed health Consumer-directed health (CDH) is generally thought to consist of three pillars:
Taken together, this trifecta of HDHP, HSA and decision-support represents a powerful engine with potential to drive systemic change in U.S. health care. The spark plug of that engine is the HSA. Like its 401(k) antecedent which fired the transformation from traditional pensions to defined contribution retirement savings, the HSA has the potential to revolutionize health care. HSAs: 401(k) of health care? Whether CDH wins broad workplace acceptance in the next five years, as "consumer-directed retirement" caught on in the 1980s, will depend on the comfort level employers and employees ultimately have with HSAs. Enacted as part of the Medicare Prescription Drug Improvement and Modernization Act of 2003, HSAs were inaugurated in January 2004. America's Health Insurance Plans (AHIP), a national association representing nearly 1,300 member companies providing health insurance coverage to more than 200 million Americans, reported recently that in just three years, 4.5 million Americans became covered by HDHPs offered with HSAs, a 46 percent increase since 2005. A 2006 Deloitte Consulting LLP cost survey, "Reducing Corporate Health Care Costs," found that 40 percent of HR executives rate HDHPs the "most effective approach for managing costs and maintaining quality care." The survey concluded that not only do 24 percent of large employer respondents now offer a consumer-driven health plan, some 70 percent plan to offer a consumer-directed health plan as an option or replacement over the next five years. In large measure, therefore, whether the destiny of CDH and HSAs is to take their place alongside 401(k)s as another consumer-based employee benefit rests in the hands of payroll, HR and benefits professionals -- who have primary responsibility for educating workers and implementing new policy ideas in the real world of today's workplace. For this reason, payroll professionals convening in Las Vegas for the American Payroll Association's Annual Congress explored the mechanics of HSA compliance and reporting in this context of rapid HSA growth and acceptance. They focused on five defining principles. HSA mechanics: Five principles At its core, the HSA is a "401(k)" for medical expenses. Turbo-charged with unprecedented tax advantages, HSAs are designed to encourage consumers to shoulder greater responsibility for health care decisions by subsidizing their saving for health costs insurance does not cover. Accordingly, HSA funds may be used for out-of-pocket costs associated with HDHPs, but not for insurance premiums, except for certain "permitted insurance" such as COBRA premiums, long-term care insurance premiums, health coverage while on unemployment insurance and coverage for specific illnesses (IRS Notice 2004-50). Read the full article from Benefits & Compensation Digest to learn about the five principles. Jim O'Connell is vice president of Government Relations and HR Policy at Ceridian. He is an adjunct professor at Georgetown University in Washington, D.C., specializing in international business/government relations. Before joining Ceridian 25 years ago, O'Connell served in the U.S. Senate as chief legislative assistant to New York Sen. Jacob Javits, a senior member of the Committee on Labor and Human Resources, and with Connecticut Sen. Lowell Weicker. He holds a doctorate in economics from New York's Fordham University. Excerpted with permission from Benefits & Compensation Digest, Volume 44, Number 11, November 2007, published by the International Foundation of Employee Benefit Plans (www.ifebp.org), Brookfield, Wis. Statements or opinions expressed in this article are those of the authors and do not necessarily represent the views or positions of the International Foundation, its officers, directors, or staff. No further transmission or electronic distribution of this material is permitted. All rights reserved. |
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