Anniversaries are times for reflection, and the 10th anniversary of the passage of legislation authorizing health savings accounts is an appropriate time for a few thoughts. Our first thought is HSAs have helped to control health care costs. The costs were completely out of control when Congress passed legislation in 2003 that enabled the creation of HSAs. Costs jumped by more than 10% on average that year, the third consecutive year of double-digit increases.
Compare those increases with today. In 2013, health care costs inched up a little more than 2% on average, following a jump of slightly more than 4% the prior year.
That dramatic slowing of health care cost increases coincides with the spike in employee participation in high-deductible plans linked to HSAs.
This year, 18% of employees nationwide are enrolled in HSAs, or similar ones in which health reimbursement arrangements are linked to high-deductible plans. That means enrollment in the plans has more than tripled in just six years, according to Mercer L.L.C. surveys.
Because of their high deductibles, HSA-linked plans cost dramatically less for employers than traditional group health plans. The $8,482 average per employee cost for high-deductible plans linked to HSAs is roughly $1,700 less per employee than traditional preferred provider organization plans.
We think the cost difference is due to the basic design of HSA-linked plans. There is no question the high-deductible feature gives employees a powerful financial incentive to be better consumers of health care services. For example, if employees face a $2,000 deductible, they are going to take common-sense actions, such as using in-network medical providers, opting for generic drugs over brand names, and going to hospital emergency rooms for services when truly necessary rather than for less serious ailments or injuries.
But the success of HSA-linked plans in helping control costs is not just due to the high deductible. Employees know if they use health care services wisely, the amount they contribute to HSAs to cover out-of-pocket expenses will not be depleted and will be available to cover costs during the current plan year and beyond — even for health care expenses they incur in retirement.
This truly is a happy 10th anniversary for HSAs.