Implementation of Health Savings Accounts Causing Confusion

Today’s Wall Street Journal provides a good article discussing the challenges individuals face in adopting and implementing the new health savings accounts (“HSAs”) which are growing in popularity: “Savings Accounts for Health Care Cause Confusion.” The article makes the point that “early adopters” of the accounts may encounter glitches, as “consumers, banks and insurers are still figuring out the details on just how these new accounts are supposed to work.” One such glitch mentioned in the article is “figuring out just what the patient is expected to pay”:

Though consumers must pay for their own care until they meet their policy’s deductible, they’re still supposed to be able to take advantage of any discounted price that their insurer has negotiated, from doctor rates to drug costs. But already some patients and doctors are confusing HSAs with direct, full-price payments consumers make when they don’t have insurance.

Generally, payment with HSAs should work the same way payments generally work for patients with insurance. The doctor informs the insurer of the charges, the insurer sends the patient a statement explaining how much the patient owes, and the patient then has to pay the doctor that amount. Patients using HSAs should wait to pay until the doctor submits the information to their insurer, says Mr. Engel of Mellon Financial. . .

Some insurers, like UnitedHealthcare, are already working to minimize this hassle, for example, by allowing consumers to authorize the insurer to deduct directly from their HSAs to pay medical bills.

Obviously, if consumers are not allowed to take advantage of discounted prices, this will put a damper on the use of HSAs. The issue is not really even mentioned in this recent article from Forbes.com–“Saving for Your Health“–which makes the statement that “[f]or the right customer an HSA can save thousands of dollars a year.” However, according to the article in Forbes, those who can afford it, shouldn’t even use their HSA accounts to pay for medical bills now, but should use their “HSAs to compound tax-free as de facto IRAs”:

If the money is ultimately used decades later to pay postretirement medical bills, so much the better: The account is better than an IRA because the funds are untaxed.

A 40-year-old person putting $5,150 a year into an HSA returning 5% and making no use of the account would end up at age 65 with $268,000. The best interest currently being offered by HSA vendors is only 4.15%, but that will surely improve as balances get bigger and competition heats up.

The Forbes article provides a very helpful chart of the different HSA providers and the interest that can be earned on such accounts as well as whether the accounts allow investments in securities.

There are confusing state law implications as well, as mentioned in this article from SFGate.com–“State rules complicate health savings accounts“:

As if the new health savings accounts weren’t complicated enough, employers and individuals who open one in California should arm themselves with a big bottle of aspirin.

. . . California has not conformed to the federal tax law that created the accounts. That means they provide fewer tax benefits and more record-keeping headaches for Californians than for residents of states that automatically conform to federal tax legislation.

But for an interesting sideline on the use of HSAs, don’t miss this additional article from Forbes.com: “Doctor Your Tax Return.”

(You can read previous posts on the topic of HSAs here.)

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