Consumers driving health care

New research shows balances soared over the last half-decade

It looks like consumers are finally starting to drive their own health care.

A new report shows that just last year, Americans socked away a whopping $12.4 billion in 8.4 million health savings and reimbursement accounts last year. That’s up from 1.3 million accounts full of $873.4 million in assets just five years ago.

Now these aren’t exactly Apple earnings report-type numbers, but they’re certainly impressive for a country full of spenders. These new numbers come from the just-published “2011 Consumer Engagement in Health Care Survey,” sponsored by EBRI and Mathew Greenwald and Associates.

The average account balance sat at $1,470 last year, a slight dip but more than double the 2006 average of $696.

The growth of at least these two consumer-driven plans in particular becomes even more impressive considering how young they both still are.

Health reimbursement accounts emerged back in 2001, with just a smattering of employers actually offering these payback-type plans.

Congress actually wrote health savings accounts into law a few years later and they came online in 2004 as a health care expense version of the 401(k).

The logic, of course, behind these and other consumer-driven vehicles is that by managing and spending their own money when using their health care services, consumer will act and spend more responsibly.

“The increase in asset levels in HRAs and HSAs in 2011 points to a new growth phase for consumer-directed health care plans,” explains Scott Mardis, senior vice president for business development at AmeriFlex. “Flat increases in 2008–2010 were a result of misaligned health care premiums and health care reform provisions that created a ‘wait and see’ attitude among brokers and employers. Now, with the proper alignment of carrier premiums, market place conditions and improved education, consumer-directed plans are finally poised to take their place as the premier delivery system for insurance plans.

According to the experts at Mercer, by 2010, 16 percent of small to mid-sized employers and 23 percent of large employers offered an HSA or HRA-eligible plan, which EBRI estimates covers 21 million Americans and making up 12 percent of the private insurance market.

“Over time, balances have increased. What that shows is that people are saving more than they’re spending. That’s in a down economy when people have negative savings rates. Shows these plans are working,” says Eric Johnson, HealthEquity’s director of education.

But before delving further, a couple of questions come to mind. For starters, why lump HSAs – individually owned products – with HRAs – which aren’t, but can be rolled over? Though that’s dictated by the individual employer.

And, even assuming that, as one broker pointed out, “the numbers seem off,” a hunch that bears itself out when you look at AHIP’s numbers from November. America’s Health Insurance Plans’ own study counts 11.4 million HSAs alone, which is still larger than EBRI’s estimate of HSAs and HRAs combined.

The folks at EBRI didn’t return calls for comment on this study.

A few surprises

Statistical anomalies aside, this study still shows strong growth and wider acceptance of a burgeoning market. It also digs deeper than most surveys of this niche.

“What’s interesting about this study is they looked at the demographics of people who have HSAs,” Johnson adds. “And I think the conclusion they reach is that HSAs aren’t just for one group of people. Some think HSAs are just good for healthy people, others say they’re only for the wealthy; others believe younger people will do better than older people. But those myths are proven wrong by this study. It seems they can be good for everyone–young or old, rich or poor, healthy or unhealthy.”

Part of those “demographics” include revelations such as men carrying higher account balances than women, much like older consumers versus younger ones and a direct correlation between household incomes and account balances.

In particular, as of August, the study shows men with an average account balance of $1,735 while women only averaged about $1,403. Of course, the conventional wisdom here points to a lower utilization rate for men, resulting in higher average account balances.

Of course, as Johnson points out, there can several factors that create this result: This could point to single-income earners (i.e. men) assuming family coverage and chipping in more to cover their entire family’s expenses; men typically earn more than women, so they end up saving more in the first place; more men work for employers who contribute to their employees’ HSAs; or more men pay out-of-pocket to pay for HSA-eligible expenses and hang on to the receipts so they can reimburse themselves at a later time.

Some other demographic nuggets shaken out of the study includes:

  • Last year whites surged ahead of blacks to boast higher average account balances for the first time since 2008.
  • Older consumers typically have more socked away.
  • Higher household incomes translated into higher average HSA/HRA account balances–of course, that could also mean those households are better equipped to pay for medical expenses out of their own pockets.
  • Higher education also translates directly into higher average account balances, too.

Perhaps the biggest surprise tucked away among all the numbers sprung out of the health behaviors category where, apparently, smokers plan ahead by socking more of their money away in accounts than non-smokers. But on the flip side, obese consumers have thinner accounts than the non-obese.

Economic immunity?

Heading into this dense survey, one would assume the economic malaise that’s plagued the rest of us for the last half decade would bleed over into health savings and reimbursement accounts. Just look at what kind of havoc it's wreaked on 401(k)s.

But one would be wrong. In fact, except for a slight hiccup back in 2010, growth has been as slow and steady as your cable bill.

“I think that the increases we are seeing in the average HSA balance is due to a couple of factors,” explains industry veteran Marty Trussell. “First, people are gaining experience with using HSAs and feel more confident in adding dollars to the account since they know they won't be lost at year-end. Secondly, I think that financial advisers are becoming more active in advising their clients to sign-up for an HSA and fund it to the maximum as they would a 401(k).”

But there’s got be more to it than that, right?

“They’ve gone mainstream,” Care Advocates’ Sharon Alt says. “I think what you’re really seeing here–quite simply–is the maturation of these products. People are finally getting it.”

But there’s also the little matter of the Patient Protection and Affordable Care Act, which has clearly moved employers and employees alike toward consumer-driven options. And while it might not be the main driver of HSA and HRA growth, it’s certainly a mitigating factor.

PPACA was supposed to slash premiums–or at least slow the increases. It is called affordable care, after all. But we’re still waiting, as premiums keep climbing. So employers responded by bumping up deductibles and shifting more responsibility to employees themselves.

“This is a cause and effect we see every day, and it’s certainly played its part in encouraging the wider adoption of consumer-driven accounts,” Alt says. “When you look at all premiums and deductible pressures employees are facing now, it makes sense they’d start socking more of the pre-tax dollars away to cover it all.”

Another overlooked factor could be an overall dip in utilization, which this study might not address but can easily be read between the lines.

Good news, good news

This survey–despite quibbles over the totals and methodology–clearly shows that these bedrock consumer-driven health plans are here to stay. Better yet, everybody wins.

Obviously, employers save big on their bottom lines. And on the flip side, employees almost always perform better–taking better care of themselves–when they’re on an HSA or HRA and utilization drops.

Of course, this also highlights the role of broker, who’s actually morphing into more of an adviser. How active–and valuable–a role that turns out to be is up to the individual broker.

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