Health Savings Account Blog                  

Several banks that offer Health Savings Accounts say the accounts’ popularity is growing – especially among small businesses that want to reduce their costs while still offering insurance benefits to employees.

The advantages

Kansas City-based UMB Bank, which has four branches in Springfield, passed the $100 million mark for Health Savings Accounts systemwide in January, marking a 52 percent increase in account balances compared to the previous 12 months.

Dennis Triplett, president of UMB Financial Corp. Healthcare Services, said health insurance premium costs have been outpacing inflation – average premium percentage increases have hit double digits each of the last five years, while inflation has averaged only 2.8 percent – making companies eager to reduce insurance expenses.

“One thing (employers) can look at is increasing co-pays and deductibles, and having employees pay greater shares of the premium,” said Triplett, who is based in Kansas City but was scheduled to visit Springfield April 11. “They’ve done some of that, but now they’re looking at other things that can be done, and one is consumer-directed health care with a higher deductible.”

Higher deductibles mean higher risk for employees, but Missouri State University finance professor Stanley Adamson said that increased risk means lower premiums, making the trade-off attractive to employers and some employees.

He added that Health Savings Accounts allow individuals to have total control over their money – how it’s invested and what it’s used for – and can accumulate funds over time.

“If those monies aren’t used entirely in a year, you can continue to accumulate the money and draw interest on it, saving it for when and if you need it,” Adamson said of HSAs. “With a traditional flexible spending account, when you put money aside, if you don’t use it (before year’s end), you lose it.”

On the downside

Despite such advantages, Adamson said employee perception is among the drawbacks to Health Savings Accounts.

“If you’re dealing with an employee that is relatively low-income, these increases in front-end deductibles are going to be viewed as a reduction in benefits,” he said. “It’s not going to be well-received by any employee probably, but certainly not those with lower incomes.”

He noted that reductions in taxable income aren’t a big incentive for low-income employees, as 40 percent of all Americans don’t make enough money to pay income taxes at all.

Adamson also said that some companies offer the high-deductible health plans and accompanying Health Savings Accounts in addition to a traditional insurance plan – but this, too, has its risks.

“The higher-income people, or the younger and healthier people, would opt for the high-deductible plan, leaving the older and higher-risk people in the other plan, which would cause premiums to increase,” he said.

UMB’s Triplett said the biggest challenge associated with Health Savings Accounts is educating consumers to think differently about health care.

“The biggest challenge is how to communicate the concept, because it is a change in the basic way people look at health care,” he said. “How do you get the employee to understand that they are now engaged in the process, that these are their dollars and they have control over how they can be spent?”

Growing demand

Challenges aside, demand for Health Savings Accounts is only expected to grow. The U.S. Treasury Department estimates that, assuming the laws regulating Health Savings Accounts are unchanged, up to 30 million people will be covered by Health Savings Accounts by 2010.

“I can think of no disadvantages to the accounts,” said Doug Marrs, chief operating officer for Great Southern Bank. “If you qualify for it and can possibly scrape together the funds for an HSA – and I don’t care where it is or who it’s with – it’s a huge advantage.”

Marrs said Great Southern began offering Health Savings Accounts shortly after they were created in 2004. He declined to say how many accounts the bank had, though he said it was “several hundred.”

Even banks that don’t offer the accounts see the benefits. While Commerce Bank doesn’t offer Health Savings Accounts, Vice President Karen Favor said they are being considered for the institution’s portfolio.

The bank is particularly interested in Health Savings Accounts targeted at small businesses rather than individuals.

“I think there’s a lot of educational issues that go along with the (individual) offering,” Favor said. “Customers drive by a branch, see that we offer Health Savings Accounts and might think they can have one, when in truth they’re going to have a certain type of health care plan and there’s a lot of tax implications and ramifications. That’s I think why the employer channel is more attractive to Commerce, because we’ll know we’re targeting the right audience.”