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John is 59 years old, married and has a son and daughter in college. He's in good health, exercises regularly and gets all his preventive screenings.
But one night, he wakes up with severe chest pains. He is rushed to the hospital where he undergoes several tests and, eventually, surgery. All goes well and he returns home to recover.
Weeks later, he receives his explanation of benefits. Because of his employer's consumer-directed health plan (CDHP) — paired with a health savings account (HSA) — John has a transparent look into the costs associated with his hospital visit.
This transparency reveals a highly complex transaction where exchanges between patients, providers and insurance companies had previously occurred without consumer visibility. Fortunately, John had been making regular deposits into his HSA and was easily able to cover the cost.
When considering that almost half of Americans don't have enough money to cover a $400 emergency expense, according to a 2016 Federal Reserve study, John was fortunate.
Even more so when factoring in that between 2009 and 2013, overall health care spending grew at 2.9 percent per year, while the amount shouldered by insured patients grew more than twice as fast, according to a study published in JAMA Internal Medicine last year.
John's story could be any number of Americans' story. And his employer would be part of a growing trend in American health coverage over the last decade.
CDHPs are an increasingly popular form of health plan that combines a high-deductible plan with a tax-advantaged payment method, like an HSA. An HSA is an account into which employees can deposit a portion of their paycheck untaxed and use it later to cover qualified medical expenses.
These plans are gaining popularity as employers and employees look for better tools to face a shifting health care system.
The growing complexity of health care, the increased costs, and an unsustainable rise in liabilities have prompted employers and employees to look for new answers. Those answers are emerging, but health consumers need to know where to find them.
In the case of health spending, that means employees and employers — who themselves are health care consumers and plan enrollees — need to understand and work together to take advantage of new key tools like HSAs.
A new mindset
The health care system in America needs help. The U.S. has the dubious distinction of ranking last in the quality and efficiency of its health care when compared with 10 other developed countries, according to a 2017 report by the Commonwealth Fund.
But new forms of plans — with adoption rates that are already showing encouraging signs — have the potential to address large, systemic issues and improve health outcomes for consumers.
One of those offerings is the CDHP. The use of CDHPs has risen sharply in recent years. Enrollment reached 29 percent of all employees in 2016, up from 13 percent just five years earlier, according to the Mercer consulting group.
According to Optum, sixty-one percent of large employers now offer a CDHP. And by 2019, it's possible that as many as 92 percent of large employers will make at least one CDHP available to workers.
The history and adoption rate of HSAs
"When HR departments first started offering CDHPs with HSAs in the mid-2000s, they were looking for a way to lower overall costs for employees and the company itself, and avoid new taxes for offering expensive plans," said Tim Quitmeyer, director of benefits for JLL, a real estate professional services firm.
"We are big believers in accountability and the HSA is a great way for our employees to take that first step," Quitmeyer said. "It also offers employees the flexibility to not pay premiums for something they're not using and the opportunity to save their money."
While CDHPs reduce employers' health care costs and provide more benefits, the HSA helps employees shoulder their share. Employers can also contribute a set amount into employees' HSAs, like JLL does.
The funds roll over from year to year and can be transferred between jobs, or even used in retirement.
Many HSA providers allow holders to invest a portion of their accounts once the balance reaches a certain level. And contributions, earnings and withdrawals all receive tax advantages.
These features make HSAs a powerful tool for addressing some Americans' greatest financial concerns: their ability to pay for quality health care and prepare for a secure retirement.
In addition to limiting the burden of health costs, HSAs also create smarter health consumers — a much-needed improvement.
According to the OECD (Organization for Economic Co-operation and Development) , 20 percent of health care spending in the U.S. is wasted, meaning those expenditures don't actually impact health outcomes.
With HSAs, individuals are exposed to the actual costs of prescriptions and doctor visits, and are therefore more inclined to make conscientious — and less expensive — choices.
After seeing the explanation of benefits following his surgery, John would no doubt look at his health care spending in a new, more positive light.
A 2017 study by the Employee Benefits Research Institute (EBRI) confirmed this impact. The study showed that enrollees in a CDHP plan were more likely to ask for a generic drug or use an online cost-tracking tool.
And when consumers make more informed choices, health care providers have a stronger incentive to maintain competitive prices and offerings, making the whole system more efficient.
How HSAs work
No one needed to explain to Quitmeyer how CDHPs can be a win-win for employers and employees. But the HSA is a tool that many still don't fully understand.
Only 30 percent of HSA participants passed a basic HSA proficiency quiz, according to Optum, a health services and innovation company. And one-quarter of CDHP enrollees haven't even opened an HSA, according to a 2017 study by EBRI.
Moreover, only a small fraction of HSA enrollees use their accounts as investment vehicles.
Employers are learning that it's not enough to offer an account-based CDHP and send out a brochure at enrollment time. Without a more active approach, neither they nor their employees will get the most from these plans.
Employers, employees partner for health
To spur employees to think seriously about costs and treatments, JLL integrates HSA communication into an overall well-being message.
"It's not just about health spending, but also saving for retirement," Quitmeyer said. "We're really trying to pull all the pieces together in a way that's easily understandable."
In Quitmeyer's view, that's one of the main challenges today — getting the message out. He says it's also about timing and getting the right information to the people to whom it applies at the time they need it.
The holistic approach JLL is using is similar to what many employers are doing today. With plans that rely on greater consumer-level understanding and initiative, effective communication is essential.
And employees don't need to sacrifice quality for cost, said Markie Davis, who oversees benefits for 31,000 Colorado state employees as director of risk management for the state.
Through CDHPs offered by UnitedHealthcare (and an HSA offered by Optum Bank®, Member FDIC), participants can choose health providers based on data about outcomes as well as cost.
For self-insured employers, good versus poor outcomes can result in very different costs," Davis said." We want good outcomes for our employees.
Helping employees along the journey
How can employers help their employees get the most from their HSAs?
Customize your communications
Employees need personalized information that can take them to the next level of engagement with their HSAs.
The best communications programs take advantage of data, including education and income levels, household composition, HSA activity, clinical risk and engagement with wellness programs and services.
Create a seamless experience
Health, wellness and financial benefits information and activities should be deeply integrated and easily accessible through various channels, including mobile platforms. In particular, HSA accounts should be closely integrated with incentive and wellness strategies.
Help employees understand HSA advantages
Optimized users understand the value of the HSA as a long-term savings and investment vehicle. Help employees build their accounts over time through annual contributions, direct deposit of wellness incentives and employer matches of employee contributions.
Optimizing the HSA
Employers who help employees optimize their HSAs are also helping their companies. When employees stress less about health care costs, retention and productivity increase.
Employers who don't invest in a smart strategy may reduce short-term costs but increase long-term liabilities.
"Optimal" HSA users have confidence in their ability to save and pay or be reimbursed for qualified medical expenses and understand the capacity of HSAs to help them save for long-term health expenses in retirement.
They utilize free preventive services and use their HSA funds for needed care. Many choose to actively save in their HSA and invest a portion of their balance if their financial situation and risk tolerance allow it.
These optimized users understand how their health and their HSA are connected to financial wellness.
A study by Optum, for example, finds that optimized HSA users have a 20 percent higher use of preventive services, are more likely to use urgent care instead of an ER and are less likely to use out-of-network providers.
An HSA plan can help employees secure long-term health and financial wellness while helping employers to offload cost and risk. But the promise of the HSA won't be fulfilled until employers have done all they can to help their workers navigate the new world of health care.
Helping people feel good about staying well
Sources: The Kaiser Family Foundation, Public Law 108-173, U.S. Government Accountability Office, Optum Bank.
Health savings accounts (HSAs) are individual accounts offered or administered by Optum Bank, Member FDIC, and are subject to eligibility requirements and restrictions on deposits and withdrawals to avoid IRS penalties. State taxes may apply. Fees may reduce earnings on account. The content of this communication is not intended as legal or tax advice. Federal and state laws and regulations are subject to change. Investments are not FDIC-insured, are not guaranteed by Optum Bank and may lose value.