July 26, 2004
Final Treasury regulations released Friday contain no surprises,
and represent the end of chapter one in the history of health
savings accounts. Now it's up to the market to respond.
It takes about 10 minutes to read the 88 questions and their
answers, unless you are interested in a long series of arcane
questions about theoretical products. Answers are pretty obvious,
but there are important clarifications on Medicare HSAs, disease
management, FSAs, and prescription drugs used for prevention.
Also, the interaction of FSAs and HSAs is clarified, and Treasury
shuts the door on any notion that employers can apply co-insurance
to HSA claims.
HRAs are totally ignored in the new guidance, except for
one question about whether you can have "post-deductible"
HRAs that kick in above the HSA deductible. No idea why anyone
would want to do such a thing. Otherwise, there is no mention
of HRAs at all.
We were told privately by a top Treasury official that there
is "no interest" inside the Bush Administration
for any new HRA guidance. HSAs are the silver bullet it seems,
and HRAs are still being pooh-pooed by former MSA lobbyists
are an inferior version of HSA.
But realistically, the guidance is expected by many analysts
and benefits attorneys to guide employers into using HRAs
instead of HSAs to control costs. In fact, the Employers Council
on Flexible Compensation predicted outright that most employers
will tie their new high-deductible health plans to (1) HSAs
with employee-only contributions (2) HRAs (employer-only).
That's because a smaller and smaller number of employers
in the U.S. are willing to contribute to HSAs, even if a large
percentage offer HSAs. The reason: HSA spending cannot be
managed by employers and insurers, and claims risk might be
higher. This is actually a good thing on a philosophical level,
but could result in higher risk and premiums. Nobody really
knows.
One thing that is known is that HRAs are working right now.
HSAs still have to prove themselves, which they will probably
be able to in the next 6 months to a year. Unfortunately,
early results, including new findings coming out this week,
seem to prove that the initial HSA population is not at all
average and appears higher risk. Not a good sign.
There is an emerging view that HSAs in the short-term will
primarily be used as either a tax-break for high- or middle-income
employees or a low-premium plan for low-income workers. The
target market is most likely individuals and small employers
with low-income employees.
But the real question is how far employers will move into
HRAs, in our view. The list of studies and real-world experiences
with HRAs is getting longer and longer. HSAs might be able
to be designed with the exact features of HRAs that are working,
plus the savings incentives, and it's now obvious that dozens
of major plans will try to adapt the HRA to an HSA.
Employers will go with what actually works, not what gets
the most publicity.
Source - Interpro Publications
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