Health Savings Accounts (HSAs) were created by the Medicare bill signed by President Bush on December 8, 2003 and are designed to help individuals save for future qualified medical and retiree health expenses on a tax-free basis.  HSAs are used in conjunction with a High-Deductible Health Plan (HDHP). 

With an HSS or FSA, you've pre-pledged a set amount to put aside, and it usually comes directly from your paycheck. Your employer will fund the account because you're paying it back a bit at a time toward your pledged amount whenever you're paid. But HSAs limit spending to what's actually in the account.  However, many of these HSA cards come with a line of credit — limited to health-related expenses — that is automatically triggered if your expenses exceed your HSA balance. Like regular charge cards, the credit lines charge interest, and those rates are based on your credit history.

There are two ways employees can pay back their line of credit:

1. The first method would have employees repay the lines of credit via payroll deductions, in a similar method to how they are depositing pre-tax dollars in their HSAs. The repaid dollars would be taxed, however.
2. The second method would require bank underwriting, much like that of a credit card. Employees would be required to pre-qualify for an HSA line of credit through a bank. If approved, employees’ lines of credit would be attached to their HSAs. When the client pays a medical cost with an HSA debit card, the line of credit would be drawn upon as needed.

Exante Financial Services, the Minneapolis-based banking unit of UnitedHealth Group, tested a program in Texas called OnePay, which allows consumers to pay just their portion of a medical bill with a MasterCard-branded card.

It's also linked to that consumer's insurance company, so the medical service provider gets fully reimbursed the insurance company's part of the bill immediately. Consumers don't have to pay for everything upfront and wait for reimbursement checks.

The Health Bridge “Line” functions as an overdraft line of credit on the HSA account. The maximum credit issued is determined by the employer and can be as high as the deductible on the high deductible health plan.  It is activated when the HSA debit card or checks are used.  Available funds are first drawn from the HSA account; if inadequate funds are available, an advance on the Line is automatically activated, funds are deposited in the HSA, and the charge is paid.  Because credit advances flow through an individual’s HSA prior to the funds being paid to the merchant, all advances are deductible above the line on an individual’s tax return, and importantly, more than offset any interest or fees MedDirect may charge the employee.

The Line is funded and serviced by MedDirect.  For individual HSA plans, the Line is underwritten and credit granted based on the individual’s creditworthiness, and repayment of advances is made through ACH withdrawals from a checking or savings account. For group HSA plans, MedDirect requires the employer to pay a PEPM (per employee per month) fee for guaranteed issue credit, with no recourse to the employer for any employee advances.  MedDirect requires employers to deduct minimum required payments from employees’ paychecks (including a significant percentage of an employee’s final paycheck) and to remit the deductions to MedDirect.  MedDirect provides all servicing functions on Health Bridge, including documentation, billing, processing payments, and collections. Internet access to account information is available to individuals, employees and employers.

Business model:

Anybody with a High Deductible Health Plans (and no other coverage) is eligible to have an HSA.  Employers (or individuals) pay a lower premium for health plans with HSAs because consumers must pay for routine medical expenses out-of-pocket.  Financial institutions that offer HSAs increase their assets under management, and can invest the principal however they like while offering between one and five percent interest to the consumer.  Insurance companies use HDHPs to align their interests with consumer interests by making consumers responsible for paying routine medical expenses out of pocket.  These plans also lower insurance companies’ costs, though they do not necessarily do much to lower overall risk (unless they are increasing the percentage of young, healthy people in the insurance company’s client base, which is not definitively the case).

Assumptions:

1. HSAs will reduce medical spending by making consumers more sensitive to the costs of care.  But HSAs actually create a decrease in cost sharing for those at the very low end and the high end of healthcare spending¹.  And a Blue Cross Blue Shield study found not only that HSA customers are just as satisfied with their insurance as others, but also that “across the board, individuals enrolled in HSAs or traditional insurance were just as likely to request generic drugs, decide not to go to a doctor, delay seeing a doctor or a medical procedure, delay or not fill a prescription, or take a lower than recommended dose of a prescribed drug².”

HSAs will increase access to healthcare and insurance.  But one study found those with HDHPs are less satisfied with health coverage than those with comprehensive coverage and that those with HDHPs spend more of their income on healthcare than those with comprehensive coverage³.  And the Commonwealth Fund argues that HSAs are unlikely to help uninsured, as more than one-half of all uninsured pay no income taxes.

¹ http://www.commonwealthfund.org/publications/publications_show.htm?doc_id=382001

² http://www.4hsausers.com/10-05_1.shtml

³ http://www.ebri.org/pdf/briefspdf/EBRI_IB_12-2005.pdf

Smoothing the vicissitudes of  individual financial context in the face of the cost of healthcare events

• HSAs provide a tax-incentivized way to encourage people to smooth the peaks and troughs of changes in income and assets over their lifetime.
• The added benefit of the credit lines assures that costs greater than the HSA will be financed, however this also may place an undue burden on a patient over the term of the credit line.