June 27, 2019
Five Common Misconceptions About Consumer-Directed Healthcare Arrangements
From shoes to smartphones, Americans are typically savvy consumers about nearly everything -- except healthcare, where knowledge seems to have taken a large drop. Worse yet, consumers aren’t just confused about the nuances and intricacies of healthcare plans that only policy folks and healthcare insiders would truly understand. The lack of knowledge lies in the basics.
For nonprofit employees, this lack of knowledge is regrettable because tax-advantaged benefit programs empower employees to take control of their healthcare dollars while allowing employers to reduce the costs of their health coverage.
How far has basic knowledge fallen?
In a recent Policygenius survey of 2,000 American consumers living in the 10 largest cities, 96% failed to correctly define four essential health insurance terms: deductible, co-insurance, co-pay and out-of-pocket maximum. Among the survey findings:
• Half of the respondents could correctly identify the term "deductible."
• A scant 22% could define "co-insurance."
• Only 52% felt they understood the term "co-pay."
• Just 42% could correctly identify "out-of-pocket maximum."
• A mere 36% of millennials could correctly identify any of these terms.
As the executive director of an organization that advocates for consumer-driven health arrangements, I find this survey disturbing. Clearly, additional education is needed to help people understand the key provisions of healthcare plans -- terms everyone should know.
Like the basic terms of health insurance, many people struggle to define health savings accounts (HSAs), health reimbursement arrangements (HRAs) and flexible spending accounts (FSAs), while miring themselves in misconceptions about these tax-advantaged benefits. The reality is that HSAs, HRAs and FSAs are effective budgeting tools for increased out-of-pocket healthcare costs, helping millions of Americans pay for the critical healthcare procedures that they otherwise may forgo.
With the 2020 open enrollment period coming up, let’s press the reset button on the education process by dispelling some common misconceptions consumers often have regarding consumer-directed healthcare arrangements, including HSAs, HRAs and FSAs.
1. HSAs and FSAs are the same.
There are many distinct differences between an HSA and an FSA. (You can read more about the alphabet soup of HSAs, FSAs and HRAs in my last article here.) To keep it simple, here are the basics: HSAs are pre-tax dollar accounts that do not have a timeline to be spent and are portable from job to job. HSA-qualified health insurance is required in order for an individual to contribute to an HSA.
FSAs are also pre-tax accounts but are used for current year expenses. FSAs allow a carryover of up to $500 of unused funds, depending on the employer’s design, to discourage wasteful healthcare spending at the end of the year. One of the best things about an FSA? FSA funds are available on the first day of the plan year, regardless of what funding has actually occurred. This makes the FSA more attractive for employees who may have large expenses early in the year and can’t afford to wait for their balance to accumulate.
2. HSAs are for people who have a lot of money.
This simply isn’t true. Studies show that over 25 million Americans have HSAs. And research also shows significant usage of HSAs for families earning under $50,000 per year. The reality is that every income level can benefit from an HSA.
3. Healthcare plans are complicated and require too much paperwork.
For most employees, setting up an account is a simple set of steps during open enrollment. While choosing a healthcare plan may be complex, deciding to start an FSA or HSA really isn’t. It takes the same amount of effort as opening a checking account, only you don’t have to go anywhere except your place of work to get it started.
4. Employers cannot reimburse employees for individual health insurance.
This is actually exactly what happens with an HRA, which is an IRS-approved, tax-advantaged health benefit plan that reimburses employees for out-of-pocket medical expenses and individual health insurance premiums.
In fact, just last month, the administration expanded the rules for HRAs. It may now be possible for an employer that provides health insurance to its full-time employees but is not required under the ACA mandate to provide coverage for its part-time employees to provide some assistance to part-time staff in purchasing individual health insurance by making amounts available under an HRA.
5. These accounts don’t seem to help people very much.
Like many misconceptions, this one comes from a place of just not knowing the facts. People rely on their FSAs to pay for basic healthcare expenses they really need.
The personal testimonials and stories compiled on My Money, My Health show there’s a lot of healthcare that people simply wouldn’t receive without their FSA (In the interest of full disclosure, My Money My Health is supported by ECFC.). The “My Money, My Health” campaign is dedicated to protecting employee contributions to flexible spending accounts (FSAs) and health savings accounts (HSAs) from the effects of the excise tax (commonly referred to as the “Cadillac Tax.”) From prescription drugs to hearing aids and dental procedures, people need these accounts to take care of their health.
Healthcare, as we all know, is far from perfect. Yet, its evolution has genuine benefits for consumers. For nonprofit employees, it means having options for healthcare when employers may not be able to afford robust healthcare plans.
It’s up to us to understand how to best use these benefits. As a society, we have embraced how to do this with technology. Machine learning, artificial intelligence (AI), electronic health apps and other real-time technologies can significantly help consumers become better, more engaged users of health plans.
Overall, technology is helping employees become more engaged in healthcare choices. And people are monitoring their health like never before, with an app for every activity, meal and exercise routine. It’s time for us to bridge the gap between what we think healthcare is and what it actually is. Healthcare consumerism is here to stay. So, let’s dispel the misconceptions and get to the benefits.
May 1, 2019
By Martin Trussell, CFC, Executive Director
Many Americans are currently benefiting from consumer-directed health accounts, including HSAs, FSAs and HRAs -- that’s the good news. The bad news is many others may be missing out because of a lack of understanding when it comes to these three options.
December 28, 2018 -
By Martin Trussell, CFC, Executive director
When people learn I have a background in employee health benefits, I am often asked how they can provide better health benefits to employees in their nonprofit or small business without breaking the budget. This is a great, albeit complex, question, as many factors go into a benefits package that can ultimately influence new or current employee decisions about joining or staying at a company.
November 13, 2018 -
By Martin Trussell, CFC, Executive Director
While a lot has been written about millennial traits, a critical look at millennials you know, especially those in the sandwich generation, will likely point you in the right direction to address benefits that are of interest.
July 2, 2018 -
BY MARTIN TRUSSELL, CFC, EXECUTIVE DIRECTOR
This article explores the use of the HSA investment feature as a way to better prepare employees for retirement.
April, 27, 2018 -
By Martin trussell, CFC, Executive Director
The article discusses recent changes in health plans and how consumer-directed plans like HSAs and FSAs are filling the gap for employees.