Health Care Accounts May Be Difficult to Understand and Use

computer man comparing costs and benefits

Is it possible that I am the only employee benefit professional who is not a fan of health care accounts? You know, flexible spending (FSA), health reimbursement (HRA) or health savings accounts (HSA) Am I the only one who feels that there is no way to explain the tax benefits of these accounts without sounding like someone spewing gibberish? Seriously, am I the only one who thinks that these accounts require more understanding than they are worth? ¿Quizás? I love that word. It means maybe or perhaps in Spanish. (Im trying to learn to speak the Spanish I never learned in three years of high school instruction. I am using Pimsleur and I love it.) Back to the post

Today Versus Tomorrow

For some employee benefit managers, health care insurers, and health care industry experts, a health plan's out-of-pocket maximum (OOPM) amount is the most important cost feature of a plan. But most employees don't even know what an OOPM means. To understand OOPM they need to first understand coinsurance and survey after survey shows that most do not. Employees choose health plans and health care accounts based on what comes out of their pockets today, not over one year’s time. Which is why the concept of using health care accounts don’t click for many employees.

True Story. I worked with a woman who had several serious health conditions that required a lot of ongoing care throughout the year. She took multiple prescriptions and received direct care from her doctors several times a year. She was a prime example of someone who needed to participate in a flexible spending account. She was also an individual who needed to pay special attention to her health plans out-of-pocket maximum amount before making an annual plan election. Turns out, she was an even better example of why health care accounts are a challenge for a majority of employees. These were her challenges.
  • She had no savings like a significant number of Americans
  • She could not afford to have a per pay period premium deduction and FSA or HSA deduction
  • She had other bills to pay (rent, car loan, groceries, gas, etc.)
  • She needed flexibility to negotiate what bills to pay and when
In other words, having her money locked into accounts she could not access except for medical care was too financially taxing. She would rather pay more over a 12-month period for medical care she knew she needed, than lose the flexibility of paying for the things she needed today. She was used to negotiating with her doctors to pay her share of her medical costs and for her this was a better system than not having access to her money to pay for other necessities.

This may sound mathematically foolish to someone who has a lot more financial security, but this lady was smart and resourceful. And she knew that even though she might save a few bucks in the plan year by participating in a health care account, the arrangement did not match her reality.

Why health care accounts don't work for most employees
  • They are confusing and require too much time, maintenance and tracking
  • They can require large upfront outlays of cash that most employees do not have
  • They may not be that effective at controlling health care costs

I am not ready to join the health care account bandwagon. I am not even all that sure they save health care consumers money. I think they are a way to transfer even more costs to employees in an opaque fashion. Are you a health care account proponent? Why?
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