Smart Benefits: Switching to HSAs May Reduce Healthcare Spending

Monday, August 05, 2013

Amy Gallagher, GoLocalWorcester Business/Health Expert

Do HSAs save money or not? New results from teh EBRI may have the answer.

For a variety of reasons, as many studies support Health Savings Accounts as those that don’t. But when it comes to the question of whether HSAs save money, the Employee Benefit Research Institute (EBRI) may have the answer.

Recently, EBRI released results from a first-of-its-kind study that reveals that a high-deductible health plan linked with health savings accounts reduced health spending initially and over a four year period.

Previously, most studies focused only on first year, or most recent year, savings.

25% Reduction in Health Care Spending

EBRI analyzed detailed claims over a five-year period from a large midwestern employer that adopted a high-deductible health plan with a health savings account (HSA) for all employees in place of its traditional health care offering. The study found that introducing a full replacement HSA plan reduced the plan’s total health care spending by 25 percent, or $527 per person in the aggregate, in the first year.

And, the results showed that overall spending was reduced not only in the first year, but continued over the succeeding three years—albeit at a slower pace.

Services that Boast the Biggest Savings

The EBRI findings showed statistically significant reductions in the first year of the HSA plan, with the exception of spending on inpatient hospital stays. Spending on laboratory services and prescription drugs had the biggest declines. And the large reductions in pharmacy spending were mostly sustained over the four years after the HSA was adopted.

Comparison Shopping Drives Savings

A key driver behind the reduced spending is likely due to the sticker shock employees experience when switching to an HSA and the high deductible that accompanies it. Since employees need to pay a large amount of expenses first, it’s in their best interest to comparison shop for services.

And insurance carriers are making it easier by providing cost estimating tools that help the consumer compare providers and better understand costs, for example, the tremendous disparities in the cost of lab services, based on setting.

Full Replacement Key

The EBRI study featured an employer who offered an HSA as a full replacement to other plans. And that approach yields bigger savings. That’s because when employers offer an HSA as an alternative along with more traditional plans, many employees choose to stick with their current plan. Consequently, employers see lower migration to the HSA -- and less overall premium savings.

HSAs on the Rise

Employers have now been using consumer-directed health plans (CDHPs), which include HSAs, for over a decade. And according to the United Benefit Advisors national 2012 Health Plan Survey of more than 17,000 health plans, almost 15% of employers are offering HSAs, up slightly from the previous year.

And with new proof that HSAs manage costs, it’s up to employers to offer them, and employees to choose them to reap the savings. With healthcare costs expected to climb above 10% next year, 2014 may be the year of the HSA.

Amy Gallagher has over 19 years of healthcare industry experience. As Vice President at Cornerstone Group, she advises large employers on long-term cost-containment strategies, consumer-driven solutions and results-driven wellness programs. Amy speaks regularly on a variety of healthcare-related topics, is a member of local organizations like the Rhode Island Business Group on Health, HRM-RI, SHRM, WELCOA, and the Rhode Island Business Healthcare Advisory Council, and participates in the Lieutenant Governor’s Health Benefits Exchange work group of the Health Care Reform Commission.

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