Consumer-Directed Health Plans Are Growing in Popularity

Consumer-directed health plans like Health Savings Accounts (HSAs), Flexible Spending Accounts (FSAs) and Health Reimbursement Accounts (HRAs) are becoming more popular as Americans seek to gain greater control over managing their high healthcare costs. In a report released by AARP today, researchers found that consumers can benefit from consumer-directed health plans, but deciding which plan is best and having the skills to manage the plan may be more than some consumers are able to handle.

According to a press release in early 2007, the BlueCross BlueShield Association reports that 57% of HSA-eligible enrollees opened HSA accounts in 2006. According to the same press release, the U.S. Department of Treasury estimates that by 2010, 40 to 45 million Americans will be enrolled in an HSA-eligible insurance plan.

BlueCross BlueShield Association is launching the Blue Healthcare Bank in order to help provide its healthcare insurance customers a one-stop, integrated customer service model with expertise in healthcare-related financial services. The Blue Healthcare Bank will work with BlueCross BlueShield companies to provide debit cards and other financial services tied to HSAs, FSAs, and HRAs.

According to the Government Accounting Office (GAO), the reason consumer-directed health plans are becoming so popular is because of the rising costs of health care in America. Consumer-directed health plans can provide consumers a convenient, consistent way to pay for eligible medical, dental, and vision services and for expenses associated with high-deductible medical plans.

Debit cards tied to an HSA, FSA, or HRA can be used in the medical office to pay for medical services and insurance deductibles up-front. This eliminates the need to wait for health care expense reimbursement by your health insurance provider. For some consumer-directed health plans, you can use the money or the debit card for expenses that are not covered under your health insurance plan BEFORE you make the contributions. Some plans also allow coverage under another health plan and allow you to be reimbursed for healthcare insurance premiums.

Examples of some of the eligible expenses under consumer-directed health plans include:

deductibles and co-pays
dental services
eye exams, eye glasses, contacts, LASIK surgery
hearing exams
drug addiction programs
weight loss programs
medical equipment
prescription drugs
OB/GYN
Dermatologist and Allergist
over-the-counter (OTC) expenses like cold/flu medicines, sleep aids, pain relievers, bandages, condoms, cough drops, reading glasses, nasal sprays, and pregnancy test kits
over-the-counter expenses like sunscreen, vitamins to treat a medical condition, hormone therapy, arthritis, and orthopedic inserts might be allowed with a doctor's note

Examples of expenses that are NOT eligible under consumer-directed health plans:

deodorant
mouthwash
moisturizers
sleeping pills
multivitamins
toothpaste and toothbrush
weight scales
medicated soap

Brief Description of Various Consumer-Directed Health Plans
(For more details about which account is best for you, check with your employer's benefit department)

Flexible Spending Account (FSA)

* Contributions can carry a pre-tax benefit.
* An FSA does not have to be pre-funded. Your designated contribution amount for the year is available on the first day of the plan year. For example, if you say you will contribute $2,000 total during the year, divided into equal payroll deductions, you will be able to spend the whole $2,000 on the first day of the year if you need to.
* You have to spend all the contributed money in that plan year. Some plans allow a 75-day grace period for rollover and spending. For many people who plan properly at the beginning, this is not a problem. Most programs have electronic worksheets available to help you calculate your estimated medical expenses barring any catastrophic event.
* Long-term care expenses are not eligible under an FSA plan.

Health Savings Account (HSA)

* The HSA is an interest-bearing account where employee contributions may be pre-tax or tax deductible.
* The HSA must be pre-funded with your contributions.
* Under the HSA, long-term care expenses and long-term care coverage can be reimbursed.
* The contributions to the HSA are deducted from the employee's paycheck.
* There are limits on contributions to the HSA. An excise tax will be charged on amounts over the allowed contribution.
* There are minimums on the amount of deductible you must pay in your health insurance plan.
* Contributions can be carried over and are portable; there are penalties for withdrawing the money for use other than health-related eligible expenses

Health Reimbursement Account (HRA)

* An HRA is an employer-sponsored plan where your contributions do not have a pre-tax benefit.
* Long-term care expenses can be reimbursed.
* Usually, this account does not have to be pre-funded to use available funds.
* Some HRA plans allow you to use the funds following termination or while covered by another employer's plan. Otherwise, the funds are not portable. In some cases, the employer may allow you to carry over unused funds.

Sources:

Decision Making in Consumer-Directed Health Plans. A Research Report by AARP.
http://www.aarp.org/research/health/privinsurance/aresearch-import-570-2003-05.html

Blue Healthcare Bank Receives Federal Regulatory Approval
http://www.bcbs.com/news/bcbsa/blue-healthcare-bank.html

Consumer-Directed Health Plans: Small but Growing Enrollment Fueled by Rising Cost of Health Care Coverage. A Report by the GAO
http://www.gao.gov/new.items/d06514.pdf