HSAs and HRAs see significant growth over four-year period

Consumer-driven healthcare is on the rise. According to a report by the nonpartisan Employee Benefit Research Institute (EBRI), the number of health savings accounts (HSAs) and health reimbursement arrangements (HRAs) increased from 2.1 million in 2006 to 5.7 million in 2010. Assets in these account-based health plans also increased: from $835.4 million in 2006 to $7.7 billion in 2010.

The data are based on the 2010 Consumer Engagement in Health Care Survey, conducted by EBRI and market research firm Mathew Greenwald & Associates Inc. (MGA). The investigators surveyed 4,508 privately insured adults ages 21-64.

How HSAs and HRAs Work

HSAs and HRAs can be used to reimburse participants for qualified medical expenses and are offered by some employers as a more cost-effective alternative to traditional employer-based health plans. Both are designed to give consumers a greater awareness of healthcare costs and shift more of the responsibility to employees. They also may provide financial incentives for employees to make healthier lifestyle choices.

HSAs consist of two components: a high-deductible health plan and the savings account itself, which needs to be established by an entity that the IRS recognizes as a trust (such as a bank or insurance company). The account may be funded by the employer, employees, or both. It pays for medical expenses up to the deductible on a tax-free basis. Funds are portable and can be rolled over.

An HRA is an employer-funded, tax-deductible account frequently offered in conjunction with a high-deductible health plan. HRAs are less complex than HSAs and give employers more flexibility in health-plan design. Unlike HSAs, HRAs allow employers to decide whether to allow rollover and whether employees who terminate can continue to have access to the funds.

Cost-Consciousness Still Lacking

Surprisingly, the EBRI/MGA survey found no relationship between either account balance or rollover amounts and various cost-conscious behaviors, such as checking prices before getting services or asking for generic drugs instead of brand names, among other things.

"It is expected that individuals who are given more control over funds allocated for healthcare services will become more cost conscious, especially once they become more educated about the actual price of health services," says Paul Fronstin, director of EBRI's Health Research and Education Program and author of the report. "However, no evidence was found to support this with respect to some of the measures of cost-conscious behavior used in [the] study."

More Findings

Average account balances. While use of HSAs and HRAs continues to grow, the report found the average account balance dropped slightly in 2010 to $1,355, down from $1,419 in 2009. Men held higher average balances ($1,525) than women ($1,321). Older individuals (ages 55-64) held higher average balances ($1,791) than those younger than 55 ($1,250-$1,400). Additionally, the study found that people who exercised, did not smoke, and were not obese held higher balances than those with less healthy behaviors.

Rollovers. Despite a decline in the average rollover amount in 2010, total assets being rolled over have been increasing; $4.2 billion was rolled over in 2010, up from $4 billion in 2009. The average rollover increased from $592 in 2006 to $1,295 in 2009 and fell to $1,029 in 2010. The percentage of individuals without a rollover decreased from 23% in 2006 to 10% in 2009 and increased slightly to 13% in 2010.

Race. Minorities with HRAs or HSAs have higher account balances than whites with these accounts. On average, minorities have an account balance of $1,531, while whites have a balance of $1,387. All groups experienced a decline between 2009 and 2010, but the decline was steeper among minorities.

Household Income. Households with higher income had higher individual account balances. The average account balance was $1,166 among individuals with less than $50,000 in household income, $1,303 among individuals with $50,000$99,999, and $1,742 among individuals with $100,000 or more. Account balances increased for those with less than $50,000 in household income, fell for those with $50,000$99,999, and stayed the same for those with $100,000 or more.

Education. Education has an impact on account balances independent of income and other variables. Individuals with a high school degree or less have an average of $1,219 in their accounts, while those with a college degree have $1,519, and those with a graduate degree have $1,558. Only individuals with a graduate degree experienced a decline in their average account balance in 2010.

For more results, go to www.ebri.org.

CBIA provides HSA-compatible health plans and a no-cost HRA administration service for employers participating in CBIA Health Connections 2 (HC2). HRAs represent one of the most successful alternatives in the consumer-driven health movement. By implementing an HRA with a corresponding HC2 plan design, many small businesses have been able to achieve immediate savings in their healthcare costs.

To get started, simply contact your insurance agent or CBIA's Tom Guerra at tom.guerra@cbia.com or 860-244-1160.