Employers have embraced high-deductible health plans (HDHPs) so enthusiastically that today half of workers with employer health coverage get it from these plans. HDHPs aim to make consumers more cost-conscious, but they potentially could encourage some workers to save money by skipping beneficial preventive health services.
The IRS tried to address that concern by making certain services exempt from deductibles in HDHPs paired with health savings accounts (HSAs). According to research from the Employee Benefit Research Institute (EBRI), this appears to have worked, since employees in HSAs were more likely to use the exempted health services. The findings may be worth keeping in mind for employees considering HDHP enrollment.
Do you have questions about saving for healthcare in retirement? Speak with a financial advisor today.
How HSAs Work
An HSA is a savings account that lets you save money to pay for healthcare costs with the help of special tax advantages. You can deduct money contributed to an HSA your current taxable income, and earnings from assets in the account are also tax-free. Finally, when you withdraw funds to pay eligible health expenses, the withdrawals are also not taxed.
HSAs have to be paired with an HDHP, which is not a problem for many workers because these plans are very popular. The high deductible can be an obstacle, however. IRS rules for 2023 require an eligible HDHP to have a minimum deductible of $1,500 for an individual or $3,000 for a family, with maximum out-of-pocket costs set at $7,500 for individuals or $15,000 per family.
Shifting costs from employers to workers with higher deductibles and out-of-pocket amounts encourages workers to watch healthcare expenditures more carefully. However, this can also mean cost-conscious workers don’t get screenings and other preventative health services. Presumably, that can lead to worse health outcomes.
Encouraging Preventive Care
To encourage employees to use preventive care, the IRS issued guidelines exempting specific services and medicines from deductible calculations. This means the health plan pays for these services rather than the employee paying out of pocket. EBRI conducted the aforementioned research project to find out whether the IRS move worked as intended.
Between 2018 and 2021, EBRI reports, employees in HSA-eligible plans increased use of three of the seven exempted medical services related to chronic health issues compared to people in non-HSA-eligible plans. The services include testing for low-density lipoprotein (LDL) to assess heart disease risk, hemoglobin HbA1c testing for diabetes and diabetic retinopathy screening. EBRI concludes that the IRS guideline modification was behind the increased use of these services.
EBRI also examined prescription drug use among people in HSAs. Drugs the IRS exempted from deductible calculations included selective serotonin reuptake inhibitor (SSRI) anti-depressants, statins to control cholesterol and angiotensin-converting enzyme (ACE) inhibitors for high blood pressure. As expected, prescriptions for those drugs for employees in HSAs increased at a higher rate than for workers covered by other plan types, indicating the IRS was influencing prescription drug use as well.
Using HSAs for Preventive Health Costs
EBRI suggested employers encourage use of health-boosting services and prescriptions by further loosening their cost-sharing rules on co-deductibles and copays. Even if employers don’t follow this advice, employees can use the information to help their finances and their health.
Workers can optimize HSA use under the IRS guidelines by considering the following actions:
- Ask the company plan administrator about any communications informing employees of pre-deductible benefit changes.
- Carefully review plan documents for details. Some employers increased copays and coinsurance instead of completely eliminating cost-sharing on preventive services and medications.
- Check to see if the specific medications you take and services you need are included in the expanded pre-deductible coverage. The IRS guidelines only affected a handful of preventive services and medications, and plans’ specific rules may narrow coverage further.
A research project by EBRI found that since the IRS told employers they could exclude certain preventive health services and medications from HDHP deductibles, covered employees were using the specific services more than those in non-HSA plan arrangements. Medications and services for heart conditions, diabetes and depression all showed upticks in use for HSA-eligible workers compared to the rest. The findings suggest employees covered by HSAs should consider whether needed preventive services and medications are exempted by their plans before enrolling in an HDHP.
Retiree Healthcare Planning Tips
- If you have questions about HSAs, you may find it helpful to speak with an expert. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Healthcare costs can consume a big part of a retirement budget. Use SmartAsset’s retirement calculator figure out how much you’ll need to cover all your healthcare and other expenses after you stop working.
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