A Look at Health Savings Accounts, Five Years Out

As healthcare costs continue to increase annually, employers and individuals are seeking ways to plan more effectively for their healthcare expenses. As a result, the focus on healthcare expenses is shifting from a routine annual benefit election exercise to establishing an ongoing management approach. This longer-term approach is being made possible by consumer-directed healthcare programs, particularly those that offer health savings accounts (HSAs). HSAs were created as part of the Medicare Modernization Act of 2003 and although still considered a new thing, public awareness of HSAs is steadily increasing.

As the only standalone bank to offer HSAs through its own proprietary platform, JPMorgan saw its account volume increase by 50% in the last year to become an industry leader with more than 300,000 account holders and more than $400 million in assets.

“HSAs enable employers and consumers to balance more effectively short- and long-term needs around healthcare expenses,” said David Josephs, head of JPMorgan’s Consumer-Directed Healthcare business. “With the cost of healthcare becoming more expensive, the HSA provides a lower cost option for those that may otherwise lose their coverage and for employers that are looking to reduce healthcare costs.”

Not just for the young and wealthy
A recent report issued by the Government Accountability Office (GAO) in April stated that the average adjusted gross income of tax filers who made HSA contributions in 2005 was $139,000. In contrast, JPMorgan found that the median household income of its HSA account holders was $62,484, much lower than the figures stated in the GAO report. In addition, JPMorgan research shows that more than 60 percent of its customers are over the age of 40.

Employers offering HSAs
According to a 2007 Kaiser Family Foundation report, employers offering insurance dropped from 69% to 61% between 2000 and 2006. As a result, JPMorgan saw early adoption of its HSA program from medium and small businesses who found the HSA a way to offer coverage. Since the HSA is offered along with a high deductible health plan, employers are able to lower premiums and put employees in control of how their healthcare dollars are spent. The additional tax savings of these plans can also make offering the program much less expensive for the employer than traditional insurance coverage.

Some of JPMorgan’s largest customers are manufacturing and retail organizations that have a high percentage of employees with low- to-moderate incomes. Adoption of the program has been successful among these employees due to many of the benefits that an HSA offers. Large corporations also recognize the savings that the HSA can offer for them.

Educating consumers and employers
Although the HSA numbers continue to increase, adoption has been slower than expected. The confusion between HSAs and the similarly named but very different Flexible Spending Account, or FSA, is a contributing factor. Additionally, the mandatory high-deductible insurance plan required for an HSA has been a central impediment to adoption. To encourage more employee sign-up and usage, HSA employee education is crucial.

Last year JPMorgan launched www.chase.com/HSA on the Chase consumer website to enroll consumers online and provide information about its HSA product and services. In addition to information about its HSA offering, the site has tools that consumers can use to estimate their annual HSA contribution amounts, tax savings and calculate what their account may be worth in the future.

To further assist employers with HSA participation, JPMorgan has also developed a comprehensive adoption kit that includes all of the communication materials needed to educate employees, as well as a road map on how and when to do it. Included in the kit is an interactive video that educates consumers on how the HSA works, and gives real-life examples of how typical customers use it.

“Employers that have embraced the HSA as a major part of their short-term and long-term healthcare strategy are seeing high levels of adoption," said Josephs. “The success is a result of a strong plan design with employer contributions and an aggressive education program.”