Health savings accounts (HSAs) represent one of two principal approaches to high-deductible coverage; the other is the health reimbursement account (HRA). HRAs are not subject to the federal rule that requires prescription drugs in HSA plans to be subject to a high deductible rather than handled under a fix-dollar co-pay arrangement.
Together, HSAs and HRAs cover only about 3 percent of insured Americans.
Although the Internal Revenue Service has established firm rules on HSAs, including the prescription drug provision, employers still have some flexibility in designing prescription drug benefits.
"One approach is for companies to make generous monthly contributions to help employees cover the cost of drugs before they reach the deductible," says Bill Sharon, a senior vice president at Aon Consulting who is based in Tampa, Fla.
The out-of-pocket maximums under an HSA can be as high as $5,250 for individuals and $10,500 for families. But anyone-employee, employer or anybody else-can put funds into an employee's HSA. The one-year maximum total contributions are $2,700 for an individual's HSA and $5,450 for a plan covering a family.
Even if the employer does not fund HSAs-which could help employees pay for drugs-employees may not have to pay full price for their prescription medicine. They can use drug cards typically issued by their employers' pharmacy benefits managers to get medications at discounts of up to 40 percent, Sharon says.
Once an HSA's high deductible is reached, most HSAs cover either 80 percent or 100 percent of the cost of prescription drugs. If a plan provides for less than the full cost of drugs, coverage becomes 100 percent when the out-of-pocket maximums are reached.
In some respects, HSAs are more appealing to employers as well as employees. HRAs, which became available a few years earlier than HSAs, differ from HSAs in several major respects. For example:
- An HRA does not have to be tied to a high-deductible health plan.
- HRAs are not available to self-employed individuals.
- HRAs cannot be tapped for nonmedical costs. (Such distributions are permissible in HSAs, although they are subject to taxation.)
- Only the employer can contribute funds. (Employer and employee can contribute to HSAs.)
- An HRA is not portable.
Joshua Kendall is a freelance writer in Boston who specializes in health care and health policy issues.