The health care realm is full of acronyms, and it can be easy for businesses big and small to get lost in the mix. ACA, ADA, COBRA, PPO, and the list goes on and on, folks.
I’ve seen my share of acronyms in the space through the years. In 1997, I founded ScripNet, a pharmacy benefit management company that — in 2012 — was successfully acquired by Optum Healthcare Solutions.
Ten years since that acquisition, I’m back, zoomed in on an acronym that you are bound to hear within and well beyond your organization’s confines. And that acronym is HSA, which stands for a health savings account.
My latest endeavor, HSARx, is gearing up for a big lift-off. The technology is set to make prescription drug savings and payments easier and more secure than ever before, allowing consumers to use pre-tax HSA dollars or a personal credit/debit card to pay for their medicine.
Before we dig into the nitty-gritty, how about a little history on HSAs themselves? HSAs came into existence in 2003 as a result of the Medicare Prescription Drug Improvement and Modernization Act. At their core, HSAs are tax-free accounts designed to help people save for future health care expenses.
Here in 2022, according to CNBC, there are more than 30 million HSA accounts in the United States, marking a nearly five-times growth during a decade. More than $75 billion in health care dollars fall within HSAs.
The rise of HSAs has come at a time where prescription drug costs continue to increase at an astounding rate. Pharmacy costs represent one of the top health care costs for consumers and for health care plans. Seven percent of Americans pay more than $300 per month for their prescription drugs and 13 percent of Americans experienced having had their prescription drug coverage dropped last year by their health insurer.
The HSA basics
So, how does an HSA work, exactly?
Think of it like a bank account that can only be used for certain health care-related expenses. Your contributions are tax-free, such as you might see with some retirement savings plans — and they earn tax-free interest over time. These funds can be used for eligible services and purchases, saving you on out-of-pocket spending from your regular bank account or credit card.
HSAs are also like FSAs (flexible spending accounts), which also can be used to pay for health care-related expenses. FSAs, however, are owned by your employer rather than by you; and they have a use-it-or-lose it requirement. That means your funds must be used the same year you contribute them, and that you can’t take any remaining funds with you if you change jobs. HSAs, like savings accounts or retirement plans, are yours to take with you.
And like retirement savings plans, the Internal Revenue Service imposes limits on how much you can contribute each year. In 2022, that is a maximum annual contribution of $3,650 for individuals (or $7,300 for families) on a high-deductible health insurance plan (that is, a health plan with an annual deductible of $1,400 or more for individuals, or $2,800 for families).
Once you have funds available in your HSA, it can be as simple as swiping your HSA debit card, which allows you to pay directly from your account. If you don’t have a debit card for your HSA (or choose not to use one), you also can use your personal payment method of choice, and save the receipts for reimbursement from the HSA later.
As for where you can use your HSA, you can pay for qualified services (or copays for services) in your doctor’s office, dentist’s office or optometrist’s office. You can use it at local pharmacies, big box stores or even online retailers to pay for prescriptions, nonprescription, over-the-counter medications and certain medical equipment.
The benefits of employers offering HSAs
On the business front, offering an HSA comes with several benefits, spanning tax and premium savings to employee retention.
There are multiple ways that employers may make tax-free contributions to employees’ HSAs, while equating to what is known as a triple-tax advantage for employees themselves. This means funds are contributed pre-tax, grow tax-free and ultimately utilized tax-free, too. Opening an HSA for employees requires enrolling in a high-deductible health plan (HDHP). HDHPs typically cost much less than a traditional health plan, equating to that much more savings for your business.
Perhaps most importantly, HSAs are viewed by employees as a valuable perk, which may easily be leveraged for attracting and retaining top talent. With inflation, rising health care costs and “The Great Resignation” dominating recent headlines, it has never been more important prioritize your company’s most valuable assets. Widely viewed as “money in the bank” for employees, HSAs and employer contributions equate to a big perk and major savings.
HSAs are only the beginning. Until now, there has never been a solution to offer the deepest savings directly to HSA consumers in one convenient, fully integrated package. With HSARx, we will achieve just that.
The next wave of consumer prescription savings is very much upon us. But, for now, it’s best for employers and employees to maximize the HSA landscape.
Dennis Sponer is CEO of HSARx. For more information, visit hsarx.com.