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UPDATED: Greater health savings account use a boon to third-party administrators

GOP plans to expand their use could expand competition among those who manage these accounts, experts say.

Susan Morse, Senior Editor

As Republicans push health savings accounts as a way for consumers to save money to cover healthcare costs, administrators of these accounts are expecting a windfall.

The American Health Care Act released by Republicans in early March would replace the Affordable Care Act and offer new incentives for consumers to save for their healthcare expenses -- or for retirement -- by almost doubling the maximum amount of pre-tax dollars consumers can contribute to HSAs.

The dollars may be removed without being taxed if the money is used to pay for medical expenses, doctor visits, prescription drugs, dental care and, under the new GOP plan, over-the-counter medications.

Tying HSAs to Medicare and Medicaidare is not in the initial GOP proposal.

Already, some 20 million health savings accounts have grown to hold an estimated $41 billion in assets, Devenir, an HSA consulting firm, told CNBC.

Consumer-driven healthcare accounts are among the fastest growing, with growth rates of 20 percent plus, according to Chad Wilkins, president of HSA Bank.

"We expect those rates to continue as we go forward," Wilkins said.

[Also: What you need to know about health savings accounts]

HealthSavings Administrators in Richmond Virginia has seen up to 30 percent annual growth for more than six years.

"We're very very optimistic about the future," said HealthSavings Administrators co-founder Pat Jarrett. "We're expecting HSAs will continue as they have. They're growing 25 to 30 percent a year and we expect that to continue under GOP policies."

There's over 2,000 banks and credit unions offering HSA accounts, said Jarrett, who believes the GOP plan will increase competition in the HSA space. Currently there's plenty of room as 20 million HSAs represent a smal portion of the population.

"Most (HSAs) are held by the top four or five in the business," Jarrett said.

The advantage of an HSA to a hospital system is that a patient who owes $1,000 on a bill can make an arrangement to put aside $100 a month in an HSA account.

An automated clearing house debit transaction can be set up to automatically pull that money out and pay the hospital.

"It gives the provider a comfort level that the person has a way to more easily pay medical bills," Jarrett said

HSA Bank in Milwaukee works with more than 30 insurers on health savings accounts, and some, such as the Blues plans, operate in several states, according to Wilkins, who is also executive vice president of Webster Bank. HSA Bank also takes in claims and works with insurers to process payments.

HSAs are not a large money-maker for plans, in comparison to their premiums, Wilkins said. Most insurance companies offer an HSA as part of a plan.

"The key thing they're looking for is the ability to enhance the usability and experience of the health plan," Wilkins said.

The bigger insurers, those that own HSAs make money on an HSA in the same way banks operate. Aetna owns PayFlex and UnitedHealth owns Optum.

At HSA Bank, the health savings accounts are similar to a checking account. The bank makes money off of the balances, bank and a debit card tied to the account. There's also the same types of fees associated with a savings or checking account, that are waived at higher balances.

Other insurers operate HSAs in an integrated agreement in which a bank runs the account but the service is branded to the insurer, with the insurer's name on the debit card to the account.

[Also: Providers to bear cost burden in Republican healthcare plan, experts say]

Through the use of these accounts, Republicans aim to reduce costs by making consumers more aware of what they're spending for healthcare services. This is expected to put more pressure on hospitals and physicians to be more transparent about pricing.

Currently, consumers are still unaware of prices. They only know what is billed and what is owed, Jarrett said.

"People put more thought into their cell phone purchase than their healthcare," Jarrett said

Jarrett spent 20 years in the mental health and substance abuse field before working in healthcare management for HCA and Bon Secours Health System and then co-founding HealthSavings Administrators 13 years ago after legislation enacted HSAs.

Prior to HSAs, consumers could save money for healthcare expenses through a flexible spending account, but the money would be lost if not used within one year.

In HSAs, the funds may be rolled over.

Companies such as HealthSavings Administrators invest the money they hold. The company charges an annual administration fee of 1 percent.

[Also: Andy Slavitt: GOP healthcare bill built on 'faulty' math]

"We're seeing more of a demand for HSA investments, to build bigger balances faster," Jarrett said. "We look at HSAs as part of a retirement discussion."

The average HSA has about $2,000 in it, though some have $20,000, he said.

Money goes into the HSA tax-free and older Americans can use the funds to pay for Medicare Part B and D.

But HSAs only work for consumers who can afford to invest and save.

Opponents of the plan say HSAs are no help to lower-, and in some cases, middle-income Americans who don't have the money to set aside.

"That's one of the biggest criticisms of HSAs," Jarrett said. "(The argument is), these are for wealthy people. However, paycheck to paycheck, if I could have paid all of my medical bills with tax-free dollars, that's like getting a 15 to 20 percent discount."

Asked if he considered HSAs a viable way to pay for healthcare, Jarrett said, "I think it's going to be a helpful tool."

What HSAs will do is make patients more of a consumer.

Currently, about 30 percent of patients have HSAs and these are the people asking, "Do I really need three tests?" Jarrett said. "An awful lot of people who still have a copay, don't ask questions."

"Over the next three to five years, we will shift responsibility for healthcare to individuals," said Shawn Yates, director of healthcare product management at Ontario Systems in Indiana. "Everything you see under the GOP and Trump is giving control back to the consumer."

If the average HSA is about $1,400, and a family owes $6,000 out-of-pocket, that's going to put a lot of pressure on the average American.

"The last bill that gets paid in the household budget is the healthcare bill," he said.

If consumers can't afford to put money in their HSAs, hospitals will see more uninsured patients and greater uncompensated care, he said.

Also increasing provider costs will be a rise in emergency room visits by patients who delay preventative care because they're paying for it out-of-pocket through their HSA's, Yates said.

Linda Blumberg, senior fellow in the Urban Institute's Health Policy Center, has predicted that uncompensated care could cost more than a trillion dollars from 2019 to 2028 under the GOP plan.

The Joint Committee on Taxation estimates that expanding HSAs would cost the federal government $19 billion through 2026.

Currently, under the ACA, HSAs must be paired with a high-deductible health plan and places limits of $1,300 for an individual and $2,600 for families.

The GOP bill would increase the annual limit to $6,550 for an individual and $13,100 for families.

Twitter: @SusanJMorse

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