Study: HSAs Actually Lower Employee Cost Sharing

July 11, 2006 ( - New research funded by The Commonwealth Fund indicates that high deductible health plans (HDHPs) with health savings accounts (HSAs) may actually lower out-of-pocket costs for enrollees.

In their study, “How Much More Cost-Sharing Will Health Savings Accounts Bring?” Dahlia Remler, Ph.D., a professor at Baruch College School of Public Affairs, and Sherry Glied, Ph.D., chair of the department of health policy and management at Columbia University, compare consumer cost sharing under traditional health policies with cost sharing under HSAs coupled with HDHPs. The authors find that HSA/HDHPs actually reduce cost sharing for people who spend the least on health care, as well as people who spend the most on health care, while increasing cost sharing for individuals in the middle range of spending, according to a summary of the study on The Commonwealth Fund’s Web site.

The study found that those consumers responsible for half of all medical spending, representing 7.7% of the population, would see no change or a reduction in cost-sharing with the HSA/HDHP.

According to the summary, the researchers modeled cost-sharing levels in three types of plans: a typical comprehensive plan ($350 deductible, 20% coinsurance and $1,800 out-of-pocket limit); a typical high-deductible policy without an HSA (no coinsurance and $2,500 deductible) and the same high-deductible policy with an HSA.

In the comprehensive plan, maximum out-of-pocket spending would occur at $7,600 of medical spending. For someone with an HDHP without an HSA, maximum out-of-pocket spending would occur at $2,500 of medical spending. Therefore, the HDHP has greater cost sharing before the $2,500 deductible is met, but the comprehensive policy has greater marginal cost sharing at medical spending amounts greater than $2,500.

The study also found that, because HSA contributions are exempt from federal, state and payroll taxes, consumers in effect receive a subsidy with which to purchase health care. Assuming a marginal tax rate of 40% (35% income tax bracket, 6.2% Social Security and 1.45% Medicare tax, for example), very healthy individuals would have lower cost sharing under an HSA than under the comprehensive plan. Only those with expenses between $700 and $2,500 would see an increase in cost sharing.

The authors conclude that HSAs do not appear to increase cost sharing among employees and may actually lower cost sharing when considering tax subsidies.

The full study report can be downloaded from here .