HSA vendors want to add credit

HSA vendors want to add creditTom AndersonEmployee Benefit News • February 2005Early adopters of health savings accounts are finding there's a big design flaw in their health plans - if they have large medical expenses at the beginning of the year, they don't have the balances in their HSAs to cover the costs. To solve this dilemma, some HSA vendors have considered adding credit lines to their products.Most employer-sponsored HSA programs fund the accounts with payroll deductions. If employees have expenses when the account starts, they will have to make up the difference out of pocket - on top of their health plan's required deductible of at least $1,000 for individuals and $2,000 for family coverage."One roadblock to consumer-driven health care in HSAs is the cash flow issue to the employee participant," observes John Hickman, head of the health benefits practice at Alston & Bird LLC in Atlanta. Vendors want to offer HSA participants a credit line to help deal with health expenses early on, he says.The IRS prohibits using an HSA to collateralize a loan, but vendors could offer a credit line based on the participant's credit worthiness, Hickman says. The credit offering would have to follow standard lending rules. The legal basis for credit is not so much a benefits law issue as an issue with banking and lending compliance, he says.John Prince, senior vice president at JPMorgan Treasury Services, estimates the consumer-driven health care market to a $243 billion business. Within that market, there will be a need for some form of credit, he says. "As the market evolves, consumers will want an integrated product."That product will most likely be a single credit card that has access to an HSA, a credit line and possibly a qualified flexible spending account that would cover vision, dental and preventive care. A user could pay medical expenses for any one of the "purses" on a single piece of plastic, Prince explains. As the market grows, more HSA consumers will demand a card that has a seamless transition between multiple health spending accounts, he says.Univison Inc., a subsidiary of UnitedHealth Group that provides health benefits administration to large employers, is piloting a program to offer some form of credit with its HSA, says spokesman Daryl Richard. "We're in the R&D phase and considering different possibilities," Richard notes.Credit complicationsThe predecessor to the HSA was the ill-fated medical savings account. In 1997, several big banks that were involved in MSAs experimented with offering a credit line with their products, says Jay Garris, principal at Mellon Bank."Some bankers thought there was a tremendous need for credit facility with the MSA product," Garris notes. So, Mellon Bank executives researched the issue. "Initial research discovered people most interested in credit facility didn't qualify for the credit and those that did weren't interested," he says.Applying credit to MSAs also put employers in the awkward situation of telling some workers they didn't qualify for the credit, Garris explains. "I don't think employers want to get in the middle of that transaction."There are more ways to solve the problem of low HSA balances than offering credit, Garris explains. One Mellon client contributed $500 to each employee's HSA at the start-up of the accounts in case employees had medical expenses before they were able to build big enough balances to pay.The one drawback to such a contribution is that once it's made, the employees own the money. So employer contribution may not be the best way to go for employers in industries with high turnover, Garris warns.Garris wonders if the problem of initial low HSA balances is even worth fixing. "We don't think it's a problem looking for a solution," Garris says. Claims adjudication for HSAs could take months, he notes. "So if you have an HSA expense in January, you may not get the bill until March," Garris explains. By then, employees may have enough money in their accounts to pay all or most of the bill. If not, they can just use their regular credit card or cash to pay for it.Vendors have already released debit HSA cards this year with multiple-purse capability, Hickman notes. He expects to see HSA cards with credit lines by the spring. - T.A.