Filling the HSA gap

Last updated on May 13th, 2019 at 02:40 pm

As more employers switch over to health savings accounts (HSAs), more employees are
getting saddled with huge deductibles and medical bills they cannot immediately pay.

After all, a surgery and an overnight stay in a hospital can cost tens of thousands of dollars, and with an HSA, the employee’s increased medical costs far exceed the amount of dollars that can be allocated into an HSA account in a year.

Unpaid medical bills increasingly are rising as a cause of personal bankruptcies.

However, the gap between the medical bills and the employees’ savings is creating a new lending opportunity for banks.

To bridge the gap, some banks have started to offer lines of credit attached to HSA accounts. Other banks are planning to roll out products to help employees meet their high deductibles soon, while some banks are taking a wait-and-see approach.

UMB Healthcare Services Inc., a Kansas City, Mo.-based branch of UMB Financial Corp., is one of the first financial institutions to offer lines of credit specifically for HSAs. UMB Financial’s UMB Investment Services is based in Milwaukee.

UMB is piloting two programs, one in a Midwestern state and another nationally, said Dennis Triplett, president of UMB Healthcare Services. Triplett declined to specify the state in which the program is being piloted.

Triplett said UMB Financial Corp. wanted to establish HSA lines of credit to enhance the company’s existing HSA products. The appeal of HSA lines of credit should be two-fold, Triplett said.

“It provides a safety net for the individual employee,” he said. “It helps them out at a time when they have not accumulated dollars and the need is unforeseen. And there’s a benefit to the plan administrator. There is a two-pronged approach that satisfies how the plan would work in the process and how to offer the plan and encourage (participation) by having a line of credit attached.”

HSAs, tied to a high-deductible health insurance plan, are rising in popularity, largely because employers want to shift a greater portion of health care costs onto employees.

In recent years, many banks and financial institutions have also started to carry HSAs, where employees’ pre-tax dollars are deposited. The accounts generate interest for the employee, and many banks stop charging annual or monthly fees once the account accumulates $2,000.

In many cases, banks also offer debit cards specific to the HSA account, allowing employees to make payments at doctor offices and other health care facilities.

However, the down side of HSAs, from an employee’s standpoint, is that they require a minimum $1,050 deductible for single coverage and a $2,100 deductible for family coverage, according to the U.S. Treasury Department. Those accounts also allow for maximum out-of-pocket expenses of between $5,250 and $10,500, respectively, per plan year.

The higher deductibles and out-of-pocket maximums are adjusted annually for inflation.

Critics of the HSAs, which were approved last year by Congress and signed into law by President George W. Bush, contend that HSAs are only useful for the “healthy and wealthy,” because most middle class families cannot afford to pay for their shares of the bills when a costly medical crisis occurs.

The maximum amount that an enrollee can put into an HSA is the lesser of the high-deductible or the maximum stated in the federal HSA law, which is $2,700 for single coverage or $5,450 for family coverage.

Under those rules, an enrollee in an HSA cannot deposit enough money into an HSA account to cover his or her maximum out-of-pocket plan year expense in the first year. In many cases, it will take several years to generate the maximum yearly out-of-pocket amount, creating a potential funding shortfall if someone incurs large medical expenses.

Triplett said he envisions HSA lines of credit being repaid by employees in two ways.

The first method would have employees repay the lines of credit via payroll deductions, in a similar method to how they are depositing pre-tax dollars in their HSAs. The repaid dollars would be taxed, however. The Internal Revenue Service is supposed to be coming out with guidelines for HSA repayment, Triplett said.

The second method would require bank underwriting, much like that of a credit card. Employees would be required to pre-qualify for an HSA line of credit through a bank. If approved, employees’ lines of credit would be attached to their HSAs. When the client pays a medical cost with an HSA debit card, the line of credit would be drawn upon as needed, Triplett said.

UMB envisions that the lines of credit would have interest rates similar to lower-interest credit cards.

“Our view is that we want to have them operated as traditional, consumer-friendly credit cards,” Triplett said. “Our view is not taking this as an opportunity for high (interest) rates. We want to encourage employees to use this (HSA) card. If we make it onerous pricing, they’re not going to use it.”

More banks will begin offering HSA lines of credit, because of the potential to help customers fund their short-term health care needs, said Ric Joyner, president of the National Association of Professional Benefits Administrators. Joyner is also president and co-owner of, a benefits administration company in Madison.

“They (the banks) are getting involved in these lines of credit now,” Joyner said. “It will be the future. All of this (high-deductible plans) is an economic shifting of costs to employees. In the 1980s, it was the road to managed care. Now it’s to high-deductible plans.”

Joyner said more banks will roll out the HSA lines of credit in 2007, as more banks have started administering HSAs for employers.

Minneapolis-based U.S. Bank, which has a large presence in the Milwaukee market, will begin offering lines of credit for HSAs in the second quarter of 2007. The bank will begin telling its clients for HSA programs, who are mostly employers, about the new lines of credit in January.

“For us and many others in the industry, credit is being recognized as something that consumers need and want,” said Dan Kelly, senior vice president of health savings solutions with U.S. Bank. “With the deductibles associated with many of the high-deductible plans, consumers will need a credit solution.”

Most of the lines of credit for HSAs that U.S. Bank will provide will be repaid through payroll deductions, Kelly said, similar to the contributions that employees will make to their HSAs. Interest rates for the lines of credit have not yet been defined, Kelly said, but will likely be competitive with current market rates for traditional lines of credit.

People who haven’t been able to save large enough pools of money to cover their deductibles will need the HSA lines of credit, Kelly said.

Indianapolis-based Irwin Union Bank FSB, which operates a branch in downtown Milwaukee, started offering HSAs for businesses in May. Although the bank hasn’t yet introduced a line of credit product, it is likely to do so in the future, said Tim Schadeberg, senior vice president and market manager for the Milwaukee office.

“We’ll do whatever we need to do,” Schadeberg said. “It’s such a new product. We rolled it out to see what the response and needs are. There will be levels of credit for those that can’t afford (a deductible).”

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