HSA Lessons from an Amusement Park Visit with My Children
Health Savings Accounts are different than Health Reimbursement Accounts (HRA) or Flexible Spending Accounts (FSA), and everyone must think differently about Health Savings Accounts to understand them, and to roll them out properly to their employees.
Here is a short and true story that may help illustrate how to think differently about HSAs. Last summer, I took my children to an amusement park — one of these places where once you are in the gates, all the rides and the water park are free. Since my older kids wanted to go off on their own, I gave the three of them $40 each for the day, and told them that’s all their money for the day at the park — for food and everything they want to spend it on – games, the arcade, hats, t-shirts, the works.
Three and half hours later, I was asked “Dad, do you have any more money?”
“What happened to the money I gave you?” (They were standing their empty handed, no large stuffed animals, no new hats or t-shirts.) Well, the telescope that took quarters ate about $10, then they played a bunch of games to win prizes, and the arcade and food took the rest.
“No, I have no more money,” I told them. (We then went to the water park, where I thought they would not miss having no money, as much.)
During the summer, their cousins visited and another road trip to the amusement park was on the agenda. This time after handing out the cash, I told my kids and their cousins, “Here is your money for the day. What you don’t spend you can keep.”
Curious behavior followed: some of them ordered water for lunch; some skipped lunch and had an ice cream cone. I actually heard my daughter argue with a clerk about whether she was given the right change. Games for prizes were out, so was the arcade and anything in the souvenir shop.
They wanted some candy for the ride home, and so they bought tootsie rolls, the least expensive candy they could buy. Some discrete inquiries discovered the fact that most of my children and their cousins had saved about 40% of the $40 given to them.
So, if you give employees cash, and tell them you can only spend that money on health care and on nothing else (as is the case with an HRA or an FSA) – that is exactly what they will do. It is not their money. The only way they can get value from it is to spend it. So they will spend all of it. Especially since they cannot take it with them when they leave their job, unlike an HSA, where the money goes with the employee.
It is rational economic behavior – I can only spend money on this – so I will.
But because the money in a Health Savings Account is the employees, they will treat that money the same way my children treated the money that I gave them to spend or keep, their choice.
I did not hear, “Dad, can I have some more money?”
Instead, after handing out the cash I had happily shocked children and cousins who thought this was great. (Cash in hand does change attitudes.)
As an employer offering health insurance, you are giving that cash to an insurance company. You can lower those cash payments and give most of the difference to your employees as a deposit into their health savings account. They would have the cash on hand, and their attitude will change. But now, instead, of doing that, most employers are writing huge checks to an insurance company in the form of ever-increasing premiums.
For employers that fund the account, what you are really funding, is an incentive for the employee not to purchase health care services in a reckless, who-cares-I’m-not-paying manner. For taxpayers who are accessing a government funded benefit, the I’m-not-paying-it’s-on-the-government-tab attitude is even worse.