Any time a company provides employee benefits, it substitutes its judgment of which plans are right for its employees' judgment. Sometimes it doesn't materially matter. Other times, it does.

As many readers know, my longtime passion is Health Savings Accounts. I believe that these tax-frictionless accounts are a financial ally to hard-working Americans, from wealthy professionals to those who bring dignity to the most manual of jobs. Health Savings Accounts help these folks stretch the spending power of income that they use to pay qualified health-related expenses.

When someone attacks Health Savings Accounts, I take notice. The federal Consumer Financial Protection Bureau did just that in a report released earlier this week. I'll be analyzing that study and its conclusions in my HSA Wednesday Wisdom article next week, which you should find wherever you see ICHRA Insights.

An Accurate Perspective

I found one of the seven bullet-point conclusions in the summary of that report especially interesting:

Lack of Competition: Many HSA trustees’ primary customers are health insurance companies and employers, not individual consumers. Without the need to market directly to individuals, these trustees may face less competitive pressure to improve their offerings. This could potentially result in consumers facing higher fees and earning lower interest compared to alternative options.

Indeed, this is a concern. Most employers do choose the Health Savings Account provider with whom they work exclusively. They make such arrangements because it's administratively easier to process employer contributions and employee pre-tax payroll deductions, negotiate favorable terms, and coordinate employee education when they work with a single vendor partner.

Fortunately, Health Savings Accounts are, much to the chagrin of trustees, nearly indistinguishable from one another - particularly when they're used to reimburse immediate, rather than future, qualified expenses, as most are today. All Health Savings Accounts offer distributions via a debit card or electronic funds transfer, online lookup of transactions, and interest on cash balances. Most deliver a menu of investments (where the funds line-up and decision-support tools can provide competitive differentiation). None can, under federal tax law, examine your distributions to confirm that they reimburse qualified expenses.

Thus, the company's choice has little effect on employees' experience with their Health Savings Accounts. Further, employees who don't like their employer's partner (whether because they prefer different investment options or terms, or have a grudge against the company) can open a second Health Savings Account and execute regular balance transfers to move their funds to an account of their choice. They can do so because a Health Savings Account is an individually owned financial account, not an employer-sponsored plan.

Bottom line: Being tied to the employer's account partner doesn't materially affect an employee's Health Savings Account opportunity.

Applying the Principle to Medical Coverage

Contrast that experience with the employer's choice of one, two, or three medical plans with one insurer among the dozens of plans offered by each of two, three, or more insurers in the market. These plans may range in deductibles from $250 to more than $6,000 for self-only coverage. The network may include nearly all doctors and hospitals in the geographic area or offer access to only a narrow menu of providers. The plans vary in whether they reimburse services received from non-contracted providers and the plan rules that apply to out-of-network services.

Further, the insurers may offer very different prescription-drug formularies and pricing. They may cover different benefits. They may have very different authorization rules and medical criteria to receive high-cost care. Their customer-service standards and turnaround times for approvals may be very different.

Yet employers make these choices for employees because the company, not its workers, is the insurer's customer. Let's look at that statement above about Health Savings Accounts and simply substitute language for medical plans:

Lack of Competition: Many insurers' primary customers are employers, not individual consumers. Without the need to market directly to individuals, these insurers may face less competitive pressure to improve their offerings. This could potentially result in consumers facing higher out-of-pocket responsibility and receiving less care compared to alternative options.

The problem is the same, whether it's Health Savings Accounts or insurers selling products directly to employers, who in turn offer them to employees. The difference: The variations among medical plans and insurers are far more substantial than the differences among Health Savings Account providers' product offerings.

How ICHRAs Fit into This Discussion

So, how do ICHRAs change the equation?

As a refresher, an ICHRA is an employer-funded account from which employees can withdraw funds to pay for medical coverage that they purchase in their local nongroup market. It's an alternative to the more traditional employer-sponsored model in which the company selects several options, usually pays a percentage of each plan's premium, and actively manages the enrollment process.

When an employer adopts an ICHRA, it doesn't select the one, two, or three plans to which employees have access. Instead, the company funds an account that employees can use to purchase medical coverage in the nongroup market. Insurers must market directly to employees with this stipend because they - the employees - are the direct customer. Employees contract directly with the insurer. The employer isn't part of the buying process. The company is merely a source of funding for the employee - just as the company is a source of funding without narrowing the choices or influencing the decision when a worker buys a car or home or chooses a vacation destination.

Thus, there is no conflict between which plans are best for the company and whether those same plans are optimal for employees. The middleman - the employer - is cut out of the purchase altogether.

As a result, employees typically have access to two dozen or more plans and two or more insurers. Workers can choose from among these plans based on their personal preferences in trading off among premium, out-of-pocket financial responsibility, breadth of network, benefits covered, prescription-drug formulary, disease-management programs, and value-added services (like discounts for fitness clubs and vision-correction surgery).

The Bottom Line

There is a risk any time that someone other than the ultimate buyer and seller isn't one of the parties completing a transaction. The middleman may have interests other than those of the ultimate buyer/user, or it may simply represent a population of buyers/users too diverse to satisfy. When ultimate sellers and buyers can interact directly - as they do in nearly every other transaction in our lives - buyers stand a much better chance of choosing their optimal solution. ICHRAs enable employees to work directly with the insurer of their choice to purchase the plan of their choice without facing a menu of options limited by the judgment of a middleman - their employer.

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The content of this column is informational only. It is not intended, nor should the reader construe the content, as legal advice. Please consult your personal legal, tax, or financial counsel for information about how this information applies to you or your entity.

ICHRA Insights is published weekly.