Health Savings Accounts Gain Popularity

They are looking at Health Savings Accounts to provide a different set of incentives in financing health care for their employees. The U.S. Treasury Department has been ?overwhelmed? by inquiries from companies who are working overtime to make sure HSAs are part of their health plan offerings for next year.

Health Savings Accounts were enacted as part of the Medicare bill signed into law by President Bush December 8, 2003. The first Health Savings Account was sold on January 1, 2004.

They allow anyone under age 65 ? or their employers ? to create new tax free accounts to fund health care expenses. The only consideration is that the accounts must be accompanied by a high-deductible health insurance policy.

Individuals, employers, or employees can make a pre-tax annual contribution of up to $2,600, and families can make an annual contribution of up to $5,150 into an HSA. Interest earned on HSA funds is tax-free, and funds for qualified medical expenses can be withdrawn tax-free.

Critics of Health Savings Accounts have charged that HSAs are only for the ?healthy and wealthy? and argue that they should be rejected because they will destabilize health insurance for everyone else. But early findings about HSAs and other consumer-directed health plans show that the critics are wrong.

A new study of purchasers of HSAs shows that these new health care financing arrangements are appealing to those who previously were shut out of the insurance market, to families, to older Americans, and to workers of all income levels.

The study, conducted by Assurant Health of Milwaukee, Wisconsin, showed that 43 percent of those purchasing the accounts were previously uninsured. It also showed that 70 percent of purchasers are over age 40, one-third make less than $50,000 a year, and more 75 percent are families with children.

Another study by the major health insurer Aetna of Hartford, Connecticut, showed that its consumer-directed health care products are helping companies lower their health costs while providing incentives for employees to get better access to preventive care.

The Aetna study showed that companies that replaced their traditional health insurance with a consumer-directed plan saw their health costs fall by 11 percent. Meanwhile, the use of preventive services by workers increased by as much as 23 percent.

The on-line health insurance brokerage eHealthInsurance surveyed those who have purchased insurance though its website and found that nearly half of HSA purchasers make less than $50,000 a year. Further, 70 percent of them paid less than $100 a month for their health insurance premiums.

Most major health insurance companies now are offering Health Savings Accounts and similar plans. The goal is to make employees partners rather than adversaries in managing health costs.

With health insurance costs rising at double-digit rates, employers and consumers are desperate for new solutions that will give them more affordable options.

A major consulting firm, Hewitt Associates, found in a recent survey that more than 60 percent of large employers are likely to offer their employees new Health Savings Accounts in the future. Most are putting new systems in place, including employee education programs, before they begin.

One employer, Logan Aluminum in Kentucky, decided to use its version of the health accounts to encourage healthy behavior by its 1,000 employees.

Logan raised the deductible on its health insurance policies to $1,000 per worker. High-deductible health insurance policies are cheaper than traditional insurance, just as raising the deductible on an automobile policy is less expensive with a deductible of $1,000 rather than $250.

Health insurance works the same way. But to cushion the blow of the higher deductible for workers, Logan, like virtually all employers introducing the new plans, makes deposits to health accounts that employees can use to pay for routine health expenses that fall under the deductible.

Logan said its employees could ?earn? the deposits to their health accounts by getting personal health assessments and participating in wellness programs like smoking cessation or exercise classes. Employees? out of pocket cost were about the same as in the past, but the financing was restructured to give them a chance to participate in the savings. Anything employees save at the end of the year rolls over to the next to pay for future medical bills.

Logan?s experience in the first year: A 19 percent drop in its health costs, saving the company $925,000. Meanwhile, the majority of workers had money left over in their accounts to roll over to the next year.

In discouraging people from selecting HSAs, critics clearly are doing a disservice to the uninsured, to employers who now have a new option to buy more affordable health insurance, and to employees who have an opportunity to save for future health care needs.

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Grace-Marie Turner is president of the Galen Institute, a non-profit research organization that focuses on free-market ideas for health reform. She can be reached at P.O. Box 19080, Alexandria, VA, or at galen@galen.org.