Health Savings Accounts meet skepticism

By JESSICA ADLER
HERALD NEWS

Here are three little words some say could be the next big thing in insurance coverage: health savings accounts.

Maybe you've heard of them. Perhaps your company offered them on the menu of benefit options for 2006. Or you might remember the term from President Bush's recent State of the Union address: Expanding health savings accounts, he said, is one way to "make health care more affordable, and give families greater access to good coverage."


While critics of HSAs call them a passing fad, only beneficial for a select few, others say that over the next five years, they could catch on with the same momentum as HMOs and PPOs did in the 1990s.

There are few things as boring or complicated as sorting through the details of health insurance plans. But health savings accounts are worth getting to know, since more and more companies are offering them to employees. If you haven't faced the option of signing up for an HSA yet, you may soon. What are they? Could one be good for you? Could they help the country's ailing health-care system?

Coupled with a high-deductible insurance plan, health savings accounts allow people to save money tax-free for medical expenses. Many large insurance companies – Aetna, Horizon Blue Cross Blue Shield and Cigna, to name a few – have begun offering high-deductible insurance plans with HSAs since the model was legalized in New Jersey in January 2005, one year after it was approved by the federal government.

The insurance companies administer the plans, which in 2006 come with deductibles of $1,050 to $3,000 for singles and $2,100 to $6,000 for families. Financial companies such as JP Morgan Chase administer the HSAs, accounts that work almost like 401(k)s: Workers and employers can contribute to them annually (in 2006, a maximum of $2,700 for individual coverage and $5,450 for family coverage). Beneficiaries can put HSA money toward medical costs, including the plan deductible. Any unused money can be carried over from year to year and job to job.

In 2005, 2.3 percent of companies providing health insurance to 810,000 employees nationwide offered HSA-compatible plans. That number has probably doubled since the 2006 enrollment period, says Paul Fronstin, director of the Health Research and Education Program at the Employee Benefit Research Institute, a nonprofit research and education organization based in Washington, D.C. A small number of those businesses, Fronstin said, offer high-deductible plans with HSAs as their only insurance option.

There are now 3 million people enrolled in HSA-compatible high-deductible plans, triple the number enrolled just 10 months ago, according to a January report from America's Health Insurance Plans, the trade association for companies offering such plans. Only about half of those enrollees, Fronstin estimates, have contributed, raising the concern that workers could be signing up for the high-deductible plans because they appear to be the cheapest option available, and not because of the appeal of establishing health savings accounts.

"I'm not convinced this is going to be the long-term solution we need to rising health-care costs, but it may be an exercise we need to go through," Fronstin said. "It could lead to something very beneficial -- more information for people regarding cost and quality"

That's part of the promise of HSAs, advocates say.

"The consumer becomes more aware of the cost of their medical care," said Dan Fogleman, spokesman for Wal-Mart Stores Inc., which began offering HSAs to its 1.3 million U.S. employees in January. "It's not just $20 (for a co-pay) to go to a doctor. You understand that it may cost $100 to $120 to go to that doctor. Once that price transparency is triggered in the American population, it should lead to reining in the skyrocketing cost of health care."

Not to mention that high-deductible plans coupled with HSAs could save employers money. In 2005, such plans saved firms about $1,000 per individual and $200 per family, according to the Kaiser Family Foundation's Survey of Employer-Sponsored Benefits, because the companies are responsible for a lower portion of the premiums.

Health insurance premiums increased 73 percent between 2000 and 2005, far exceeding the national inflation and wage growth rates, the Kaiser report said. During the same period, the percentage of employers offering benefits fell from 69 percent to 60 percent. As costs have become increasingly unmanageable, companies that continue to offer benefits have asked employees to shoulder more of the cost, and high-deductible plans have become more popular. HSAs could make those plans more appealing, some say.

"It's a good way for employers to save money and it's a good way for healthy, relatively wealthy people to save money, but I'm not sure it's particularly good for the rest of the country," said Pat Schoeni, executive director of the National Coalition on Health Care, based in Washington, D.C.

The majority of Americans cannot afford to pay a deductible of more than $1,000, in addition to contributing money to a health savings account, she said.

"As an insurance product, there's nothing wrong with HSAs. They're good for some people – younger and healthy people who don't expect to get sick and don't expect to have to go to the doctor too often. But they are not a panacea. The bulk of the 45 million people without insurance will not be able to afford HSAs."

In fact, the high-deductible plans attract relatively wealthy workers, according to a January report from the Government Accountability Office. More than 43 percent of federal employees who signed up for one earned salaries of $75,000 or more, compared to 23 percent of those in all federal health insurance plans, the report said.

Schoeni discounts the claim that high-deductible plans and HSAs will drive down health-care costs.

"Health care is not a commodity. There's not much data to help you price-search. You can call up and ask how much a doctor charges for an office visit. But once you're there, you don't say, 'Don't do this test; I've got to see who gives me a better deal first.'"

Instead, she said, people with HSAs, who are responsible for the bulk of up-front health-care costs could be deterred from seeking preventive care. A report released this month by the Employee Benefit Research Institute confirms her fears: About 30 percent of those enrolled in high-deductible health plans reported delaying or avoiding care, compared with 17 percent in comprehensive health plans.

"It might prevent you from getting a mammogram because you say, 'Oh, gosh, that's going to come out of my pocket and maybe I'll wait -- I can't afford to pay $100 out of my pocket this week or this month; I'll have to wait until next month or the month after.'"

But companies in and around northern New Jersey, eager to find an affordable way to provide health care, have been quick to adopt the model, said John Lawrence, vice president of Aetna's sales and service for middle-market operation in the metro New York area. This year, almost half of Lawrence's 40 new clients -- companies with 300 to 3,000 employees – opted to offer HSAs.

"The interest continues to peak and the expectation is that we will continue to see the adoption rate of HSAs continue to grow at a much quicker pace as we go into January of 2007," Lawrence said, adding that the new model has caught on at a quicker rate than HMOs and PPOs did in the 1990s.

Thus far, smaller companies – those with three to 300 employees – have been slower to make the change.

"A lot end up not taking it, because they don't understand it," said Joe Altomare, president of Wayne-based Altomare Financial Group Inc., which advises small and mid-sized New Jersey businesses about benefits options.

Less than 5 percent of Altomare's 2,000 clients offered HSAs to employees in the 2006 enrollment period, he estimates. Many haven't looked past some deterrents, Altomare said. Some employers feel obligated to contribute seed money to health savings accounts – anywhere from $200 to $500 or so -- as an incentive for employees to enroll in the corresponding high-deductible plans. Considering that, many don't see a substantial enough savings to offer the plans, he said.

Plus, for companies both small and large, employee reaction can be a concern.

High-deductible plans and HSAs "are popular and gaining in popularity, but change is difficult," said Jim Nelson, director of human resources for Marcal Paper Mills Inc. in Elmwood Park, which doesn't intend to offer an HSA anytime soon. "I think employees would probably look at it with some skepticism," he said.

Health savings accounts in brief

A Health Savings Account (HSA) is an account that you can put money into in order to save for future medical expenses. There are certain advantages to putting money into these accounts, including tax savings, though public health advocates warn they are not a panacea. HSAs were signed into law by President Bush as part of the Medicare Modernization Act on Dec. 8, 2003.

Adults can contribute to an HSA if they have coverage under an HSA-qualified "high-deductible health plan" – with deductibles of $1,000 for individual coverage and $2,000 for families -- and have no other types of health insurance. (Specific injury insurance or accident, disability, dental care, vision care or long-term care insurance are permitted.) Medicare beneficiaries and dependents cannot establish HSAs.

Contributions to your HSA can be made by you, your employer or both. The total contributions are limited annually.

You can make a contribution to your HSA each year that you are eligible. In 2006, contributions cannot exceed $2,650 for individual coverage and $5,250 for families. If you make a contribution, you can deduct the contributions when completing your federal income tax return.

You can use the money in the account to pay for any "qualified medical expense" permitted under federal tax law. This includes most medical care and services, dental and vision care, and over-the-counter drugs such as aspirin.