Billed as a way to curtail the escalating cost of providing health benefits, health savings accounts allow employers to set up personal accounts to help employees pay for primary care.
Both employees and employers may make pre-tax contributions to the tax-free accounts.
Part of the Medicare reform bill that Congress passed and President Bush signed late last year, health savings accounts potentially could usher in major changes in employer-sponsored health benefits. In theory, they provide more choices to employees and employers who are struggling to cope with escalating costs and by involving consumers financially in their health-care decisions.
“It’s going to be huge,” said Jeff Rubleski, sales team manager in West Michigan for Blue Cross Blue Shield of Michigan, the state’s largest health insurer.
Rubleski believes that health savings accounts have the potential to do for employee health benefits what the creation of the 401(k) accounts in the 1980s did for retirement planning.
“It’s going to have fundamental changes in how employers look at their plans,” Rubleski said.
Health savings accounts (HSAs) are designed with much more flexibility and are broader in scope than medical savings accounts (MSAs) and similar plans like health reimbursement accounts (HRAs) and health flexible spending accounts.
Health savings accounts operate much like an IRA and can generate tax-free interest. Participants can use the money in their health savings accounts for primary health care expenses such as doctor and dentist visits, prescription and over-the-counter medications, and medical products, as well as for long-term care insurance, to pay deductibles or co-pay on a health plan, and to continue coverage under COBRA.
Under the new law, anyone under 65 years old and covered under a lower-cost, higher-deductible health plan or insurance policy — with a minimum $1,000 deductible for individuals, or $2,000 deductible for families — is eligible for a health savings account.
Employees or their employers, or both, can contribute up to the amount of the health plan’s deductible, to a maximum $2,600 a year tax-free for individuals, or $5,150 annually for families, into the account. A “catch-up” clause allows people between 55 and 64 years old to make additional annual contributions of $500, an amount that will increase by $100 a year through 2009.
Unlike HRAs, health savings account balances can roll over from year to year and accounts are portable, meaning an employee retains possession of the account when leaving a job.
In describing the provision when he sighed the bill Dec. 8, President Bush said, “Our laws encourage people to plan for retirement and to save for education. Now the law will make it easier for Americans to save for their future health care as well. A Health Savings Account is a good deal, and all Americans should consider it.”
This will help more American families get the health care they need at the price they can afford,” he said.
While many see health savings accounts as promising, some issues temper those hopes.
For starters, health savings accounts can only catch on with employers and consumers if health plans and insurers embrace and offer viable products, said Jim Kenyon, a principal in Pinnacle Insurance Partners, an independent agency in Grand Rapids.
MSAs, while touted in the same manner as HSAs, never gained a large foothold in the marketplace, Kenyon said. In part that was because Congress for years drastically restricted their use.
The future for health savings accounts depends on how well insurance carriers and health plans formulate and push the product and how much interest in HSAs emerges from employers, he said.
“If the product is not available in the marketplace, all the theory in the world is going to go by the wayside,” Kenyon said.
“As the old adage goes, ‘The devil’s in the details.’ We’ll see if this is a viable product that will come out of the new legislation and if the theory will be able to be put into practice.”
National health insurance carriers such as Aetna and Fortis Health have indicated they plan to offer health savings accounts. Such accounts are tied to an emerging trend: Consumer-driven health care, designed to get consumers far more involved in their health-care decisions and more responsible for their health.
Yet a survey of health insurance brokers and agents conducted last fall by the National Association of Health Underwriters found only modest interest in those plans. Instead, employers largely opt to raise deductible and co-pays to mitigate higher premiums.
Blue Cross Blue Shield of Michigan, however, says it is “definitely” looking at the Medicare reform bill and the provisions pertaining to health savings accounts.
Spokeswoman Helen Stojic said any offering would depend on market demands for health savings accounts and how much interest Blues clients show in the new product.
“It does make a difference. If we do start to hear from employers, we’ll consider it,” she said.
The Blues presently offers HRAs and FSAs in connection with consumer-driven health plans.
Part of the issue with HSAs, and what could potentially hamper health savings accounts, is how well employers articulate and educate employees about the new product and how well employees adapt to what is a significant change in health benefits.
Many employees have already been faced with higher out-of-pocket costs through larger co-pays and deductibles as employers in recent years reacted to double-digit premium increases.
A switch to health savings accounts brings with it a major education process for employers to explain to employees how the accounts work and how they are used, Stojic said. That, in turn, could generate additional administration costs, negating part of the savings, she said.
“That is one of the drawbacks. It is such a big change. This is something employers have to look at — the change quotient — in the entire mix,” Stojic said. “They (HSAs) often require a higher level of participation than other products do on the part of employees.”
Despite those and other questions, many believe the availability of HSAs will spark interest in consumer-driven health plans. HSAs, according to a recent alert from Aon Consulting, are “likely to cause employers with consumer-driven health plans to reconsider their existing plan design and cause other employers to closely examine consumer-driven plans.”
One of the early adopters of health savings accounts could be the federal government. The U.S. Office of Personnel Management is reviewing health savings accounts and how they fit with the federal employee health benefits program for 3.1 million federal employees.