Health savings accounts on rise
Tax-free device gains acceptance
By Bruce Japsen
Tribune staff reporter
Years of double-digit increases have made the cost of health care so overwhelming that the federal government is allowing consumers to set aside tax-free money in health savings accounts--a shelter like those for major expenses such as retirement or a college education.
The accounts, known as HSAs, were created a year ago by the Medicare reform law signed by President Bush. They are expected to proliferate in 2005 as consumers learn more about them and how they can blunt the effects of cost increases projected at more than 10 percent next year. .
Insurers say they have sold a few thousand HSAs this year, largely to individuals and small businesses, but they are expecting a large jump next year as midsize to large employers adopt the concept. By 2006, more than 70 percent of employers are considering offering them, according to a survey by Mercer Human Resource Consulting.
The tax-sheltered accounts allow people with high-deductible health insurance plans to set aside money each year for medical care and carry over money not used from one year to the next. They are also portable and follow people from job to job.
Money in the health savings account can be used to pay for doctor visits, drugs, co-payments or other medical services that are not covered until the deductible is met.
Early purchasers of these accounts say they save money because their high-deductible plans typically have lower premiums than traditional managed-care plans.
Bill Erbes, who co-owns Barrington Medical Imaging, bought a health savings account this fall from Oak Brook-based Destiny Health to gain more control over his premiums, which have been rising 10 percent to 20 percent each year at his medical equipment firm.
"There are already a lot of demands on our cash at our business so a health savings account allows more flexibility," Erbes said. "We were always having to meet a deductible anyway, so this was attractive. We can set aside money and have tax deductions."
Individuals must have a health plan deductible between $1,000 and $5,000, and families between $2,000 and $10,000, to qualify for a health savings account. Individual participants can contribute up to $2,600 a year and families up to $5,150.
In 2005, more consumers and employers are expected to latch on to the health savings account concept as larger health insurance companies and financial institutions work together to market the plans, analysts say.
Health insurers say the expertise of financial institutions is needed by health plans since health savings account funds are like IRAs in that they can be invested in stocks, bonds and mutual funds.
Among those ramping up marketing early next year will be managed-care giant Humana Inc., which uses J.P. Morgan Chase & Co. to administer its HSAs. This state's largest health insurer, Blue Cross and Blue Shield of Illinois, will begin selling four different health savings accounts in the first quarter of 2005 in a partnership with Mellon Financial Corp. of Pittsburgh.
"They are selling briskly, and that will only pick up from here as people know more information," said Destiny Health Chief Executive Scott Spiker. "Large employers are going to be the market movers next year."
Deductibles may rise
Not everyone is sold on the health savings account idea, however. Some critics fear people will put off a trip to the doctor's office or prolong the need for a surgery to avoid exhausting money in their accounts. That could lead to higher costs.
Furthermore, nothing is preventing insurers or employers from raising deductibles in future years that may cause health savings account purchasers to exhaust money in their funds more quickly.
"It only creates a situation where you are going to use the money for catastrophic situations and not for preventive care," said Lynda DeLaforgue, co-director of consumer group Citizen Action Illinois.
Still, with few new health insurance options, health savings accounts have substantial backing even among physicians, who are rarely known to cheer new concepts developed by the health insurance industry.
The American Medical Association, for example, which represents 250,000 physicians, touts the ability of patients to have more choices of doctors and hospitals in high-deductible plans associated with health savings accounts.
Once the health plan's high deductible is met, health-care coverage tends to take on the look of a preferred-provider organization. Doctors like PPOs over HMOs, which are the most restrictive form of health insurance in that they restrict choices of doctors and hospitals to their networks.
"We believe health savings accounts put more control back into the hands of the patient," said Dr. Donald Palmisano, AMA board trustee and the Chicago-based national doctor group's past president.
Supporters of health savings accounts see the plans as able to control costs because consumers will think twice before spending money on a trip to the doctor for the sniffles or for a brand-name drug that has a cheaper generic equivalent.
And some doctors believe the high deductible could even lead to patients bargaining with medical-care providers on prices as a way to conserve money in their accounts.
"It brings it back to the old days," said the 64-year-old Palmisano, a New Orleans vascular surgeon. "If it is strictly negotiating with a physician in a physician's office, that is an easy thing to do. We think it gives more control to the patient and makes the patient a more prudent purchaser."
For now, HSAs are popular among upper middle-income small-business owners and the self-employed who already own high-deductible plans, insurers and industry analysts say. Yet consumers who work at large self-insured companies are less likely to qualify for a health savings account because these firms often only offer an HMO or PPO that does not carry an overall large deductible.
Few employers on board
"It's a minority [of large employers] that are offering them today, but more are offering it in the near future," said Debra Gold, Chicago office leader for health and benefits at Mercer Human Resource Consulting.
"A lot of employers are redesigning their benefits as an option to include an HSA," Gold said.
Currently, less than 10 percent of employers with more than 500 people covered in their health plans offer HSAs, Gold said.
Eventually, health insurers believe, health savings accounts will help put a dent in the number of uninsured Americans. The number of uninsured rose last year to 45 million--15.6 percent of the population--from 43.6 million.
"I absolutely believe we will bring in those who were uninsured because it is their money and the government is behind it and it is portable," said Peter Rodes, vice president for consumer markets at Blue Cross and Blue Shield of Illinois.
The popularity of HSAs with the Bush administration and the Republican-controlled Congress may lead to new laws that allow the accounts to gain more momentum. At least one congressional proposal would allow individuals in the small-employer market to get a tax deduction on the premiums they pay on their high-deductible plan.
Copyright © 2004, Chicago Tribune
