HSAs inch forward
Changes make savings program more attractive, but high deductibles are still a stumbling block

by Marjolijn Bijlefeld
for Virginia Business
September 2007

Recent changes have brought health savings accounts (HSAs) back into the limelight but not yet into the mainstream. Three years after they were approved by Congress, these tax-advantaged savings accounts for health-care costs are gaining converts. However, they have not lost their reputation of appealing mostly to wealthy and healthy consumers.
HSAs are personally owned accounts that are paired with high-deductible health plans (HDHP). The combination allows workers to save for out-of-pocket medical expenses while paying lower premiums for health insurance. HSAs also offer tax advantages on money contributed to the accounts and earnings on their investments.

In January, the tax laws changed, allowing HSA owners to put larger amounts into the accounts each year. In addition, health insurers are adding some bells and whistles to HDHPs, such as preventive-care coverage before the deductible is met and a wider offering of deductibles. High-deductible plans initially were even higher, more like their predecessors — the Medical Savings Account (MSA). In 2004, when HSA legislation passed, MSAs required minimum individual deductibles of between $1,700 and $2,600, and family-coverage deductibles had to be between $3,450 and $5,150. Now many insurers offer high-deductible plans that just meet the minimum allowed by law: $1,100 individual deductible or $2,200 for a family.

Nonetheless, the thought of paying the first $1,000 or more of health-care costs out of pocket can be a stumbling block for people who have become accustomed to $10 or $15 co-pays for a doctor visit. Paul Stone, vice president of life and health for the Medical Society of Virginia (MSV), believes that HSAs will gain momentum as more people come to understand the advantages of the accounts. Stone runs the health and life division of the MSV Insurance Center, which serves as a broker or consultant for physicians on employee benefits. About 40 percent of the physicians using the center have signed up for HSAs. “Now that the IRS allows a $2,850 contribution to the HSA, it is being seen as a pretty attractive plan.” Stone says. “Let’s say you put in $2,850, and you use $1,200 of that to pay for your monthly $100 prescription. You’ll still have $1,650 unspent and tax advantaged. Plus you save on your monthly premium.”

One knock against HSAs is that they are primarily attractive to affluent people, who easily can pay out of pocket to meet the deductible, and to healthy consumers, who feel fairly confident taking the high-deductible gamble. The MSV experience may reflect that scenario. While 40 percent of the doctors signed up for HSAs, the percentage for total medical staffs, including physicians, nurses and other personnel, was only 10 percent. And insurance companies are seemingly hesitant to offer the plans to their least healthy enrollees. Only 12 states — and Virginia is not one of them — allow HSAs to be used by their high-risk pool enrollees. Those individuals have pre-existing conditions and have exhausted their COBRA coverage but are unable to get insurance elsewhere. (COBRA, the Consolidated Omnibus Budget Reconciliation Act, gives displaced workers the right to continue group health benefits for a limited time.)

Anthem Blue Cross Blue Shield began offering HSA-ready HDHP accounts in 2005. As of June, just over 41,000 members, approximately 2.3 percent of Anthem’s total members in Virginia, had signed on for HSAs, says Terri Flagg, vice president of product management and development. About 14,000 of those, 34 percent, come from 1,200 small-business employers — those with two to 50 employees. About 35 percent of those who opted for the HDHPs are individuals or sole proprietors, and the remaining nearly 31 percent are larger employers — those with more than 50 employees. “About half of the employers are offering the HSA and HDHP alongside another HMO or PPO option. The other half, especially apparent among smaller businesses, are choosing to offer only the HSA option,” she says.

Interest in HSAs also is stronger in some regions — particularly the western and northern parts of the state. Perhaps higher-deductible plans were already popular there; or the cost savings and benefit design appeal more, Flagg says. People in the Virginia Beach and Richmond areas, regions that tilt heavily toward HMOs with their low co-pays, “aren’t as excited.”

Starting in January, Anthem will offer a new suite of consumerism-orientedproducts, some of which will apply to HSA plans. For example, members who participate in health and wellness programs — weight loss and smoking cessation, for example — can gain rewards, such as a contribution into their HSA account or a gift card.

These kinds of programs might help offset a major concern of some HSA critics. They contend that people who have to pay out of pocket are more likely to delay or forgo medical care. A Kaiser Family Foundation survey issued in November supports this concern. It found that enrollees in these kinds of plans are more likely to postpone visits to the doctor for routine checkups and specific problems. However, these patients visit dentists, use emergency rooms and have inpatient or outpatient surgeries or procedures at rates similar to enrollees in other types of health plans. The report also finds those using HSA plans are also “wealthier, more educated, more likely to be white, and report being in better health than their counterparts in other employer-sponsored plans. Lower premiums and tax-preferred savings are the main motivators people report for joining these plans,” the report says.

Today’s newest HSAs include incentives for wellness, covered preventive care and lower deductibles that still meet the technical requirements of a high-deductible plan. Whether those changes will broaden the appeal remains to be seen. “Membership is growing each month,” says Anthem’s Flagg. “Some thought it would die and others thought it would take off. The truth is somewhere in between.”