Health savings accounts — a growing trend, a better choice
Health savings accounts (HSAs) are the new, interesting and somewhat controversial choice in medical finance. With growing employer interest in educating and involving employees about the cost and quality of health care, HSAs are a financing tool that are part of a broader movement toward transparency in health care cost and information.
HSAs are tax-preferred savings accounts coupled with high-deductible health plans that can be funded by an employer and individual. Typically, employers contribute funds to employees’ HSAs annually. Unlike insurance, HSA funds belong to the individual and, with investment returns, money can build up for future use. With prudent use, some beneficiaries can cover their entire deductible with accumulated HSA dollars. Upon retirement, funds can be spent on anything post-tax, or still spent on health care, untaxed.Two years after federal authorization, HSAs now serve three million beneficiaries who have accumulated $1 billion in assets, more than triple the number served as recently as March 2005. A close cousin, the less strictly regulated Health Reimbursement Arrangement (HRA) serves another three million nationally. Together, these consumer-directed health plans are growing ahead of early projections, which estimate that one quarter of the insurance market will at least have a choice of an HSA/HRA plan by 2010. In Massachusetts, Liberty by Tufts Health Plan, powered by Destiny Health, is the leading HSA/HRA plan and now serves more than 200 accounts in Massachusetts. Tufts Health Plan’s full suite of consumer-directed plans, including tiered-network and high-deductible plans, serves more than 150,000 members.
As we move toward more consumer involvement in health care, we need to ensure that health plans offer a variety of coverage choices, tools and information to support the transparency trend. For many years, Tufts Health Plan has provided information on the cost and quality of physicians and hospitals in its network. As this information expands and employers ask employees to pay more, we must offer standardized information across the health care system.
HSAs have been praised by conservative ideologues and vilified by many liberals as tax avoidance for the healthy and wealthy. Instead, they represent a relatively benign way to introduce market incentives and financial responsibility into patients’ buying behaviors. How individuals consume medical care and the cost of that care directly contribute to the premium expense deducted from their paychecks.
Unlike many areas of the country, Massachusetts employers have the choice of first-rate, comprehensive coverage at competitive prices. Its cost is rising. HSAs offer a valuable way to introduce a Consumer Directed Health Plan (CDHP), plan while cushioning the burden of deductibles.
Fifty percent of all people covered by an HSA are 40 years of age or older, tracking closely to the average age for all insureds. For both individual and group insurance policies, more than 30 percent of those covered were previously uninsured. The plans offer younger, healthy workers a way to save for later years when medical expenses may be higher. Older workers have a tax shelter and build assets for anticipated medical expenses. With current and pending changes in the federal Medicare system and retirement funds, these are vital financial security questions that many baby boomers and following generations will face.
Early results indicate that CDHP plans moderate costs. Studies of the same population before and after enrolling in a CDHP consistently show a substantial slowing of claims increases, and even a reversal of trend for such services as office visits, emergency room visits and pharmaceuticals.
This is exactly the pattern observed in the early years of managed care. Tufts Health Plan’s HRA/HSA business has such favorable experience that existing Liberty accounts will renew with lower premiums than even we expected. In this current environment of increasing use and cost for health care, HSAs are a valuable option for employers struggling to provide health benefits.
James Roosevelt Jr. is the CEO of Tufts Health Plan.
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