- The Washington Times - Sunday, January 18, 2004

As medical-insurance premiums skyrocket, more companies are looking for ways to pass on costs to their workers. At the same time, self-employed people and other individuals who don’t have corporate plans are seeking health care policies that are affordable.

Enter the government, with a new tax-free health savings account (HSA) aimed at doing for health care what individual retirement accounts have done for retirement savings.

The HSAs, part of the Medicare reform bill passed by Congress last month, can be set up starting this year.

The advantage is that they will allow Americans to set aside pretax money to cover medical expenses, including co-pays and prescription-drug costs that are not covered by their insurance policies. The disadvantage is that they must be linked to high-deductible policies — a minimum $1,000 a year for singles and $2,000 for families.

A handful of insurance companies already have announced that they will be selling policies that can be linked to the HSAs, including Golden Rule Insurance, Fortis and the American Medical Security Group.

How popular they will become remains to be seen, said Dallas Salisbury, chief executive of the nonprofit Employee Benefit Research Institute in Washington, D.C.

“Some think this will revolutionize the health market,” Mr. Salisbury said. “That sounds to me like a bit of marketing hype. It will be some time before we know, until we have some solid data.”

That’s because it is still unclear whether putting more of the burden on workers for paying for medical care will result in consumers making money-saving decisions — such as waiting until Monday to see a doctor rather than visiting an emergency room on Sunday — that ultimately will help contain overall health care costs.

With that goal in mind, the government has tried to make the new HSAs attractive for workers.

They can be funded with pretax income of up to $2,600 for an individual and $5,150 for a family, and the money can be withdrawn tax-free for medical care as well as prescription and nonprescription drugs.

Employers can contribute to the HSAs on behalf of their workers, too.

Unlike the flexible spending accounts that require employees to forfeit unused money at year’s end, any unused balances in HSAs can be carried over from year to year. Surpluses even can be carried into retirement and used to pay for long-term care insurance, some Medicaid expenses and other approved medical costs.

If funds are withdrawn before age 65 for nonmedical purposes, the saver must pay a 10 percent penalty as well as taxes on the money.

Robert Fahlman, a senior vice president at EHealthInsurance Inc. in Sunnyvale, Calif., said he expects the accounts to be most popular with individuals who must buy their own health-insurance policies and small businesses that can’t afford high-priced insurance plans for their workers.

That’s because high-deductible policies generally cost less than those with more-comprehensive coverage, and the HSAs will be attractive because of the tax break.

“Some high-income individuals want to self-insure, and this is a tax-savvy way to do it,” he added.

The company studied about 56,000 of the policies it has sold and found that more than one-third of the policies for individuals and one-quarter of those for families have deductible levels high enough to qualify for linked HSAs.

Mr. Fahlman said that in a few weeks, EHealthInsurance will be offering an HSA for use with high-deductible plans.

Ed Pudlowski, a senior manager for health and welfare programs at Ernst & Young in Dallas, said high-deductible policies and HSAs “will give employers another option” in providing affordable health care coverage, especially for those companies moving toward consumer-driven plans.

Such plans — some of which give workers a health care “budget” that they spend as they choose — are available to fewer than 5 percent of workers, he estimated.

“Consumer-driven plans seem to have a real effect on utilization,” he said. “Companies are seeing reduced visits to physicians’ offices and changes in patterns, like using generics over brand names in drugs.”

In cases where companies fund the HSAs, he said, “the hope is that employees would look at that $1,000 in their account … and manage it as if it was their own money.”


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