Thursday, May 1, 2008

Health Care and HSAs

Health News Digest reported this month that HSA sales have been on the rise. According to a study released by AHIP, more than 6.1 million Americans are covered by Health Savings Account (HSA)-eligible insurance plans, a 35% increase since last year, a new census by America’s Health Insurance Plans found. HSAs were authorized starting in January 2004. Since then, AHIP has conducted a periodic census of its members participating in the HSA plan market. Employers and individuals across the country and across the age spectrum are choosing HSA plans, which are now an important part of the portfolio of coverage options offered by health plans.

Key findings from the census include: There was an increase of approximately 1.6 million Americans enrolled in an HSA plan since January 2007. Previous censuses found that 4.5 million were enrolled in January 2007, 3.2 million were enrolled in January 2006, and 1.0 million were enrolled in March 2005. Additionally, 30% of individuals covered by an HSA plan were in the small-group market, 45% of individuals covered by an HSA plan were in the large-group market, and the remaining 25% were in the individual market. Also, HSA products accounted for 31% of new coverage issued in the small-group market. Individual market consumers selected HSA products for 27% of their new purchases of health insurance according to the AHIP report.

Health savings accounts are a relatively new product pushed by the Bush administration as a way to slow rising health care costs. Workers who purchase health insurance plans with a high deductible can deposit up to $2,900 into the account tax-free, or up to $5,800 for families. And, consumers can use the money in their account to pay their medical expenses, or they can save it for future needs, including retirement as reported by an article released by the Associated Press on Yahoo News. Overall, enrollment in such plans represents about 3.4% of the private insurance market, said America's Health Insurance Plans, which compiled the latest enrollment projections. The Association said more than a quarter of new enrollees were previously uninsured.

Information from Wikipedia: Health Savings Account (HSA) is a tax-advantaged medical savings account available to taxpayers in the United States who are enrolled in a High Deductible Health Plan (HDHP). The funds contributed to the account are not subject to federal income tax at the time of deposit. Funds may be used to pay for qualified medical expenses at any time without federal tax liability. Withdrawals for non-medical expenses are treated very similarly to those in an IRA account in that they may provide tax advantages if taken after retirement age, and they incur penalties if taken earlier. These accounts are a component of consumer driven health care.

Credit Union Times has reported about HSAs as tax-free, portable savings accounts that can be used to pay for medical expenses including prescription and over-the-counter drugs incurred by individuals, spouses or dependents. These accounts are accompanied by high-deductible comprehensive insurance policies that cover preventive care and larger medical bills. Unused HSA money rolls over from year to year and can then be used to pay for medical care up to the plan’s deductible.

Proponents of HSAs believe that they are an important reform that will help reduce the growth of health care costs and increase the efficiency of the health care system. According to proponents, HSAs encourage saving for future health care expenses, allow the patient to receive needed care without a gate keeper to determine what benefits are allowed and make consumers more responsible for their own health care choices through the required High-Deductible Health Plan. As per the Associated Press release, supporters of health savings accounts say the accounts make health coverage affordable because the insurance policies that accompany them generally require lower monthly premiums.

Also, have you taken a close look at your retail receipts lately? Many companies, such as CVS and Target, are now marking expenses that they think may be HSA-qualified. That is because anyone with a health savings account can reimburse themselves for those expenses tax-free according to HSA for America. Keep in mind that CVS doesn’t decide what you can pay for from your HSA, you do. So check closely, as they may miss something. When you have an HSA, all medical expenses (including aspirin, doctor visits, dental, eyeglasses, alternative care) become tax deductible.

Opponents of HSAs say they worsen, rather than improve, the U.S. health system's problems because people who are healthy will leave insurance plans while people who have health problems will avoid HSAs. There is also debate about consumer satisfaction with these plans. The Associated Press release indicates that critics question whether the poor and those with high medical expenses can afford all the up-front costs. They're concerned the plans are attracting two extremes: those who buy the policy because it's cheaper, but are unable to invest in the savings accounts, and those who use the accounts to generate tax breaks.

The GAO (Government Accountability Office) said national surveys indicate that more than 40% of people who purchased high-deductible plans don't open a health savings account, even though they were eligible to do so. Participants said they lacked information about the accounts, they could not afford them, or they did not believe they needed them. Also, Celent found there has been inadequate pre-and post-sale education, insufficient decision-making tools, and limited employer funding of accounts. Consumers are overwhelmed by the choices and are unable to conduct an adequate cost/benefit analysis.

There will continue to be both acceptance and opposition to HSAs. The key to growth in the market will be for employers to make sure that their workers have access to all the information about how the plans work and the availability to participate. Credit Union Times has indicated that a big key to a successful remodel is pleasing the consumer and generating positive word of mouth as indicated by Celent. During this period, those financial institutions that add value will have a chance to gain higher ground. That means to attract business and be on top, platforms must constantly be enhanced from the back office to customer facing ones. The rise of double accounts is already occurring and will continue, driven in part by baby boomers entering retirement. Consequently, financial institutions need to develop a long-term strategy that encompasses not only growth in new HSAs but also retention of customers.

HSAs are a good thing. More and more employers have been offering them to employees. Also, individual consumers should consider purchasing them. HSAs can be a great way to make the best use of your health care dollars.

Until next time. Let me know what you think.

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