While a study by America’s Health Insurance Plans (AHIP) indicates that the market is responding favorably to new health savings accounts (HSAs), a Georgetown University Health Policy Institute assistant research professor says states need to consider carefully the implications of federal HSA legislation if they want to make the accounts available to their residents.
An HSA is an account to which employers and employees can contribute pre-tax dollars for future medical expenses. Unused contributions can roll over from year to year.
Legislation allowing people to establish HSAs to work with qualifying high-deductible health plans (HDHPs) to help finance medical expenses was approved by Congress in 2003, and individuals were able to start contributing to their accounts Jan. 1, 2004. AHIP found that through September 2004, some 438,000 people had chosen the new high-deductible, lower-premium coverage.
New buyers, new sellers
According to the study, individuals purchased more than 80% of the initial HSAs, with nearly half the covered individuals older than 40.
Some 30% of the policies were bought by people who were previously uninsured.
AHIP president Karen Ignani said growth of new companies offering the plans occurred across the board since the survey, and as of January 2005, there were at least 58 companies offering high-deductible plans to large employers, compared with 15 in September; 56 companies providing plans for small employers, up from 20; and 47 companies with plans for individuals, up from 11, several months earlier.
HSAs outpacing Archer plans
She said introduction of the HSAs has far outpaced earlier experiences with similar account-based high deductible plans.
Roughly 40,000 Archer medical savings accounts (the precursor to HSAs) were established during the first year of their existence, Ms. Ignani explained, and they never reached the level of market penetration in 10 years that the new HSAs already have achieved.
Ms. Ignani said timing of the new law and issuance of regulations in the summer of 2004 explain the preponderance of accounts purchased by individuals.
Because employers generally make health benefit decisions in the fall, and larger employers often make decisions that apply several years into the future, the new accounts came too late in the 2004 benefits cycle for many businesses, she said.
Many observers have said they expect more small employers to offer HSA-based plans in 2005.
Ms. Ignani said most of the plans rely on preferred provider networks to give consumers access to the same kinds of negotiated discounts available to participants in other health insurance plans, stretching the consumers’ health care dollar and increasing the value of the high-deductible plan.
The survey showed that high-deductible health plans purchased by individuals in conjunction with HSAs are similar to other insurance purchased in the nongroup market.
Average out-of-pocket limits are $3,068 for a single policy and $5,781 for a family policy. Average lifetime benefits for both are $3.8 million.
Qualifying high-deductible health plans purchased in the small employer market have average annual premiums of $2,224 for a single policy and $5,496 for a family policy, compared with an average premium of $9,950 for employer-sponsored family policies.
Too soon to gauge impact
Georgetown University Health Policy Institute professor Mila Kofman tells State Health Watch that only experience will demonstrate the ultimate impact of HSAs on the nation’s health care system.
Meanwhile, she says, if states are interested in making HSAs available to their residents, they need to fully explore the implications of the enabling legislation on their own state laws, budgets, and insurance markets, which may include examining ways to ensure that comprehensive coverage stays affordable, considering whether to adjust tax returns or enact state HSAs to maximize the tax advantage, and adjusting insurance standards to comply with federal law.
State officials also need to decide whether, and how, to add HSA-qualified coverage to state programs such as high-risk pools and public-private initiatives. And decision makers should be aware, she says, that federal policy on HSAs is subject to change.
Since the law’s enactment, there has been a flurry of activity, according to Ms. Kofman, resulting in multistage guidance from the IRS on many aspects of HSAs and HDHPs.
"Due to the complexity of the new federal law and many unanswered questions, states will likely need additional federal guidance in the future," she cautions.
According to Ms. Kofman, states’ decisions about whether to promote high-deductible health insurance may affect the type and price of coverage that is available in their markets.
Therefore, encouraging people to buy high-deductible coverage further shifts the cost of health care from employers and health plans to individuals.
With more of their own dollars at stake, the reasoning goes, consumers may make more cost-efficient choices about their health care services.
On the other hand, cost shifting might result in people not getting or delaying necessary care, which ultimately could increase health care costs for employers and health insurers if people develop more serious conditions as a result of postponing services, and perhaps could increase costs for states if people turn to state safety net programs.
Risk segmentation
Ms. Kofman says policy-makers need to consider the possibility that HSAs could contribute to risk segmentation in the private market, since research seems to indicate that when individuals are given a choice between low-cost, high-deductible coverage and more costly comprehensive health insurance, healthy people tend to choose the high-deductible coverage.
Thus, if HSAs become more widely available, fewer healthy people may remain covered under traditional insurance, and premiums could rise as a result of adverse selection.
The impact of HSAs on state budgets is another factor for policy-makers to consider, Ms. Kofman explains.
Due to the tax break, HSAs are expected to cost the federal government an estimated $7 billion in lost revenue over 10 years. If states link their taxes to income determinations based on federal tax calculations, they will lose revenue as well.
One way states could address this issue would be to require people who take an HSA deduction on their federal return to add it back when calculating income on their state return.
High-deductible plans
Ms. Kofman points out that in addition to deciding whether to allow a state income tax deduction, states must decide whether to allow the sale of high-deductible plans that are likely to attract healthy people. She says some policy-makers fear comprehensive coverage because it is more expensive for those with chronic illnesses.
Ms. Kofman gives an example of a Harvard University bankruptcy study that is instructive because it has been assumed that good health insurance equals family financial security through access to care. The number of bankruptcies, she says, may indicate that having only catastrophic coverage is not adequate to provide financial security. "Many of those who declared bankruptcy missed doctor visits and didn’t have prescriptions filled," Ms. Kofman continues.
She also discusses a Commonwealth Fund study that found less access to health care services for those consumers who had high-deductible coverage.
Numbers don’t tell much
Commenting on the AHIP study indicating a strong early interest in HSAs, she says the numbers reported really don’t tell much because it’s not known if these are all newly insured people. Ms. Kofman adds that she doubts they were newly insured because of the need to pass medical underwriting to be able to obtain the coverage. She also points out there has been little employer take-up so far, possibility because HSAs still are relatively new and there are few incentive for employers.
[Contact Ms. Ignani at (202) 778-3200 and Ms. Kofman at (202) 784-4580.]
While a study by Americas Health Insurance Plans indicates that the market is responding favorably to new health savings accounts (HSAs), a Georgetown University Health Policy Institute assistant research professor says states need to consider carefully the implications of federal HSA legislation if they want to make the accounts available to their residents.
You have reached your article limit for the month. Subscribe now to access this article plus other member-only content.
- Award-winning Medical Content
- Latest Advances & Development in Medicine
- Unbiased Content