Healthy & Wealthy
Health Savings Accounts promise lower health insurance costs and greater consumer control. Are they right for you?
BY SARA AASE
Dan Schmidt was fed up. Health care costs for his small business, St. Paul-based Mercury Office Supply, were rising 20 percent each year. Not only were the costs cutting into raises for his 14 employees, but they also weren’t providing greater benefits. “I thought we had a rich plan,” Schmidt says. “But people were still complaining about how many things weren’t covered. They were still paying out-of-pocket expenses.”
As soon as he was able, Schmidt took advantage of the 2003 Medicare bill provision that created health savings accounts (HSAs), an IRA-like approach to health care which allows consumers to assume a higher deductible as a trade off for cheaper premiums. In 2004, Mercury Office Supply became one of the first companies in the country to offer HSAs. The move saved it $12,000 in 2004, and has continued to hold down costs since. “Last year my insurance went down by 2 percent,” he says. “That’s the first time I can remember, as a small employer, my rates going down.”
HSA BASICS
In a nutshell, HSAs are tax-sheltered investment accounts that accumulate money earmarked for medical expenses. Consumers take the money saved from the cheaper premiums and funnel that into their plan, where it grows tax free. When they need to pay for a doctor visit not covered under preventive care, they’re free to spend it anywhere. Because consumers need to be able to compare costs and quality to make these decisions, proponents of so-called consumer-driven care hope HSAs will help prod the system to become more transparent and patient-centered. Since they’re attached to high-deductible health plans, HSAs save employers money by exempting them from paying out a lot of money for unused care.
Only 10 to 15 percent of employees tend to generate the bulk of a company’s medical claims, says Stephen Parente, an associate professor of finance at the University of Minnesota’s Carlson School of Management, who studies consumer-driven health care plans.
The health insurance part of this is paying out for a smaller portion of care, and since the outlay directly determines what the premiums are for the next year, that’s why the premiums are less,” he says, noting that a Kaiser Family Foundation study shows that HAS premiums are 30 percent lower than traditional plans. “For many smaller employers especially, this makes a lot more sense than their standard indemnity plan.”
GROWING ACCEPTANCE
Studies show HSAs are catching on fast. “The studies we’re seeing predict that by 2010, 24 percent of the market is going to consumer-driven plans of one kind or another,” says Melinda Pederson, product manager for the consumer-driven division of Blue Cross and Blue Shield of Minnesota. “Health savings accounts are our fastest-growing product line.”
About a quarter of Minnesota businesses already offer HSAs, according to the Minnesota Chamber of Commerce, and a quarter more are expected to offer them soon. Some big firms, including the Target Corp., are on that list of HSA adopters.
Yet Parente says the number of businesses offering only this kind of plan is still quite small. “That trend is picking up, but it’s still a small proportion of the overall business population,” he says.
Companies are still cautious because of some unanswered questions. Because HSAs are still so new, it’s hard to know whether they can continue to hold down health care costs, as well as what their long-term effects will be on the health outcomes of those who hold them. Will they make it less likely for consumers to seek out care they otherwise would have? Critics charge that HSAs help only the healthiest and wealthiest.
With cost and billing structures still geared for insurance companies, and reliable quality yardsticks still in their infancy, they also point out that it’s tough for HSA holders to comparison shop. But no one is writing off consumer-driven care and HSAs as fads anymore, either. And while most observers say it will take more than this one tool to change the health care system, many feel HSAs could prove to be a powerful factor. “All the incentives are set the right way if you want to lower costs,” Parente says. “You have me thinking about prices and about the cost of our prescriptions—I’m looking at what I’m doing in a way I wasn’t doing before with other health plans. If that’s how this is moving, I don’t see that as a problem. The major things are covered and the rest of the time we’re on a vigil for ourselves.”