Health Savings Accounts (HSAs) have a number of advantages by combining a tax-free savings account that can be used to meet deductibles, co-pays and other medical expenses with a high-deductible health insurance policy.

 

People who don't use the money put into their HSA for health expenses get to keep that money and pay no penalties (just income tax) on withdrawals after turning 65. So there is an incentive to be careful health care consumers avoiding unnecessary tests and making sure you aren't overcharged.

 

"It is a great deal for almost everyone," said Roy Ramthun, president of HSA Consulting Services, who led the effort to design HSAs for the U.S. Treasury Department. "And the reason for that is the insurance for consumer driven health plans is much more affordable, and it provides the coverage that we need to protect ourselves from going into bankruptcy if something really bad happens to us."

 

Annual out-of-pocket expenses cannot exceed $5,800 for an individual or $11,600 for a family. Contributions are tax deductible, and money not spent accumulates. For everyone who does not have an option for flexible spending account offered by some employers, this is the only tax-deductible way to put aside money for out-of-pocket expenses.

 

Ramthun said if the money isn't needed for health care expenses, it is a great way to save for unemployment, early retirement or retirement itself.

 

The number of people enrolled in HSAs has been climbing consistently with a 35 percent  increase in 2007 and a 46 percent increase in 2008. However, HSAs don't appear to be catching on well in Arkansas.

 

"We show it a lot," said Curtis Bailey, an agent with The Hatcher Agency in Little Rock. "We don't have very many people sign up. In Arkansas, there are not an awful lot of companies interested in it. It is a real good plan for people not using their benefits, and not such a good plan for people who are actually incurring medical expenses. The biggest impact is that the family deductible has to be met before claims are paid, so it doesn't work as well for families as individuals. You see a lot of individuals interested, but not so many families."

 

Bailey said another disincentive is that some groups adopting the high-deductible health insurance combined with the HSA have had bigger premium increases on average than with normal plans.

 

"Now, if you go in the hospital a day for anything, it is $10,000," Bailey said. "If you go in for two days, it is $20,000. So if you have a $1,500 deductible versus a $500 deductible, there is not that much less risk. They have to have it priced right to get you on it, and then the price for claims versus premiums is bigger so rate increases are higher than with normal plans."

 

Usually, interest in the HSA option increases when a group is facing a big premium rate increase. But if the employer just adds the HSA option while keeping the regular policy, it often ends up making the regular policy cost more. Bailey said that is because HSAs are most popular with younger people who are healthy and not spending much on health care. If you take those low-risk individuals out of the pool for normal insurance, that can increase costs.

 

"HSAs have a lot to do with saving money, but you are not going to save a bunch of money in the early years," Bailey said. "It is a bigger risk in the first years if you haven't had time to build up savings in a HSA. You may end up paying more in the first years."

 

He added that he has seen more interest from medical clinics than other types of businesses.

 

Another employee benefits consultant in Little Rock, who asked not to be quoted by name, has seen HSAs work—and not work. In the case where they worked well, the employer took the savings from switching to a high-deductible health insurance plan with HSAs and invested that back into more benefits like vision and dental. In five years, that company's cost for health insurance has remained flat while regular health plans have seen double digit increases yearly.

 

"I am of the firm opinion HSAs don't work unless the employer chips in as active participant," the source said. "A lot of employers think they can raise the deductible, turn around and pocket some of those savings. You can't. You need to plow that money back into employee benefits."

 

The consultant also said that HSAs may work better for white collar than blue collar employees, because more educated workers may understand the concept of HSAs better.

 

"Why all doctors' offices are not all on high-deductible health plans is beyond me," he said. "They really ought to be setting the standard. People with HSAs are going to be looking closely to make sure they are not being overbilled. It is making them much smarter consumers. The simple fact is that some people with HSAs have savings in excess of $10,000. They will have that to offset health care costs when they need it the most. Or, they will be saving for retirement."

 

Ramthun said that one reason HSAs aren't more popular is most people get their insurance through work. Self-employed people can sign up individually for HSAs. But if employers don't offer it, employees can't sign up for it on their own.

 

"There are still a lot of employers not offering these HSA plans," Ramthun said. "That is changing. Now in the sixth year since HSAs have been allowed, more and more people understand there are tremendous benefits. They are helping keep employer and employee costs down and premium costs down from one year to the next."

 

Ramthun believes companies rely on consultants, and many may not understand these plans themselves.

 

"Fortunately, the growth rate is faster than when IRAs first came out," he said. "A

 

United Benefit Advisors survey released in August showed their client's enrollment in consumer driven health plans HSA and Health Reimbursement Accounts (HRAs) now exceed enrollment in HMOs. Health care is one of those areas where people are not used to asking a lot of questions because someone else has always been paying the bills. With HSAs, people are more conscious about whether or not they are getting good value for their money. Everyone spends someone else's money different than their own."