JUNE 5, 2006 -- A small but growing number of the 177 million Americans with private health insurance are choosing a tax-free health savings account (HSA) over traditional health care options, according to a report published in April by the Government Accountability Office (GAO).
The GAO report is the government's first look at how prevalent HSA and health reimbursement arrangement (HRA) plans are since Congress passed the 2003 Medicare drug law (PL 108-173), which created HSAs. The law mandates that individuals can contribute funds to cover their health care cost tax-free coupled with a high deductible insurance program.
With an HSA, an individual has a minimum deductible amount of $1,050 and a maximum limit of $5,250. And for family coverage, there is a minimum of $2,100 and a maximum out-of-pocket limit of $10,500.
The plans also have a yearly limited contribution of $2,700 for an individual and $5,450 for a family, creating a bridge of as much as $5,050 for a family between the out-of-pocket expenses and the maximum HSA yearly contribution.
The administration is pushing for additional tax breaks for the program. Those changes would include raising the yearly contribution limits to $5,250 for an individual and $10,500 for a family. President Bush also wants to establish tax breaks for individuals who purchase the insurance as well as create a refundable tax credit to low-income families who purchase HSA-qualified insurance.
Proponents of the accounts believe that the best way to combat rising health care costs is to put Americans in greater command of health care spending. Such price and quality comparison shopping will eventually stem rising health care expenses, supporters say.
Mohit Ghose, a spokesman for America's Health Insurance Plans (AHIP), said the report clearly shows that there has been a lot of work done to enable the plans to be sold nationwide, "specifically in states that may have had impediments" such as tax deductibility.
The report found that between 2 million and 3 million employees and dependents were enrolled in the plans as of January 2006, up from around a half a million in December 2005. Ghose noted that laws had to change because "in a lot of states we did see early on that you could not sell products with a $1,000 or $1,100 deductible."
One thing standing in the way of the plans is that health providers are lagging behind in providing pricing and quality information to consumers, GAO researchers found. The report noted that kind of information for physicians and other medical professionals is lacking.
Some federal health programs have begun to take steps toward greater price transparency. On June 1, Medicare posted prices of what it pays at hospitals across the country for 30 medical services.
Gail Shearer, director of Health Policy Analysis for Consumers Union, said it is too early to determine how HSA plans will affect health care coverage. Shearer said she believes they may not be the panacea that proponents believe.
"One day the consumer is going to wake up and be really annoyed" because HSAs will not provide comparable coverage to traditional health insurance, she said.
Some health care analysts, such as Families USA Executive Director Ron Pollack, are skeptical about the accounts' ability to fairly cover all Americans, especially those with greater health care needs. "I think that is a major step in the wrong direction," Pollack said, noting that many will forgo preventive and primary care.
In a recent AHIP census of its member companies, AHIP found that "close to 30 percent of individuals purchasing high deductible health plans that are HSA compatible did not previously have health care coverage," Ghose said.
The GAO report also found that as many as half of those who purchased a high-deductible insurance policy did not open or contribute money to a tax-free HSA to help meet those deductibles and other out-of-pocket medical expenses. And many who did open HSAs met the deductibles with their own money instead of using cash from the tax-free savings account.
The plans are set up so that employees contribute with their employers. "Small employers are more likely to purchase rather than self-fund their health insurance plans," the report said.
The GAO report focuses on HSAs as well as the second most popular consumer-directed health plan, HRAs. These plans have also seen growth in the last few years, from 2.5 million in 2005 to 2.9 million the following January, according to data cited by the report.
The HRA plans are a bit more flexible because they do not have the same statutory requirements as the HSAs, said John Dicken, the director of Health Care Issues for the GAO. But unlike HSAs, HRAs are funded solely by the employer, are not transferable, and can't be used for other purchases. And "although employers are not required to couple an HRA with a high-deductible health plan, in practice the two are typically combined," the report said.