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HSAs Find Growing Favor, But Dems Say as Tax Shelters

By John Reichard, CQ HealthBeat Editor

April 30, 2008 -- Insurers reported Wednesday that enrollment in health plans sold in conjunction with health savings accounts (HSAs), promoted by Republicans as an affordable option for a significant number of uninsured Americans, has risen by 35 percent since early last year, reaching a total of some 6.1 million Americans.

House Democrats Pete Stark and Henry A. Waxman of California countered with Government Accountability Office data they characterized as showing that the accounts are more often used a tax shelter for the wealthy than as a mechanism to help working families obtain needed care.

Enrollment in health plans sold in conjunction with HSAs has grown steadily since they were authorized starting in January 2004, according to an analysis by America's Health Insurance Plans (AHIP). It stood at about one million a little over a year later, and by January of 2007 had risen to 4.5 million. Penetration of the private health insurance market was highest in Minnesota (9.2 percent), followed by Louisiana (9 percent), Washington, D.C. (8.7 percent) , Vermont (7.5 percent), and Colorado (7.1 percent).

"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," said AHIP President Karen Ignagni. Thirty percent of those covered by HSA plans were in the small group market, 45 percent were employees of large companies or other large groups, and 25 percent were in the individual market, according to the latest AHIP tally.

HSAs are a type of account in which contributions grow tax free and are withdrawn without taxation or penalties if used for health care purposes. They are sold in conjunction with high-deductible health plans. Backers say the tax breaks associated with HSAs give holders an incentive to save for health care while the high deductibles spur them to shop wisely for health care services.

The combination of affordable premiums and incentives to shop for good values are a good policy prescription for a U.S. health system facing rising rates of uninsurance and growing costs, many Republicans say.

But Democrats blast HSAs as a magnet for the healthy and wealthy, warning that their deductibles are a poor fit for lower-income Americans who cannot pay out-of-pocket for health care services. Critics also charge that the plans threaten to make traditional coverage prohibitively expensive by drawing away younger customers whose premium dollars would otherwise help keep the costs of traditional insurance down because the young use relatively few health care services.

Stark and Waxman released a GAO report Wednesday they said buttressed their argument that HSA affiliated health plans aren't a good match for the health care needs of average Americans. Citing 2005 data, the report found that among tax filers between the ages of 19 and 64, the average adjusted gross income was about $139,000 compared with about $57,000 for all other tax filers.

GAO also reported that the total value of all HSA contributions reported to the Internal Revenue Service in 2005 was about twice that of withdrawals—$754 million compared with $366 million.

Stark and Waxman said that the report shows that instead of being used by low- and middle-income Americans most likely to be without health insurance, "HSAs are increasingly a popular tax shelter option for wealthy taxpayers."

"The GAO confirms that HSAs are not the way to meet the health care needs of most Americans," said Stark. "Instead, they are an effective tax shelter for people whose average incomes are nearly triple that of average tax filers."

"This report provides further evidence that we need to re-examine whether this is the right way to use the government's resources to address our health care needs," added Waxman.

But AHIP President Karen Ignagni, citing GAO's own data, said the report hardly shows that the accounts are being used as tax shelters. Subtracting withdrawals from contributions, the report found that about $1,100 on average remained in the accounts of those tax filers reporting HSA activity. More recent AHIP from 2007 shows even smaller remaining average balances of about $300, she said in an interview.

Ignagni added that the data on income levels was from 2005 only, a year in which relatively few HSAs had been opened. "I think the later data will show a different picture," she said.

In many instances, people sign up for HSA-eligible health plans but don't open HSAs. According to the GAO report, somewhat more than half of enrollees in HSA-eligible health plans do not open HSAs.

Asked about assertions by the House Democrats that HSAs aren't for average Americans, Ignagni said that about one-third of enrollees in HSA-eligible health plans lacked health insurance beforehand. HSAs are part of a portfolio of products offered to Americans, she said, adding that it's up to individuals and employers to decide which plans best meet their needs and that the industry has never asserted that HSAs are the only product for the uninsured. HSAs are being chosen because they "meet a pricing point" attractive to a significant number of buyers without coverage, she said.

AHIP's latest analysis does not address the income levels of buyers. But an AHIP spokesman pointed to other studies suggesting that large or significant numbers of HSA buyers have lower or moderate incomes. One 2006 study cited was by an online insurance broker, Ehealthinsurance, that found 45 percent of those in HSA-eligible plans had incomes below $50,000. Another study cited, a 2005 Internet survey by the Employee Benefit Research Institute, found that 31 percent of HSA-eligible plan enrollees had incomes less than $50,000.

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