Health Savings Accounts Not Attracting Many, But Boomers Biggest Buyers

Jan. 23, 2006 – Less than five percent of consumers have taken advantage of the Health Savings Accounts (HAS) the Bush administration passed in 2003, but President Bush is expected to propose new incentives in his state of the union address. The HAS provides tax incentives to Americans to put aside funds for health care, and although they have not really taken off, those that are joining are baby boomers. The 2005 Insurance Audits says 56 percent of households with an HAS are people between the ages of 40 and 60.

(Read opinion on HSAs and About HSAs below this news report.)

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By comparison, just under 35 percent of the respondent households with an HSA are under 40 years old. Overall, 4.4 percent of the entire survey household sample of 35,000 said they had a group HSA, but the numbers are expected to continue moving upward as HSAs are increasingly offered on a broader scale through corporate group plans.

The Insurance Audit survey, which is administered by Integras, Claritas' advanced analytical services division, is designed to generate a national representative sample of United States households' insurance behavior. Data includes the following insurance categories: automobile, residential, life, health and insurance attitudes.

"HSAs provide consumers an excellent way to obtain affordable health insurance and a way to save on overall medical expenses, as well as future medical expenses," said Integras Consultant Noel Schoonover. "The ability of baby boomers to begin saving now for their health expenses during retirement will also save Medicare money in the future and help ensure Medicare's future financial vitality," he added.

Other notable findings included:

● Nearly 40 percent of households with an HSA are concerned about their long-term care needs compared to 32.1 percent of the total households surveyed.

● Nearly 45 percent of households with HSAs are concerned about earning an income if they become disabled compared to 33.1 percent of all households surveyed.

● Over 50 percent of households with an HSA are concerned about outliving their retirement savings compared to 44.2 percent of the total households surveyed.

Opinion

Health Savings Accounts Cut Costs

Karen Kerrigan

What are health savings accounts?

Note: Once you join Medicare you are no longer eligible to open an HSA

Health Savings Accounts (HSAs) were created by Public Law 108-173, the "Medicare Prescription Drug, Improvement and Modernization Act of 2003," signed into law by President Bush on December 8, 2003. Health Savings Accounts will change the way millions meet their health care needs because they are designed to help individuals save for qualified medical and retiree health expenses on a tax-advantaged basis.

Any adult who is covered by a high-deductible health plan (and has no other first-dollar coverage) may establish an HSA. Tax-advantaged contributions can be made in three ways:

1. the individual or family can make tax deductible contributions to the HSA even if they do not itemize deductions;

2. the individual’s employer can make contributions that are not taxed to either the employer or the employee; and,

3. employers sponsoring cafeteria plans can allow employees to contribute untaxed salary through salary reduction.

To encourage saving for health expenses after retirement, individuals age 55 and older are allowed to make additional catch-up contributions to their HSAs. Once an individual enrolls in Medicare they are no longer eligible to contribute to their HSA.

Amounts contributed to an HSA belong to the account holder and are completely portable. Funds in the account can grow tax-free through investment earnings, just like an IRA.

Funds distributed from the HSA are not taxed if they are used to pay qualified medical expenses. Unlike amounts in Flexible Spending Arrangements that are forfeited if not used by the end of the year, unused funds remain available for use in later years.

By U.S. Treasury

As more employers jettison health coverage due to rising costs, people are increasingly turning to health savings accounts.

Several surveys indicate the market is going the HSA route -- a trend already signaled by recent ventures into the HSA market by insurance giants such as Aetna, Cigna and Blue Cross Blue Shield.

One company, Golden Rule Insurance Co. (owned by UnitedHealth Group), says 42 percent of its entire customer base now is covered by an HSA policy. Incredibly, these HSA customers already have accumulated an astounding $141 million in their savings accounts.

This is proof that HSAs are working the way Congress intended when it passed a bipartisan bill making HSAs available to all Americans in 2003. That $141 million is controlled by consumers who can use it to meet health care or retirement savings needs.

This is money that, in the usual third-party payment setup, would go to insurance firms or get lost in the maze of the health care system.

According to ehealthinsurance.com, an online broker, the average premium for an individual HSA health insurance policy went down by 19 percent in the first half of 2005. The monthly premium dropped from $137.94 to $111.57, saving consumers more than $300 a year.

Given the bad news about rising health insurance costs, which leave 45 million Americans without coverage, this data helps explain why the market is increasingly taking this route. According to the Kaiser Family Foundation, people insured by employer-provided HMO, PPO and POS policies are paying an average of $308 in monthly premiums -- almost $200 more than those insured by HSAs.

The impact on consumers, especially low-income consumers who were previously uninsured, has been substantial. Just under half of the HSA customers who bought their policies through ehealthinsurance.com and had incomes of less than $15,000 had been previously uninsured for at least six months. Of those with incomes between $15,001 and $35,000, 43.4 percent were previously uninsured for at least half a year before obtaining an HSA policy.

With an HSA in conjunction with a high-deductible health insurance policy, money is placed into a health account tax free, grows tax free, and can be withdrawn tax free as long as it is used for medical purposes. Any money left in the account at the end of the year can be rolled over to the next year.

The HSA grows, building resources a patient can use for medical care. And since the money belongs to the individual, HSA users pick their doctors and hospitals -- no referrals needed. When individuals have more control over health care spending, they become better consumers and health care costs are driven downward.

As more Americans discover the advantages of HSAs, and as more companies offer them, consumers will be able to affordably insure themselves. Because HSAs are portable, individuals won't necessarily have to worry about losing coverage if they change jobs, lose a job or want to start a business.

Lower costs, more choice and an opportunity to build savings? Perhaps our current health care crisis is on the mend because of HSAs.

Karen Kerrigan is president of the Small Business and Entrepreneurship Council in Washington, D.C. This column was first published by the American Business Journals.

Information Sources:

About Claritas

Since 1971, San Diego-based Claritas says it has been the pre-eminent source of accurate, up-to-date marketing information about people, households and businesses within any geographic area in the United States. To learn more about Claritas and VNU products and services visit their web sites at www.claritas.com and www.VNU.com.

A division of Claritas Inc., Integras says it combines sophisticated quantitative analysis with the broadest array of consumer and business data available in the United States to help companies make better strategic decisions. To learn more, visit its web site at www.integrasconsulting.com.

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