According to a new survey, many small businesses that were giving up on providing health insurance to their workers are finding new options with health savings accounts (HSAs).
A survey by America's Health Insurance Plans found that 27 percent of small businesses that have purchased HSA-qualifying insurance didn't previously offer insurance to their employees. Other studies show that many other businesses would have dropped their health insurance if it weren't for HSAs.
HSAs were first made available in 2004 after Congress enacted a new law that allows individuals and companies to put a limited amount of money aside tax- free to pay for routine health care expenses. What the account holder doesn't spend in one year rolls over to the next, and the earnings grow tax-free.
But the accounts are only available to those who purchase a health insurance policy with a relatively high annual deductible -- at least $1,050 for individuals and $2,100 for families in 2006. The insurance policies can cover preventive care, including screenings and medication, so these costs don't have to come out of the HSA. These higher-deductible policies generally are less expensive than traditional insurance and are a big reason why individuals and companies find this new arrangement attractive.
The real point of HSAs is to offer people a new incentive -- a tax-free carrot -- so they will purchase health insurance. Consumers can purchase health insurance that protects them against major medical expenses, and, if they choose, can put the savings from the lower premiums into their HSA for routine health expenses.
And it appears to be working: About 3 million people have purchased HSA-qualifying health insurance.
The HSA consumer
Critics expected HSAs to appeal only to the young, the healthy, and the wealthy, but that doesn't appear to be the case. Forty percent of HSA purchasers make less than $50,000 a year, about half are older than 40, and the biggest share of purchasers are middle-aged families with children.
Blue Cross Blue Shield found that those with HSAs follow the same bell curve in age and health status as those with traditional coverage: There are as many HSA holders who are young and healthy in both types of plans as there are those who are older and less healthy. Early evidence also shows that HSA users are more likely to use preventive services and to comply with medical treatments.
Cost concerns
HSAs are helping to solve one of the biggest problems in the health sector: high costs. One survey by Deloitte's Center for Health Solutions found that the cost of consumer-directed health plans increased by only 2.8 percent last year among the 152 major companies it surveyed.
Unless more people and businesses find ways to cut health costs, there will be a further deterioration in the number of people with health coverage. But HSAs and their accompanying higher-deductible health coverage can keep individuals and small businesses in the game.
Some say consumer-directed health care shifts more of the cost burden onto consumers. In fact, it makes the costs that consumers already are paying indirectly, through taxes or lower pay, more visible.
Consumers are demanding more control over their health care choices, and they can find a wealth of medical information via the Internet that once was available only to health care and benefits professionals. But they still need better and more easily accessible information about prices, quality, and outcomes to help them make smarter decisions. That will only come when more consumers have a financial incentive to demand that information.
Companies that have instituted health savings accounts have found that they were most successful if they also implemented an active communications program with their employees to educate them about HSAs. For example, employees need to know that most health insurance companies give account holders access to the discounts the companies have negotiated with providers, both when they are using their HSA for routine expenses and once they move into insurance coverage after they have reached the deductible.
While HSAs are not a silver bullet, they are a tool that gives individuals and companies a new, more affordable option in health insurance coverage.
Grace-Marie Turner is president of the Galen Institute, a nonprofit research organization in Alexandria, VA that focuses on free-market ideas for health reform. Ms. Turner serves on the Medicaid Commission and the HHS national advisory board on Health Care Research and Quality and is a nationally recognized expert on consumer-directed health care. She can be reached at galen@galen.org.
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