Health Savings Account Blog

Look at the coming months as a chance to arm yourself with the data necessary to make an informed choice next time. You might be surprised by what you find, said Jay Savan, health and welfare group leader for Towers Perrin in St. Louis, a human resources consulting firm.

For example, although it might not seem logical at first, one way for some to reduce expenses on health care might be to enroll in a high-deductible insurance plan with a health savings account.

High-deductible health plans were developed in part to encourage people to restrain spending, such as through fewer doctor visits. They also should encourage use of in-network providers, a major way of holding down out-of-pocket costs in most plans of all types.

Employees in 2006 had a choice of 21 such plans, including three available nationwide, through the Federal Employees Health Benefits Program. The Office of Personnel Management is seeking legislation that would allow its largest insurer — Blue Cross and Blue Shield — to offer such a plan.

The tax advantages of an HSA and the fact that the government contributes to it are the major reasons these types of plans appeal to many, said Savan. His company provides employee benefit services to public and private plans.

“Truly it’s free money,” he said. “It makes a lot of economic sense.”

A happy customer

Dave Conway, a GS-14 at the National Counterterrorism Center in McLean, Va., couldn’t agree more.

For the second year, Conway is in Aetna’s high-deductible health plan with a health savings account.

He pays less in premiums than he used to under a different type of plan, and the money in his account for paying medical expenses is pretax and earns interest. If the balance is at least $2,000, he can invest it in various funds, thereby earning gains but also subject to losses.

Conway based his decision to enroll in Aetna’s high-deductible plan with a health savings account on his family’s past spending patterns. Comparing plans, even with ups and downs in health care needs over the years, “I was coming out much better with the high-deductible plan, the bottom line was looking much better,” said Conway, who is married and has two children, 19 and 16.

“Even in a year with braces, I can handle that,” he said.

Conway does not have to meet a deductible for in-network preventive medical and dental care, which is free to him under the plan. For sick visits and other nonpreventive care, Aetna pays 90 percent for in-network providers and 70 percent for out-of-network providers, but only after Conway meets the $5,000 annual deductible for family coverage. Before meeting the deductible, he would pay for the whole office visit. He can use money from his health savings account to do that, but does not have to.

He also must pay the full cost of prescriptions until he meets his deductible, and he must use money from his account for pharmacy benefits. After the deductible is met, he would shell out a co-pay for prescription drugs.

Conway thinks he won’t likely need to pay the entire $5,000 deductible, but if he or a family member requires unexpected high-cost care, he doesn’t mind the risk that he will have to pay a relatively high amount initially, and then be covered by traditional co-insurance after that.

For family coverage, the out-of-pocket maximum per calendar year is $8,000 for in-network care and $10,000 for out-of-network care.

Besides, Conway knows he can switch coverage each year if he wants to.

Conway said he was attracted to the health savings account as an alternative to his tax-free flexible spending account, which required guessing how much money to deposit and left open the possibility of losing any unused money.

“I hate gambling,” Conway said. “I was annoyed by the whole concept that I had to gamble.” Flexible spending accounts are available to all federal employees, regardless of which type of health plan they choose. Employees decide how much in pretax dollars to deposit into flexible spending accounts. The money can then be spent on certain health care expenses.

But flexible spending accounts are different from health savings accounts, in that FSA money does not carry over into future years and does not accrue interest. With HSAs, the employee owns the money forever, even if he switches health plans or leaves government service. And even when the employee dies, money in the HSA would go to a beneficiary.

People cannot have both an HSA and an FSA.

Health savings accounts also are different from health reimbursement arrangements, or HRAs. HRAs are for people ineligible for HSAs, such as those who have Medicare. HRAs do not earn interest, and are forfeited if you leave federal service or switch plans.

Conway views his health savings account as similar to an individual retirement account.

“This is like an IRA for medical use except I don’t have to wait until I retire to use it,” he said. “I like the control, not having to guess about things. I can add money.”

As with other health plans, Conway’s agency automatically deducts his share of his premium from his paycheck, and sends it plus the government’s share to the insurance company. Aetna keeps a portion, and deposits a portion into his account — $250 a month or $3,000 a year for family coverage. The $3,000 exceeds what he pays in premiums by $768.

He can, but is not required to, contribute up to $2,000 more tax free into his health savings account — the difference between the $3,000 that Aetna will deposit for him and his $5,000 deductible. Additional contributions he makes are deductible on his federal taxes.

“I can spend this money on these bills instead of my hard-earned after-tax dollars,” Conway said.

He hopes not to have to deplete his account, but let it grow because he knows he will have higher medical costs someday.

A new way of thinking

HSA plans can benefit both people who have low and high claims, depending on the plan design, its alternatives, the premiums and personal circumstances, Savan said.

But they’re not for everyone. And some high-deductible plans are better than others, Savan said.Quality care and satisfaction with your plan are important too.

Savan said you should not always pay for health care with account money because “HSAs are the most powerful tax-protected accumulation vehicle in the Internal Revenue Code.”

You have to think about health care and insurance in a new way, as owning your house versus renting it, he said. When you own, you build up equity and have control.

Retirees generally are not enrolling in federal high-deductible plans, according to a January Government Accountability Office report, “FEHBP, First-Year Experience with High-Deductible Health Plans and Health Savings Accounts.” In 2005, only 11 percent of enrollees in high-deductible plans were retirees, compared with 45 percent in all of FEHBP, GAO said.

The average age of those in high-deductible plans is 46, compared with 59 for all of FEHBP.

That is what critics are afraid of. As high-deductible plans attract younger, relatively more healthy customers, critics say fee-for-service plans will lose customers and be forced to raise rates or go out of business because of higher costs associated with older enrollees.

OPM said in its response to the GAO report that it would monitor “the possibility of risk selection occurring over time by enticing the young and healthy into [high-deductible health] plans at the expense of our traditional insurance plans.”