Health Savings Account Blog

One of the most promising solutions to reducing the cost of state government is to implement "Health Savings Accounts" and high-deductible insurance plans as the healthcare solution for government employees. Health Savings Accounts (HSA) are savings account into which participants or their employers deposit pre-tax money that will be earmarked to pay for a participant’s qualifying healthcare expenses. These accounts are accompanied by high-deductible insurance policies that are also called, "consumer-directed health plans," which cover many qualifying healthcare related expenses.

Funds from a Health Savings Account are used to cover qualifying healthcare expenses until the full amount of the health insurance plan deductible is met. Once the deductible is met, the health insurance coverage begins. A 2009 federal law requires that Health Savings Accounts deductibles for qualifying high-deductible insurance plans are least $1,150 for individual self-coverage and $2,300 for family coverage. There are also maximum deductible amounts associated with these accounts.

The benefits of Health Savings Accounts are abundant; as money is deposited into Health Savings Accounts, the money is reduced from the participants’ income tax burden. Those deposited funds then earn interest tax-free and can be withdrawn anytime to pay for qualifying healthcare expenses.

In the case of Michigan state employees enrolling in Health Savings Accounts, the savings can be huge for the state; high-deductible health insurance premiums are less expensive than health insurance premiums for more traditional health insurance plans, including PPO and HMO plans.

Participation in Health Savings Accounts is increasing at a profound rate! The AHIP Center for Policy and Research indicates that participation in HSA/CDHPs increased from 1 million in early 2005 to more than 8 million in January 2009. Moreover, in 2008, large-group Health Savings Account coverage increased by 35 percent and small-group Health Savings Account coverage increased by 34 percent.

The savings potential is significant when Health Savings Accounts are adopted. If one assumes that the state pays 100 percent of the insurance premiums and funds just 75 percent of the legally allowable contributions for each state employee, the state would see a first-year savings of $106 million and cumulative savings as high as $5.9 billion if the plans were used from now through 2021.

There would also be significant savings if the almost 209,000 full-time equivalent rolling public school employees transitioned to a state-administered Health Savings Account/CDHP. The upper-bound savings total could be as much as $451 million in the first year and $26 billion cumulatively through 2021. These estimates are based on expected PPO premium increases of 9.3 percent annually.

While it is true that transitioning state and public school employees into consumer-directed health care plans represents a significant shift in public policy, the potential should still be explored. After all, if nothing is done to address the drastically increasing health care costs, there will be an inevitable shift in public policy as well.

In most cases, employees stand to benefit a great deal through patient-centered Health Savings Account plans that they control. Amongst the milieu of advantages of Health Savings Accounts are predictable expenses for participants; the maximum out-of-pocket expense with Health Savings Accounts/CDHPs is firm, but with traditional insurance, co-pay amounts are unlimited.

While significantly changing state employee health care requires a great deal of effort and communication, Health Savings Accounts are truly beneficial for both employees and for the state. Furthermore, even though the process may result in a struggle over whether the Legislature or the Civil Service Commission is legally allowed to change the benefit structure for state employees, the result of such a shift may help to reinvigorate the state’s fiscal health for decades to come.