Health Savings Account Blog

Health Savings Accounts are not only smart health insurance choices for many Americans; they are also becoming increasingly popular; since 2006, enrollment in Health Savings Accounts and their corresponding high deductible health care plans has increased by a whopping 3.2 million to 8 million.

While Health Savings Account critics argue that the programs cater to the wealth, data suggest otherwise. According to a May 2009 survey by AHIP, 53 percent of all individual Health Savings Accounts were under the age of 40. Moreover, a similar 2007 survey found that 33 percent of all individual Health Savings Account participants had been previously uninsured. In a study of more than one million Health Savings Account participants, AHIP learned that 46 percent of account holders resided in lower-middle income neighborhoods and earned between $25,000 and $50,000 per year. Total 83 percent of Health Savings Account holders lived in neighborhoods that had an average income at or below $75,000.

In a February 2009 study, the Manhattan Institute found that Health Savings Account participants used less than half of the funds that were available in their accounts in the year 2007. This figure indicates that Health Savings Accounts can serve as an effective savings vehicle that may even offset future healthcare costs.

However, the biggest draw of HSA plans is the low-cost health insurance plan that accompanies the Health Savings Account. The Manhattan Institute found that health insurance plans associated with HSA plans are ten to 40 percent less expensive than traditional health insurance plans. Moreover, 86 percent of these high deductible health insurance plans associated with Health Savings Accounts offer substantial "first-dollar" coverage, which goes towards preventive-care services, such as infant/child well care, colonoscopies, immunizations, mammograms, and pap smears.

Unfortunately, because of some of the details included in the new healthcare plan, Health Savings Accounts could be in jeopardy because of the definition of what constitutes a health insurance plan. The continuation of Health Savings Account plans may depend upon future regulators in terms of contributions by employers towards the “actuarial value” of contributions made by employers to Health Savings Accounts for employees. The actuarial value is the percentage of health-care costs insurance has to cover). In the current healthcare bill, the minimum actuarial value for a qualifying health insurance plan that can be sold through the new state health exchanges is 60 percent; in the House version, it’s 70 percent.

However, as long as these percentages hold and employer contributions continue to count towards the full actuarial value, Health Savings Accounts may survive and compete in new health exchanges. A 2009 report from the Congressional Research Service indicates that the typical actuarial value for an employer-based Health Savings Account is 76 percent, but may be 93 percent if the employer contribution is factored.

The current concern is that the language in the healthcare bill is vague. If the actuarial minimum increases and if employer contributions cease factoring into the full value, Health Savings Accounts may not meet minimum standards and could be banned in just a few hours of a decision.

Additionally, the new healthcare bill imposes very high medical-loss ratios. The House bill requires insurers to spend 85 cents of every dollar collected paying out claims. The Senate bill has a cap of 20 percent for the group market and 25 percent for the individual market on non-claims related costs. If HSA-eligible health insurance plans have to contribute more money towards claims in order to meet these minimums, these plans may be much more expensive and, therefore, less attractive to policyholders.

To that, add additional proposed regulations that may easily kill Health Savings Accounts, many of which are invisible to consumers until it’s too late.

Despite it all, the health care bill may unintentionally drive massive Health Savings Account enrollment. Both versions of the health care bill mandate that the uninsured enroll in health insurance plans (often with government subsidies), and create health insurance plan exchanges where they can compare and shop for plans easily. For many of the uninsured, Health Savings Accounts would be the best low-cost option, which could potentially save them thousands of dollars in premium costs each year. The result of such a mass enrollment would be a boon for HSA-qualified plans, as long as they are not regulated away.

“Millions of Americans would end up choosing their own health plan rather than having their employer choose it for them,” said Roy Ramthun, an architect of Health Savings Account program during the 2003 legislation. “When people see what their health insurance actually costs, instead of having the cost hidden from view, I believe more of them will choose an HSA plan because it will provide better value for their premium.”

Of course, the current language of the health care bill needs to be amended so that it is clearer. Any legislation that weakens Health Savings Accounts will ultimately result in increasing health care costs, causing millions of Americans to lose their Health Savings Accounts, and moreover, millions more could end up paying higher insurance premiums for health insurance coverage that they neither want nor need.