Employers and workers slow to embrace health savings accounts

HR Magazine, April, 2005 by Kathy Gurchiek

If health savings accounts (HSAs) were high school kids, they would be the newcomers others regard warily, the ones everyone else doesn't quite "get" yet.

Employers have shown interest in HSAs since their inception but have been slow to offer them. Many observers expect more small employers to offer HSA-based plans in the near future, according to an America's Health Insurance Plans (AHIP) survey of 29 member companies.

Employees aren't exactly clamoring for HSAs. Among nearly 1,000 workers with health insurance, only 29 percent had heard of the plans--and even among those, understanding was fuzzy, according to a Watson Wyatt World-wide survey released January 2005.

Only 33 percent completely or mostly understand how they work, 34 percent somewhat understand them, and 33 percent had no understanding or were unsure as to how they work.

After receiving an explanation of how HSAs work, a majority of individuals liked certain features, such as lower premiums and having control of the funds even after leaving a current employer, although they disliked the risk of higher prescription drug payments and deductibles.

For the employee, stipulations such as the following can make HSAs seem daunting: a high-deductible health plan's pre-certification requirements; limits on lifetime benefits; limits on specific benefits, such as the maximum number of days or visits covered; and limits to "usual, customary and reasonable amounts."

Thousands of Americans, however, purchased their own plan in the first nine months of 2004. In fact, of the 438,000 people who purchased HSAs in January through September 2004, more than four-fifths were individuals.

Created by the Medicare bill that President Bush signed Dec. 8, 2003, HSAs represent a key element of consumer-directed health care. HSAs are designed to help individuals save for current and future qualified medical and retiree health expenses without incurring federal income tax and earning federal income tax-exempt interest on the money saved. Unlike the flexible spending account, with its "use it or lose it" rule that forces workers to forfeit funds not spent within a year, any of the unused HSA money stays in the account until spent.

HSAs are used in conjunction with a high-deductible health plan--in 2005, there is a minimum $1,000 deductible for self-only coverage and $2,000 for family coverage--and have limits on annual out-of-pocket expenses, including deductibles and co-payments.

The idea behind HSAs is to encourage individuals to be wiser about spending their money on health care and motivate them to shop for the best value. A primary goal is to reduce unnecessary use of health care services.

Critics contend that HSAs shift the cost and burden of health coverage from the employer, where they have traditionally been, to the consumer. They add that HSAs deprive employers, unions and other large groups of the clout that would otherwise gain them deep discounts for medical coverage. And critics say HSAs are most attractive to healthy people less likely to spend all the money in their accounts, providing a tax-free way to save money.

Like many employees, some employers are not quite sure what to make of HSAs. The Society for Human Resource Management (SHRM), in its 2004 Health Care Survey Report, which surveyed HR professionals about three months after HSAs were introduced, found that 22 percent of HR professionals were unaware of HSAs.

Awareness, Timing Issues

A lack of awareness about HSAs, their newness and the relatively recent issuance of guidelines from the U.S. Department of Treasury appear to be among the reasons why businesses have not yet embraced them.

Employers generally make health benefits decisions in the fall, and larger employers often make benefits decisions a couple of years ahead, so HSAs came too late in the 2004 benefits cycle for most businesses, AHIP President and CEO Karen Ignagni noted in a press release. In addition, the rules governing HSAs were not finalized until July 2004.

Hewitt Associates, which administers benefits for more than 18 million workers and their families, polled more than 500 major U.S. employers. The survey, released Jan. 10, found that while 57 percent are considering offering HSAs, only 3 percent plan to provide access and contributions for active employees in 2005. Slightly less than 2 percent, it said, will offer HSA access and contributions for retirees in 2005.

"In the large-employer community, we haven't seen a huge jump in the number of employers offering high-deductible health plans with HSAs," said Mila Kofman, assistant research professor at the Health Policy Institute at Georgetown University in Washington, D.C. She was among speakers at a Feb. 9 HSA roundtable discussion sponsored by the Kaiser Family Foundation and the Association of Health Care Journalists.

"I think employers are waiting to see what guidance comes down from the IRS," although there is some movement in the small-group market as well as individual policies, she said.

Enrollment Remains Low