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Health Savings Accounts Are Tempting But Mostly Untested

Not many people are putting their money down yet, but the newest flavor on the health insurance shelf is getting plenty of lookers. Health Savings Accounts, or HSAs, are promoted by the Bush administration as giving consumers a stake in cost-cutting along with a chance to save for future health care needs. They're also attacked by some advocacy groups for increasing individuals' exposure to risk. About 3 million federal employees and retirees, along with private-sector workers, could soon consider whether to sample the new goods.

Created last December, HSAs are available only with policies that include high deductibles. A fund can include tax-exempt deposits of up to about $2,600 a year (about $5,150 for families) to pay for many health costs. These dollars can come from the covered individual, his employer or, as in the case of Aetna's plan for federal workers, the insurer.

About 10 percent of all employers are expected to offer the plans for 2005, according to David Cowles, a principal with benefits consulting firm Benemax in Medfield, Mass. Within the next two to five years, half of all firms are expected to follow, with some offering the plans as their only option, said Cowles. The plans are also available to people who don't qualify for employer-sponsored policies.

A Web site sponsored by a coalition of HSA providers and advocates, www.hsainsider.com, allows prospective buyers to compare plans based on premiums and other fees.

Businesses have reasons to promote these plans, say experts: "Many companies will now shift some costs to employees, lowering costs for employers, and the workforce will start to see the actual charges for medical care, which could make them become more cost-conscious and cost-saving health consumers," said Tom Billet, a senior benefits consultant for Washington-based benefits consulting firm Watson Wyatt.

And what benefits do consumers get? That depends partly on how much money you put into your HSA and how you choose to spend it. But there is an element of luck as well. You're betting that you won't get sick enough to exhaust the account and have to draw on other funds to pay for further care.

"Your ability to afford a catastrophe has to be factored in before opting for the new plan," said Gary Claxton, vice president at the Kaiser Family Foundation, which tracks insurance trends. "You'll want to be sure you have the resources, in and out of your HSA account, for out-of-pocket medical expenses, which can climb into the thousands, without affecting the way you live," said Claxton.

Under federal law, maximum liability for HSA policyholders is $5,000 for an individual, $10,000 for a family. Once you pay that out in premiums, expenses or coinsurance, 100 percent of eligible expenses are covered. Some insurers, including Aetna, set this cap lower. (See chart at right.) In comparison, the most you would generally pay out-of-pocket in a health maintenance organization (HMO), including premiums, is $2,000 for an individual, $6,000 for a family; for employees' most popular type of plan, a preferred provider organization (PPO), your spending maximum -- again, for eligible expenses -- is $2,500 for an individual, $7,000 for a family.

For the healthiest workers -- those with no regular drug costs or doctor visits other than covered preventive care -- HSAs pose a clear advantage: Premiums can be as much as 40 percent lower than those for other plans, and you can sock away money during your healthy years to fund future medical expenses. For less healthy workers, outcomes are less predictable.

Should you investigate HSAs? Definitely. Opt for one of them? That's a tougher call.

Many HSA plans include no-extra-charge preventive care such as an infant checkups and mammograms, but your HSA funds can pay for all other medical expenses, from antibiotics to chemotherapy, until you exceed the deductible (at least $1,050 for singles, $2,100 for families). At that point, you'd pay coinsurance, generally about 20 percent of costs, for additional care until your reach the out-of-pocket maximum.

The theory is that consumers with HSAs may change their habits after seeing actual medical charges rather than much smaller co-payments, said Billet. For example, an emergency room visit for a nasty cough would take about $380 from their personal account, according to the Blue Cross Blue Shield Association. Prozac would cost them about $225 a month from Drugstore.com, while the generic formulation of the antidepressant costs about $65.

Let's say that you buy a family plan with a $5,000 deductible, that you designate $3,000 for your HSA and that you use all that HSA money to cover doctor visits, blood tests, physical therapy sessions and the like. In that event, you'll have to pay the next $2,000 in medical expenses yourself. Then after you've met the deductible, the insurance plan kicks in, paying all or most of your approved medical expenses, depending on your plan's provisions.

"One risk, of course," said Ron Pollack, head of the Washington advocacy group Families USA, "is that a patient might forgo necessary medical care, opting to save the money, until the problem becomes more serious, and much more expensive."