Of Sickness and of Wealth

This year, for the first time, HSA holders can make one-time contributions to the account from an IRA, flexible spending or health reimbursement account. Also starting this year, contributions are not limited by your health plan deductible, and you can put money in any time, even if you sign up in December.

Vellines says many employees regard their HSAs as an eventual supplement to Medicare. "They're not sure Medicare will be very good. Some aren't sure it will be there at all. It's a hedge against future health-care costs," he said.

According to the Treasury Department, the number of people opening HSAs increased to 3.2 million from 678,000 in the first two years they were offered. That number is expected to grow as more businesses add HSAs as a benefits option. About 25 percent of employers offer HSAs, and as many as 40 percent will do so next year, according to Watson Wyatt, a benefits consulting firm in Arlington.

To encourage workers to sign up for the accounts, many employers contribute to them, thereby sharing in the savings from reduced employee premiums and offsetting the high deductibles employees must now assume.

Vellines says most of his company's 400 employer clients put money into their employees' accounts.

By using such consumer-driven health plans, employers find that they can slightly reduce their expenditures on employee health care. "Employers are shifting more and more of the expense as well as the customization of coverage onto the employee," said Tracey Baker, vice president of Cooper, Jones & McLeland, a financial-planning firm in Fairfax, and co-author of "Navigating Your Health Benefits for Dummies."

A few companies have dropped their traditional health-care coverage altogether and shifted to health savings accounts. Watson Wyatt discontinued traditional insurance at the end of last year.

"That concept is known as 'total replacement.' There are a small but growing number of companies moving in that direction," said Watson Wyatt spokesman Ed Emerman. Wendy's International, based in Ohio, was one of the early adopters, switching to HSAs in 2005.

For consumers, choosing between a traditional health plan and a health savings account is not as easy as it may seem. The high-deductible insurance required to open an HSA makes many people a little nervous. And the complexity of the paperwork and investment options plus calculating the costs and benefits can be overwhelming.

Rosemary Driscoll, a self-employed market research consultant in Natick, Mass., decided to set up an HSA last year. She and her husband, Bill Seymour, also self-employed, were facing a sharp increase in their insurance premium last year as he was about to turn 60 -- to $1,300 per month from $910. "Whoa, that's too much. Let's look at some other options," she recalled saying to her husband.

Driscoll thought she would try an HSA. She signed up for a high-deductible health plan for herself and her husband through Blue Cross, with a $950 monthly premium. She set up the health savings account through Wells Fargo and contributed a lump sum of $5,400 for 2007. She elected to leave all of the funds in the money-market option earning 4.67 percent. She pays no account-management fees.

But the fund has not turned out to be the wise financial choice she expected. What she never thought to check, but discovered the hard way, was that her asthma prescriptions can cost up to $600 per month. That alone -- not counting doctor's visits or any of her husband's potential medical expenses -- consumes all of the funds in their account. The high monthly drug expense had been masked by the lower co-payments offered by their previous traditional insurance plan.