Consumers slow to accept health savings plans
The number of U.S. workers enrolled in consumer-directed health plans with tax-free health savings accounts grew only slightly from 2005 to 2006, from 2.4 million to 2.7 million, according to a survey conducted by the Kaiser Family Foundation, The Wall Street Journal reports. Low satisfaction among workers who have enrolled in these plans also suggests that employers may need to make a greater effort to contribute to these plans and add coverage to make them more appealing.
Enrollment is growing faster among individuals, who may not have other choices, The Journal says.
The health savings accounts must be paired with insurance plans with high deductibles, which carry lower premiums. For 2007, the minimum deductible is $1,100 for a single person and $2,200 for a family. Annual employee tax-free contributions to the health savings account are limited to $2,850 for an individual and $5,650 for a family. Employer contributions to the plans are also tax-free. The money in these accounts may be used for dental and vision care and even for over-the-counter drugs, although other expenses such as medical insurance premiums are excluded.
Consumers who use money from a health savings plan for a non-medical purpose are taxed and incur a 10 percent penalty. Health savings accounts are portable and accumulate indefinitely -- they do not have "use it or lose it" rules like flexible spending accounts.
Consumers choose their own health plans and make decisions about out-of-pocket care, features that designers of these programs expected would make them more informed about health care. But according to a survey by Towers Perrin, employees enrolled in the plans said they did not feel competent to choose a doctor or hospital even though they were often in the same network as colleagues who chose traditional coverage, according to The Wall Street Journal. Only 29 percent said they tried to save money in their accounts for future expenses.
Howard Katz, an industrial design research consultant enrolled in a family health plan with a savings account and a high deductible, found it difficult to get precise information about the cost of medical procedures, The Journal reports. He spent the full amount of his savings account each year. Now working for a company instead of as an individual he has enrolled in a traditional plan. "I don't have to act like a medical examiner anymore," he says.
Health savings plans make sense for workers who are healthy, like Shanna Phillips, who found a part-time job last year after her employer went out of business, the Washington Post reports. Phillips put her upfront savings from low monthly premiums into a health savings account.
"If the HSA has lower premiums and substantial employer contribution, it might make sense," says Tom Billet, a senior consultant in Watson Wyatt's health-care practice, according to the Post reports. A health savings account is "almost always a good idea" for people who make more than $100,000 a year, who have no retiree plan or chronic illnesses and can make the maximum contribution, he said.
And money accumulated in a health savings account, has become "essentially [a] medical IRA," said John Vellines, president of Health Savings Administrators, the Post reports. Many employees look at their HSAs as eventual Medicare supplements. The 10 percent penalty for using the money for non-medical expenses is waived for persons over 65.
Making health savings accounts more attractive to workers will require employers to educate their workers about how the plans work and offer more financial incentives, The Journal reports. "But the vast majority of companies still do not have the time, effort or resources to prime the pump," says Larry Boress, president of the Midwest Business Group on Health.
And if the youngest and healthiest employees are choosing these plans, "you haven't accomplished anything in terms of health-care costs," says Bill Sharon, senior vice president at Aon Consulting.
Aon has made the effort to promote these plans with some success, The Journal reports. Nearly 20 percent of Aon employees are enrolled in consumer-direct plans and the majority have money left to roll over from the $500 to $2,500 that Aon contributes to their accounts. Employee premiums are nearly 30 percent lower and the coverage is comparable to traditional plans. "We should have a lot more people enrolled," says John Reschke, Aon's vice president of benefits. "But this is a different kind of insurance, and it can be scary at first until people understand."