NCPA - National Center for Policy Analysis

WHY HAVEN'T HEALTH SAVINGS ACCOUNTS CAUGHT ON?

July 31, 2008

Four years ago, the hot new idea for reining in health costs was the health savings account (HSA), a savings vehicle tied to a high-deductible insurance policy and designed to make patients more responsible for -- and more aware of -- the expenses involved.  The thinking was that such accounts would slow spiraling medical costs for both employers and consumers, says the Dallas Morning News.

Today, with only 5 percent of the 114 million Americans covered at work opting for such health plans, their future is in question.  In Texas, regarded as the birthplace of the HSA, only 387,000 people have signed up out of the 12 million with employer-provided insurance.

How do HSAs work?

  • Under the 2003 federal law that established them, HSAs must be coupled with high-deductible health plans carrying at least a $1,050 deductible for an individual or $2,100 for a family.
  • In return for paying so much out of pocket before coverage kicks in, the policyholder can save pre-tax dollars in an account that can grow tax-deferred -- much like a 401(k) retirement plan -- and be used for future health costs.
  • A covered individual and his employer together can make annual, tax-free deposits of up to $2,900 (or $5,800 for a family).
  • Unused funds can be rolled over from one year to the next and go with employees when they change jobs or retire.

To be successful, an HSA must have employer support, said John Goodman, president of the National Center for Policy Analysis in Dallas. "If employers don't put money in the HSA, all you have is a high-deductible plan" -- something unlikely to appeal to many employees, he said.

Goodman said high-deductible plans get at the heart of the health cost problem -- overuse of medical services by people who, if they paid with their own money, might decide against that trip to the doctor.

Source: Jason Roberson, "Health savings accounts haven't caught on with workers," Dallas Morning News, July 31, 2008.

 

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