NCPA - National Center for Policy Analysis


March 2, 2010

Five years ago, Gov. Mitch Daniels (R) of Indiana requested that a consumer-directed health insurance option, or Health Savings Account (HSA), be added to the conventional plans then available to state employees. 

  • In Indiana's HSA, the state deposits $2,750 per year into an account controlled by the employee, out of which he pays all his health bills; Indiana covers the premium for the plan.
  • The intent is that participants will become more cost-conscious and careful about overpayment or overutilization.
  • Unused funds in the account -- to date some $30 million or about $2,000 per employee and growing fast -- are the worker's permanent property.
  • For the very small number of employees (about 6 percent last year) who use their entire account balance, the state shares further health costs up to an out-of-pocket maximum of $8,000, after which the employee is completely protected. 

The HSA option has proven highly popular, says Daniels.  In the first year some 4 percent signed up for it; this year, over 70 percent of Indiana's 30,000 state workers chose it, by far the highest in public-sector America. 

What Indiana and independent health care experts at Mercer Consulting have found, says Daniels, is that individually owned and directed health care coverage has a startlingly positive effect on costs for both employees and the state.  In Indiana, for example: 

  • State employees enrolled in the consumer-driven plan will save more than $8 million in 2010 compared to their coworkers in the old-fashioned preferred provider organization (PPO) alternative.
  • In the second straight year in which state employees have been forced to skip salary increases, workers switching to the HSA are adding thousands of dollars to their take-home pay (even if an employee had health issues and incurred the maximum out-of-pocket expenses, he would still be hundreds of dollars ahead). 

The state is saving, too, says Daniels: 

  • In a time of severe budgetary stress, Indiana will save at least $20 million in 2010 because of high HSA enrollment.
  • Mercer calculates the state's total costs are being reduced by 11 percent due solely to the HSA option. 

Source: Mitch Daniels, "Hoosiers and Health Savings Accounts; An Indiana experiment that is reducing costs for the state and its employees," Wall Street Journal, March 1, 2010. 

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