HSAs - Health Savings Accounts - Gain As Way To Shelter Funds for Medical Bills

With steeply rising health-care costs in the United States, legislators, employers and consumers are all looking for ways to keep medicals bills down.

As costs rise, employers find they must decrease their contribution to employee medical insurance, which usually results in higher premiums, co-pays and deductibles. For the self-employed or uninsured, securing coverage seems virtually impossible.

Help is available, however, in the form of health savings accounts, or HSAs. Federal legislation passed in 2003 created these savings accounts to help consumers pay for health care. Salisbury Bank and Trust now offers the accounts and local employers are beginning to incorporate them into their benefits packages. How It Works

An HSA is not a Flexible Spending Account. With a flex account, the consumer must spend everything in the account each year or else lose that money. An HSA allows the consumer to keep money from year to year, building the balance of the account.

HSAs are a government-sanctioned plan that allows consumers and companies to use tax-free dollars.

"It’s not a government-sponsored program" such as Medicare, explained Nathaniel Brinn, chief executive officer of HSA Bank, a division of Webster Bank. "It’s a program allowed by the tax code, like a 401k or an IRA."

To open an HSA, a consumer must first sign up for a high-deductible health plan (in 2006, the government defined "high deductible" as a minimum $1,050 deductible for an individual and $2,100 for a family). High-deductible plans have significantly lower premiums than plans with lower deductibles.

The consumer then opens an HSA with a bank or other financial institution and deposits money into the account. That money is not taxed by the government.

The consumer uses the money in the HSA to pay for medical costs until the deductible is satisfied, at which point the insurance starts paying for costs (or a portion of costs; some plans may have a co-pay in place once the deductible is satisfied).

It sounds like a lot of money — the cost of a monthly premium plus a high deductible. But the premium will be lower than that of most traditional health-plan premiums; and the consumer gets more mileage from his or her dollar because the money that goes into the HSA is not taxed.

The Department of the Treasury gives the following example: A family might pay $4,110 per year (about $340 per month) in premiums for a traditional health plan.

With a high-deductible plan, the same family might pay only $3,492 per year (about $290 per month) for a savings of $618.

The family can then put that $618 into an HSA account and use it to pay down the deductible.

In addition, the family can contribute more pre-tax money, up to the maximum annual contribution allowed by law (in 2007: $2,850 for an individual and $5,650 for a family) into the account.

In other words, if a family earns $100, taxes will take away about $25 of that money so the family only has $75 to spend. If the family decides to put $100 into the HSA account, the full $100 will be available to use for medical expenses.

The HSA theoretically saves money for everyone. Employers no longer have to pay a portion of the employee’s premiums (many will make a contribution to the employee’s HSA instead). Employees save money on premiums. And the self-employed and uninsured may be able to more easily afford the premiums of a high-deductible plan.HSAs in the Northwest Corner

Not all banks offer the health-savings plans. Here in the Northwest Corner, they can be opened at Salisbury Bank & Trust (SBT) and Webster Bank.

Betsy Summerville, vice president at Salisbury Bank and Trust, said two large area employers, C.A. Lindell in North Canaan and The Hotchkiss School in Lakeville, have opened HSAs programs for their employees through SBT.

The bank also offers HSAs to its own employees.

Lindell’s was a forerunner in embracing the new insurance plans.

"We were the first company in the nation to offer an HSA," said Vicki Blackwell, head of human resources. The company initially offered its accounts through New MilBank, which was acquired by Websters.

"We had been discussing going with the high-deductible plan and a medical savings account," Blackwell said. "When the law changed [to create HSAs in 2003], we jumped on it and went with it. Our employees are very happy with it."

The Hotchkiss School is a newcomer to HSAs, having just implemented them this January. Hotchkiss actually offers its employees three health insurance choices: a traditional preferred provider organization, an HMO or a high-deductible plan with an HSA.

"We want to recognize that one size does not fit all," said John Tuke, chief financial officer of the school.

Though it’s too soon to tell how the employees at Hotchkiss like the HSA, Tuke said the school committed a lot of energy to educating its employees about health-care costs and choices.

"The logic behind HSAs is that you turn your employees into smarter users of health-care services," Tuke said. "The school made the same dollar commitment to the three plans. What we’re hoping, because the school and the employees are in this together, is to find a way to moderate the growth in health-care costs."

For this first year, Hotchkiss has seen about 7 percent of its employees switch to the HSA plan. According to Tuke, 13 or 14 percent have chosen the HMO, while the rest remain with the PPO.What Are the Drawbacks?

The HSA is an attractive alternative for those who are relatively healthy and who can afford to build up their account balances. However, for consumers with chronic conditions — or lower incomes — the HSA might not be the best answer.

"We’re worried that the incentives are skewed to people that are healthier or wealthier," said Joel Miller, the senior vice president for operations at the National Coalition on Health Care. "We don’t think the HSAs provide the same benefits for the less healthy individual. For those people who use more medical services, these high-deductible plans do not help them. They are going to shoot right through the limits, deductibles and out-of-pocket costs."

But Summerville disagrees.

"I’ve been finding that it’s right for any consumer, becasue they’re saving on their health insurance premiums," she said. "Let’s say someone is a high user of insurance. Once they meet their deductible, everything over the deductible is paid for."

However, that may not always be the case. It all depends on the plan the consumer signs up for. At Lindell, employees are responsible for a 5 percent copay on medical expenses until they reach another cap.

If the employee satisfies the deductible and meets the next cap, the insurance will then pay 100 percent of medical costs.

Miller also expressed concern that the high deductible will discourage consumers, whether healthy or not, from seeking medical care.

"If a person needs treatment and postpones care, the consequences can be severe and they can face a longer-term problem because they’re worrying about saving money under the HSA," Miller said. "The whole pupose of the HSA is to prevent a serious illness."

Miller also pointed out that the problem of rising health-care costs is much larger than simply creating a new way to pay for them.

"There’s a range of things that are driving costs up: poor quality care, medical errors, high administrative costs and the medical arms race," Miller said. "Until we really get at the factors behind rising costs and rising health-insurance premiums, I’m afraid we’re going to continue to muddle around in this area and not be able to slow down the rise in health-care costs and health-insurance premiums."

Dr. Evan Provisor, a surgeon with Sharon Surgical Group, called HSAs an interesting experiment, but one that he isn’t sure will ultimately have a lasting impact on how Americans insure themselves.

He worries that there will be an overall negative impact on insurance costs if healthy Americans move away from traditional plans into the HSAs.

"It could result in adverse selection," he said. "In other words, if healthy people are all in HSAs and the remaining people are in traditional insurance products, the premiums [of the traditional plans] will escalate even faster.

"The question then is whether you believe insurance should involve pooling risk or if we should all be little individual insurance entities ourselves."

One positive aspect of the HSAs, he said, is that "they force people to pay attention to cost. They do address that one fundamental flaw with our current insurance system, which is that when someone else is paying for dinner you always order the filet mignon."