Health savings accounts make impressive strides

Early response suggests the products are popular in the individual market.

By Joel B. Finkelstein — Posted Jan. 31, 2005

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Washington -- Americans are gobbling up health savings accounts, according to a preliminary industry survey, which suggests that the products could quickly have a significant impact on the health care market.

Recent survey results from America's Health Insurance Plans showed that from the point that HSAs became legal in January 2004 through September 2004, nearly 440,000 people enrolled in them. Most of the products were bought in the individual insurance market.

Health plans already have sold 10 times as many HSAs as they did medical savings accounts in the first year that MSAs became available.

"This is an emerging market, and it is off to a fast start," said AHIP President Karen Ignagni.

The survey polled the 29 health insurers who were selling HSAs before September 2004. Since then, the number of plans offering the tax advantaged products has grown to 75, and AHIP officials project that the number of people with these accounts likely numbers well over half a million.

"I would say that it is pretty terrific," said American Medical Association Trustee Joseph Heyman, MD. The AMA supports market reforms that make more health insurance options available to patients.

Combined with a proposed refundable tax credit for the purchase of the high-deductible health plans that accompany the accounts, the products would offer more uninsured people a good option for not only buying health coverage but also saving toward future health care costs, he said.

Physicians like the fact that patients using these products are more aware of the cost of the care they are receiving, Dr. Heyman said.

"Patients who pay cash let me know immediately before I even start that they're paying cash, and for me, personally, it makes me think very carefully about what I am going to order for them," he said. But "the most important thing, which is not only important for us, but also important for the patients themselves, is that they've got health insurance."

Nearly a third of the 346,000 people who purchased HSAs in the individual market had no insurance before. Additionally, 16% of the 79,000 people who got an HSA through a small company were employed by firms that previously did not offer health insurance benefits, AHIP reported.

But only 13,000 accounts were sold at large companies. This finding was attributed to the fact that few large firms had open enrollment periods between the time HSA products became available and the time the survey was conducted, Ignagni said.

The strong demand for health savings accounts is driving more insurers to offer them, she said.

Kaiser Permanente, the nation's largest HMO, began offering an HSA product this month, even though consumer-directed strategies typically aren't part of the managed care approach to health insurance.

While the initial results have rallied the industry around health savings accounts, critics contend that HSAs ultimately will hurt consumers.

"People will be facing higher premiums because healthy people are going into HSAs," said Gail Shearer, director of health policy analysis at Consumers Union.

Past experiments in making high-deductible plans more attractive has segmented the insurance market by encouraging young and healthy people to buy the less expensive, less comprehensive coverage, while older and sicker patients continue to gravitate toward traditional coverage, said Len Burman, co-director of the Tax Policy Center at the Urban Institute.

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Who's buying HSAS?

There has been much debate over who would be most likely to purchase health savings accounts/high-deductible plans, with opponents claiming that membership would be concentrated among the young and healthy. Early data on the individual insurance market suggest that users' ages might be more spread out than that.

Age Percent of members
0-19 25%
20-29 11%
30-39 16%
40-49 24%
50-59 19%
60-64 5%
Total 100%

Source: America's Health Insurance Plans, January

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External links

AMA guide, "Health Savings Accounts at a Glance," in pdf (link)

America's Health Insurance Plans on health savings accounts (link)

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