Health savings account enrollment triples in 2005

Health savings accounts have gotten off to a faster start than many had predicted, according to a recent industry survey, which found that the number of HSA enrollees has shot up during the past year.

Preliminary findings released by America's Health Insurance Plans show that more than 3 million Americans have enrolled in HSA policies that pair the tax-free accounts with high-deductible insurance plans.

That figure is triple the number enrolled when AHIP last surveyed the HSA market in March 2005. Results then showed a little more than 1 million Americans with HSA policies.

"I think everyone is very surprised at the robustness of this number and the dramatic increase," said AHIP President Karen Ignagni, who announced the new enrollment number at a Jan. 26 press briefing. "This is a very significant success story."

AHIP has charted the market's growth since 2004, when HSAs were first made available to consumers. But the group's most recent survey is the first to reflect the effect of large employers that began offering HSA policies to their workers in 2005.

"That's why, in large measure, you have the tripling," Ignagni said.

AHIP will release a detailed breakdown of the numbers soon, but preliminary results show that HSAs also continue to attract people and small businesses who otherwise could not afford coverage, Ignagni said.

"Clearly, a number of people are purchasing and participating in this product who hadn't been able to have coverage before," she said.

AHIP's March 2005 survey found that previously uninsured people bought 37% of the individual HSA policies, and 27% of HSA policies sold in the small group market were purchased by employers that had not previously offered coverage to workers.

Not a panacea

But HSAs should not be viewed as a solution to the problem of the uninsured, said Pat Schoeni, executive director of the National Coalition on Health Care, a nonpartisan alliance of more than 90 organizations that supports comprehensive health care reform.

"For the majority of people who are currently uninsured, HSAs are not a viable alternative, because they can't afford to pay their part of the premium, plus the deductible, and then have the money to put into any kind of savings account," Schoeni said.

HSAs aren't for everyone but are a good option for some people, said American Medical Association Trustee Joseph Heyman, MD.

The AMA supported the accounts' passage as part of the 2003 Medicare prescription drug legislation and encourages employers to offer HSAs as one of several insurance options to employees. AMA policy is to support innovative approaches to health care coverage, including consumer-driven health plans such as HSAs.

Dr. Heyman and his wife have found that an HSA significantly lowers their monthly premium, provides tax deductibility for qualified medical expenses, and gives them the choice and flexibility they want. "We love it," he said.

Unlike any other tax-favored savings accounts, HSAs are completely tax-free. Contributions are tax deductible, earnings grow tax-free, and withdrawals for medical expenses are untaxed. HSAs roll over from year to year, and the accounts stay with the individual.

The accounts are an extremely good tax shelter for those who can afford to fund them, said Edwin Park, a senior health policy analyst at the Center for Budget and Policy Priorities, a liberal think tank in Washington, D.C.

But there is a danger that some patients might avoid seeking medical care because of their policy's high deductible, Park said. "People may not go to the doctor at all because they're going to have to pay for services on an out-of-pocket basis."

Legislative proposals on the horizon

The Bush administration is widely expected to push for legislation this year that would encourage further HSA expansion by making the accounts more attractive to consumers.

One priority, Ignagni said, should be to raise the ceiling on tax-free contributions to HSAs -- a move the AMA also supports.

Under current law, there is an annual limit on tax-free dollars that individuals and employers can put into an HSA.

In 2006, the limit is set at $2,700 for an individual and $5,450 for a family or the amount of the health plan deductible, whichever is lower.

For some policyholders, that leaves a gap between the amount they can put into their HSA and the amount of their deductible. Closing that gap would be helpful, Dr. Heyman said.

AHIP also will urge Congress to loosen restrictions on how HSA policies cover prescription drugs for chronic conditions.

Currently, federal regulations allow insurers to cover certain preventive services before enrollees reach their deductible, but the exemption does not apply to any form of medical treatment.

AHIP argues that Congress should exempt from the deductible so-called "maintenance drugs" used to manage diabetes, high cholesterol and other chronic conditions.

The AMA has not taken a position on that, Dr. Heyman said. But he noted that one effect likely would be higher monthly premiums.