Health Savings Accounts (HSAs)

• Abstract
• Purpose of health policy or idea
• Characteristics of this policy
• Political and economic background
• Purpose and process analysis
• Expected outcome
• References

Abstract

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 included new tax incentives for Health Savings Accounts (HSAs) when coupled with high deductible health insurance plans. HSAs allow individuals to save money tax-free to use on out-of-pocket medical expenses. Both individuals and their employers may contribute tax-free dollars to HSAs.

Purpose of health policy or idea

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 included new tax incentives for Health Savings Accounts (HSAs) when coupled with high deductible health insurance plans. HSAs allow individuals to save money tax-free to use on out-of-pocket medical expenses.

Under the new legislation, individuals with a health insurance plan with a deductible of at least $1,000 (but not more than $5,000) for an individual or $2,000 (but not more than $10,000) for a family may set up a HSA and this individual and his/her employer may make contributions up to the value of the deductible (but not more than $2,600 for an individual or $5,000 for a family) (CK Kerby and KD Bilezerian, "Health Savings Accounts: A New Option for Consumer-Directed Health Plans," Tax Management Compensation Planning Journal 32 (February 6, 2004): 1-11).

Individuals can use the money to pay for out-of-pocket medical expenses not covered by their high-deductible plans and the withdrawals are not taxed. Proponents of HSAs say that because individuals own the accounts and keep them over the course of their lifetimes, they'll shop judiciously for health care and take better care of themselves. ("HSAs: A Market Under Construction, Maybe in Medicare Too" Congressional Quarterly Health Beat, December 17, 2004).

Main points

Main objectives

Encourage high-deductible health plans with individuals using tax-free money saved in HSAs to pay for out-of-pocket medical expenses

Type of incentives

financial incentives - tax credits to individuals and employers

Groups affected

Individuals, Employers

Innovationsgrad	traditionell		innovativ
Kontroversität	unumstritten		kontrovers
Strukturelle Wirkung	marginal		fundamental
Medienpräsenz	sehr gering		sehr hoch
Übertragbarkeit	sehr systemabhängig		systemneutral

Political and economic background

In addition to the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 legislation, President George W. Bush's Fiscal Year 2006 Budget includes a proposal for expanding health insurance.  The proposal would offer tax credits to purchase policies in the individual market for people with low incomes and without access to employer-based or public insurance. Alternatively, those eligible for the tax credits could elect to receive about one-third of their tax credit as a contribution to a HSA with the remaining two-thirds to be used towards the purchase of a high deductible health plan. Bush would also provide a separate tax credit to small businesses that put money into an employee's HSA. (S.R. Collins, K. Davis, and J.M. Lambrew, Health Care Reform Returns to the National Agenda: The 2004 Presidential Candidates' Proposals, The Commonwealth Fund, September 2003, Updated October 2004).

Purpose and process analysis

Current Process Stages

	Idee	Pilotprojekt	Strategiepapier	Gesetzgebung	Umsetzung	Evaluation	Veränderung/Richtungswechsel
Implemented in this survey?

Origins of health policy idea

The HSA borrows concepts from the medical savings account (MSA), which was launched as part of a 4-year demonstration project in 1996. While MSA eligibility is restricted to employees of small businesses and the self-employed, any person with a high deductible health plan can open a HSA, which has led critics to fear big companies will switch to high-deductible plans, luring healthier people out of traditional benefits and making them unaffordable (Washington HealthBeat, "HSAs: They're Not Your Archer's MSAs," December 29, 2003). A decade earlier in 1984, the government allowed establishment of flexible spending accounts.  Flexible spending accounts allow individuals to contribute pre-tax dollars into an account to use on defined medical-related expenses.  However, any unused funds left in the flexible spending account after the calendar year is forfeited (section 125, Internal Revenue Code); whereas, money in an individual's HSA stays with him/her throughout his/her lifetime ("HSAs: A Market Under Construction, Maybe in Medicare Too" Congressional Quarterly Health Beat, December 17, 2004). HSAs are also based on the earlier Health Reimbursement Accounts (HRAs) of 2002, which are funded by employers. Employees can carry over the balances from year to year, but they lose the balances if they change jobs.

Stakeholder positions

High deductible health plans coupled with HSAs have been supported by President Bush and the majority of Republicans and opposed by Democrats. The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 provisions for tax incentives for Health Savings Accounts (HSAs) when coupled with high deductible health insurance plans have been the most recent legislative action to promote HSAs.

 

Increasing numbers of insurance carriers and several employers have begun offering their employees high deductible health plans.  The Federal Employees Health Benefit Program also offers several high-deductible health plans/HSAs options.  President Bush's recent proposal to increase tax breaks to encourage use of HSAs could increase their proliferation. ("Nation's Largest Health Insurer Moving all of Its Employees into High-Deductible Plans," Congressional Quarterly Health Beat, November 16, 2004).

Influences in policy making and legislation

As described above, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 included new tax incentives for HSAs when coupled with high deductible health insurance plans.  President Bush's recent proposal to make premiums for high-deductible health plans tax deductible could increase high-deductible health plans/HSAs proliferation.

Adoption and implementation

President Bush has been a strong proponent of HSAs, and HSAs have been on his agenda since beginning his first term. With Republicans controlling both the U.S. House of Representatives and the Senate, the chances of legislation to expand their use are good.

Monitoring and evaluation

It is to be seen how President Bush's proposal for tax incentives to promote HSAs will evolve as it goes through the legislative branch.

Results of evaluation

Because of the large number of uninsured people with low incomes, the impact of HSAs on reducing the number of uninsured is very low.  HSAs could adversely impact the small group market.

          

The Washington HealthBeat ("How Many HSAs To Be Sold? Hill Committee Says Millions," December 31, 2003) reported, "According to an estimate by the congressional Joint Committee on Taxation, one million HSAs will be sold in 2004, with that figure rising to three million in 2013. Other analysts say the figure may be higher. . . . The liberal Center on Budget and Policy Priorities says that sales could be higher if banks, insurers, and other financial institutions market Health Savings Accounts aggressively. That's likely to happen, the center says, and warns that premiums for traditional comprehensive health benefits could eventually double as a result. That in turn could mean more uninsured or underinsured Americans, the center says."

 

Commonwealth Fund President Karen Davis (Will Consumer-Directed Health Care Improve System Performance?, The Commonwealth Fund, August 2004) summaries findings on high deductible health plans coupled with HSAs:

• Studies in both the U.S. and Canada find that increased cost-sharing for prescription drugs led to a reduction in filling prescriptions known to be effective in controlling chronic conditions;
• Healthier, higher-income individuals are more likely to enroll in HDHP with HSAs, leaving sicker and lower-wage employees in higher-cost plans;
• While reenrollment in HDHP with HSAs is high-about 90 percent-only about 30 percent of enrollees would recommend the plans to others.

Davis concludes, "It seems clear that consumer-directed health plans enjoy favorable risk selection, which may lead to increasing market segmentation, with lower-income and sicker individuals served by managed care plans and higher-income, healthier individuals enrolled in the new plans. As a result, enrollment in managed care plans could undergo a long-term decline while premiums for these plans steadily increase."

Expected outcome

High deductible health plans with HSAs are most appealing to healthier people.  If these healthier people were to leave the traditional benefits plans, the traditional plans may become unaffordable for those left in them, and those already facing high financial burden (those in ill health and the chronically ill) would be faced with increasing premiums. Furthermore, high deductible health plans coupled with HSAs shift substantial cost-sharing burdens onto individuals.  Increased cost-sharing has been shown to decrease use of services, even needed services (Evidence shown in: K.N. Lorh et al., "Use of Medical Care in the RAND Health Insurance Experiment: Diagnosis- and Service-Specific Analyses in a Randomized Controlled Trial, Medical Care 24 (September 1986 Suppl.): S1-S87). 

Impact of this policy

Qualität	kaum Einfluss		starker Einfluss
Gerechtigkeit	System weniger gerecht		System gerechter
Kosteneffizienz	sehr gering		sehr hoch

Please see answer to section 6.

References

Sources of Information

S.R. Collins, K. Davis, and J.M. Lambrew, Health Care Reform Returns to the National Agenda: The 2004 Presidential Candidates' Proposals, The Commonwealth Fund, September 2003, Updated October 2004.

 

K. Davis, Will Consumer-Directed Health Care Improve System Performance?, The Commonwealth Fund, August 2004.

Author/s and/or contributors to this survey

Phuong Trang Huynh, reviewed by Sara R. Collins, The Commonwealth Fund

Empfohlene Zitierweise für diesen Online-Artikel:

Phuong Trang Huynh, reviewed by Sara R. Collins, The Commonwealth Fund. "Health Savings Accounts (HSAs)". Health Policy Monitor, October 2004. Available at http://www.hpm.org/survey/us/c4/1