Health Savings Accounts Growing in Popularity

It's open enrollment season and more people than ever are being offered the chance to sign up for a Health Savings Account (HSA) in conjunction with a high deductible health plan. HSA advocates hope that giving consumers a financial stake in their health care decisions will incentivize them to choose higher quality, more efficient providers and will ultimately lower health care spending. Among firms offering health benefits in 2005, 2.3 percent offered HSAs.[i] Interest has risen dramatically for 2006. A survey by America's Health Insurance Plans indicates that 81 percent of large and 78 percent of small businesses were considering implementation of HSAs.[ii] Though actual numbers are not yet available, it is estimated that 27 percent of employers currently not offering HSA qualifying plans were likely to offer HSAs in 2006.[iii] Large corporations that have added HSAs include Wal-Mart, General Motors, and Chrysler.[iv] Uptake in the small business arena has also increased.[v] About 2 percent of companies are planning total replacement of their other health care plans with HSAs.[vi]

A growing number of workers are also participating in HSAs. Roughly 15 percent of workers offered HSAs take up this option.[vii] More than 1 million people in the group and non-group markets are now enrolled, doubling the amount from 2004.[viii] Estimates predict there may be as many as 15 million people using HSAs by 2010, accumulating between $10 and $62 billion in HSA assets.[ix][x]

The Robert Wood Johnson Foundation's HCFO initiative sponsored a candid discussion between HSA stakeholders which was highlighted in the June 2005 HCFO Issue Brief.[xi] During this discussion, key stakeholders focused on employee enrollment. Research has identified four factors that influence take-up: wages, premiums, health status, and education level. These findings raise questions about adverse selection, decision-making ability, and usefulness as a savings tool. 

One goal of consumer-directed plans like HSAs is that costs are reduced over time as consumerism increases among beneficiaries. Yet, many critics are concerned that HSAs will simply shift costs onto consumers. Findings from the Kaiser Employer Health Benefit 2005 Annual Survey reveal evidence to support both scenarios. HSA premiums in 2005 were significantly lower than other types of plans, though the average worker contribution remained the same for individuals but decreased for families. Employer contributions to accounts averaged $553 for individuals and $1,185 for families, covering a fraction of the average deductibles of $1,901 and $4,070, respectively. Of workers enrolled in HSAs, 35 percent did not receive any employer contributions to their accounts. HSA rules will change when cost of living adjustments are made.[xii] For 2006, the Treasury Department and IRS have raised the maximum allowable annual contributions, out-of-pocket maximums and minimum deductible amounts.[xiii] 

In addition to the HCFO meeting on Health Savings Accounts and the resulting Issue Brief, several HCFO projects are investigating the impact consumer-directed care and HSAs will have on consumers and the health care market. Stephen Parente, Ph.D., at the University of Minnesota examined the experience of early adopters into consumer-driven health plans (CDHP) from both the employer and the employee perspective. This project evaluated differences in self-selection, cost, utilization, and satisfaction with Definity Health, a CDHP compared to other plans. Parente found that enrollees in the CDHP had lower total expenditures than PPO enrollees but higher costs than the HMO group. The CDHP enrollees had fewer physician visits and lower drug costs but higher hospital costs and admission rates than people in other plans.[xiv] Employees who chose Definity appeared to be neither younger nor healthier than those who chose other plans, but they were wealthier.[xv] Satisfaction with CDHPs was rated highly by almost half of the enrollees, no different than with other health plans.[xvi] Parente was awarded a second HCFO grant to expand this work and study the long-term impact of different CDHP designs, including HSAs, on quality of care, cost, utilization, and variation in these outcomes. Parente and colleagues predict that 3.2 million people could enroll in HSAs and that the number of uninsured could be reduced by 2.9 million if the Bush administration's refundable tax-credit proposal were implemented.[xvii] 

Another HCFO grantee, Judith Hibbard, Dr.P.H., at the University of Oregon is testing the validity of assumptions underlying CDHPs by studying the Definity Health Plan and a large employer. The key assumption tested is whether consumers will take charge of their health and health care and make cost-effective choices if they are given financial incentives and information to support their choices. Hibbard has published preliminary results that show patients become “activated” to participate in health care decisions in four stages: 1) believing the patient role is important; 2) having the confidence and knowledge necessary to take action; 3) actually taking action to maintain and improve one's health; and 4) staying the course even under stress.[xviii]

HCFO grantees, Arnold Milstein, M.D, of Mercer Human Resource Consulting and Meredith Rosenthal, Ph.D., at the Harvard School of Public Health examined the prevalence and the typical benefit structure of CDHPs in the market. They also assessed the effects of CDHP products on cost and quality. Findings showed limited support for informed decisions in these plans. They argue that decision-support should be improved if CDHPs are to succeed in optimizing consumer's utility from health benefit spending.[xix] The researchers evaluated the ability of 14 CDHP designs to curb spending growth. Early adopters reported favorable cost savings and service substitution rather than reductions in use. Three weaknesses identified in this study included inadequate financial incentives, no cost-sharing adjustments to preserve freedom of choice for low-income consumers and inadequate cost and quality information to permit informed choices.[xx] Rosenthal argues that new benefit models like HSAs, which include doughnut-shaped insurance coverage with large deductibles, present considerable risk to enrollees given the skewed distribution of health care spending and the placement of the typical deductible.[xxi]

HCFO Funded Research: