Consumers Take Control with HSAs

Published August 1, 2004

According to a May 23 story in the Pittsburgh Tribune-Review, Susan Grabiak’s health insurance premiums were about to jump 28 percent. In the blink of an eye, she signed up for a health savings account (HSA), the new health insurance benefit her Pittsburgh employer, Quest Diagnostics Inc., now offers its employees.

Explaining her decision to sign up for the company’s HSA plan, Grabiak said, “Basically, the only reason I went into it was price. I know how much I’m going to spend in an average year, and this made the most sense.”

Unlike traditional health insurance programs, through which Grabiak’s employer would pay most of her insurance costs and ask her to make regular co-payments, Grabiak, 47, is given a high-deductible insurance program and a lump sum to spend–tax-free–on her health care coverage. If she spends more than she has on hand in her account, the high-deductible insurance program kicks in.

If there is money left at the end of the year, it rolls over in her account. The lump sum–up to $2,600 a year for individuals and $5,150 a year for families–is hers, even if she leaves Quest or decides to retire. She would have to pay taxes on it only if she decided to use the money for something other than health care expenses.

“With these accounts, we’re trying to move away from the notion that employers pick up coverage from the first dollar spent,” said Lale Iskarpatyoti, director of the human resources service group for PricewaterhouseCoopers in Philadelphia. “Third-party money is spent a lot easier than your own money.”

The programs work very much like a 401(k) retirement savings plan, in that money is contributed tax-free by the employee, employer, or both and grows tax-free in various investment vehicles. Employees are not taxed if they withdraw money to spend on approved health care expenses. The main difference is that HSAs are tied to high-deductible health insurance policies.

According to a recent study by Assurant (formerly Fortis), a national health insurance carrier focused on individual and small group policies, HSAs appeal especially to individuals who previously were shut out of the insurance market because of high prices.

“The findings,” said Grace Marie-Turner, president of the Galen Institute, “provide real data to prove critics wrong when they claim the new consumer-directed health care products are only for the ‘healthy and wealthy.'”

According to the Assurant study, which analyzed more than 40,000 HSA applications between January and May 2004: 77 percent of those purchasing HSAs are families with children; 70 percent of HSA purchasers are over age 40; 29 percent of purchasers have family incomes of less than $50,000 per year; and 19 percent have family incomes of less than $40,000 per year.

Conrad F. Meier is managing editor of Health Care News. His email address is [email protected].