|
|
|
|
| Health Savings Accounts:
HSAs became
law effective January 1, 2004, as part of the Medicare Act passed
by Congress in the fall of 2003. HSAs are designed to reduce health insurance
premiums and to give individuals greater control over the spending
of their health care dollars. In
addition to providing an alternative to high premiums, Congress enacted
HSAs because America currently has nearly
50 million uninsured people. The
hope is that HSAs can
enable these people to get at least a minimal level of health insurance
coverage at affordable premiums. Basics
of HSAs The HSA program
authorized by Congress is really a two-part program combining a High
Deductible Health Policy (HDHP)
with a pretax savings account (the actual HSA). The HSA
can be used to pay for medical expenses not covered by the HDHP or, at the cost of certain disadvantages
discussed below, for nonmedical
purposes as the individual determines.
For 2006, an HDHP
must carry a minimum deductible of $1,050 for individuals or $2,100
for families. The maximum that individuals may be obligated to pay
out-of-pocket for medical expenses under the HDHP
is $5,250; the maximum for families is $10,500.
This maximum out-of-pocket cost includes the deductible, coinsurance,
copayments, and other expenses for medical care otherwise
covered by the HDHP.
The HSA may
then be funded up to the amount of the deductible.
For 2006, individual HSAs
may receive the lesser of the HDHP
deductible or a maximum of $2,700.
Family HSAs may
be funded in an amount equal to the lesser of the HDHP
deductible or a maximum of $5,450.
Individuals age 55 or older may contribute an additional, “catch-up”
amount. Contributions to HSAs
may be invested, much like IRAs,
or used on a pretax basis to pay for medical expenses. If HSA
funds are used for nonmedical expenses,
ordinary income taxes apply at distribution; individuals younger than
age 65 expending HSA funds for nonmedical
expenses also incur a 10 percent penalty.
Amounts not used from the HSA
in the current year are not taxed and are carried forward to subsequent
years. The account balance may increase due to future contributions
and investment earnings. To be eligible to contribute to an HSA during the year, one must not be insured by any other major
medical or full-coverage-type health insurance plan other than the
HDHP. The
individual must not be enrolled in Medicare, nor can they be a dependent
of another taxpayer. However,
individuals may still have limited types of medical coverage, such
as dental and vision coverage, certain accident or illness policies,
or long-term care policies, in addition to their HDHP. HDHPs
may also provide preventative care coverage and offer opportunities
for payment for wellness programs such as smoking cessation, cholesterol
awareness, and obesity control. If individuals or families enrolled in HSAs are not covered by HDHPs
in a future year, funds remaining in their HSAs
from prior years’ contributions may still be used for their medical
expenses not covered by medical insurance or another third party in
that future year. Pros
and Cons The concept of providing consumer-driven health insurance
has generated significant controversy among experts. Advocates of consumer-driven plans such as HSAs contend that once control is given
to the consumer, price shopping will restore market competition to
the industry and require medical providers to become more cost-conscious. People given the responsibility for paying for
their own medical treatment will be more conscious of their health
habits and take better care of themselves
to avoid needing medical care and incurring its expense. Critics of consumer-driven plans, HSAs
in particular, respond that the decision to purchase health care is
not an issue of price and cost, but one of availability and access
for those in need of medical care.
They would argue that allowing those who are not stricken with
severe illness or injury to reduce their contributions to the system
or opt out altogether only drives up the cost for those who do need
medical care, because ultimately the unpaid costs of medical treatment
for the uninsured are passed on to those able to pay. In reality, the truth probably lies somewhere
in the middle. In order for HSAs
to be successful, consumers must know the cost of medical treatment
and it is vital that they be able to access information about medical
providers, doctors and hospitals.
Such information would include not only costs but quality standards
and ratings of these providers as well.
To date, the medical community has kept this type of information
as a very well-guarded secret, unavailable to the public unless the
patient specifically requests cost information. Even if cost information were more readily available,
information about standards of care and the quality of treating providers
and facilities is not available to the public in any meaningful form
as would enable the consumer to make an informed decision about obtaining
healthcare. It should be understood that HSAs
offer individuals and families an opportunity to monitor some health
care expenses and to benefit financially from that monitoring. With this opportunity comes responsibility.
Individuals concerned with cost must often inquire about the price
of medical procedures and decide whether the cost of the procedure
is worth the benefit received. However, when there is no opportunity to decide about
receiving coverage, such as in the event of an emergency or when treatment
is required for a life-threatening illness, the HDHP
will likely be utilized to pay for medical expenses. Insurance is available in the HSA program to cover major medical expenses,
thus protecting the participant from financial catastrophe, which
has always been the true intent of insurance anyway. What
Lies Ahead? The success of the HSA
program will eventually be determined by two factors. First, HDHPs
are required to protect against catastrophic illness or injury. The advantage of HDHPs over health maintenance organizations (HMOs) offering first-dollar coverage has
been the reduced premium. However,
if premiums for HDHPs
rise to reflect the cost of claims for catastrophic illness and injury
and these premiums become cost-prohibitive, then participants will
drop the insurance coverage and America will ultimately be in the
same situation as regards healthcare as it is now.
If insurers can keep premiums affordable, then the HSA
program stands a reasonable chance to succeed.
Second, by combining the concept of individual responsibility
found in HSAs with the
more familiar risk-sharing notion of insurance in the HDHP, the new program dramatically diverges from the medical
insurance process that Americans have been accustomed to use over
the past 30 years. For some
people, this individual responsibility may be more than they can or
care to handle as it has become very convenient to simply pay a premium
to an insurance company and not worry about a medical billing statement.
For others, HSAs
may be an excellent opportunity and even a reward of sorts for practicing
good money management as well as taking care of their personal health.
Costs and quality ratings of medical procedures need to be
publicized for this outcome to be realized. In the end, HSAs
offer an exciting alternative not seen before in the medical insurance
industry that could prove beneficial for individuals and employers
alike. c SCOTT A. BECKER is a sole practitioner with offices in Lakeville, Minnesota. He concentrates his practice in areas of health law and employee benefits and he can be reached at (952) 469-8339. |
