Employers show healthy concern for saving
Employers show healthy concern for saving

By Eileen AJ Connelly

Published: September 18, 2008

NEW YORK — When workers throughout the country begin to change their health insurance coverage this fall, some may find their employer offers a new option: health savings accounts.

These accounts, coupled with high-deductible insurance plans, allow people to save money tax free — up to $3,000 for individuals and $5,950 for families in 2009 — to help pay for medical expenses not covered by insurance, such as over-the-counter drugs.

One feature that has fueled their popularity is that unused account balances accumulate and earn tax-free interest, allowing people to save during low medical expense years to cover higher cost years. HSA account holders over 55 can also make increased payments until they are eligible for Medicare (usually at age 65), making the accounts another arrow in their retirement-planning quiver.

Created in 2004 as part of an effort to encourage consumers to control the amount they spend on health care, HSAs are administered by banks, credit unions, insurance companies and some stand-alone companies. The accounts' popularity grew quickly. Surveys show enrollment in HSAs topped 6.1 million in 2008, from 438,000 in September 2004. Some industry observers forecast that more than 10 million people will enroll for 2009, as the number of employers that offer them grows.

According to business consulting firm Mercer LLC, 19 percent of employers will offer HSA-eligible plans as a way to lower their costs in 2009. "As employers continue to seek ways to maintain health care coverage, the lower premiums that are associated with high-deductible health plans are very attractive,” said David Josephs, head of J.P. Morgan's consumer directed health care business, which has more than 300,000 HSA account holders with more than $400 million in assets.

Although large companies are more likely to offer HSAs, they can be an option for small and mid-size businesses, as well. Both workers and their employers can contribute to the HSA, although the contribution cap remains the same regardless of who funds the savings. Individuals may also open HSAS if they buy eligible high-deductible insurance plans. Regardless of whether they are opened individually or through an employer, HSAs are owned by the account holders, who do not lose the money if they switch jobs or insurance coverage in later years.

But there are problems to watch out for, most notably the high deductibles associated with the insurance plans — meaning that consumers will pay more out-of-pocket expenses before their insurance coverage kicks in. "For the individual, it can make sense if you really don't expect to have a lot of expenses,” said Annette Ramirez de Arellano, a researcher with Public Citizen, a consumer advocacy group. "Or, if you don't mind paying the deductibles, because you'd rather have control over the income and you want to roll over what's left over.”

But for people who have high medical expenses or those who might avoid getting medical care because of the deductible, HSAs are not likely a good choice, she said.

Also, ask whether you can afford to use the HSA feature by contributing to the savings account, rather than just using the low premiums associated with the high deductible insurance, noted Gail Shearer, director of health policy analysis for the Washington office of Consumers Union.

Your thoughts!