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Whether you love them, hate them, or don’t know anything about them, Health Savings Accounts (H.S.A.’s) are the health insurance industry’s latest and greatest answer to help solve the crisis of runaway health insurance premiums. H.S.A’s were established when President Bush passed the Medicare Modernization Act in December of 2003.
Heath Savings Accounts are arrangements that allow eligible individuals to accumulate tax free money to pay for qualified health expenses. Both individuals and employers can contribute to the H.S.A.’s and the money in these accounts can accumulate tax-free interest as well. The money in the account is the individual’s money, is completely portable and can roll-over from year to year.
In order to contribute into the H.S.A.’s, you must be enrolled in a qualified “High Deductible Health Plan.” A High Deductible Health Plan (HDHP) must meet certain requirements as established in the legislation. The HDHP must have a minimum deductible amount of $1,050 for Individual Coverage and $2,100 for family coverage in 2006. The maximum out-of-pocket expenses must be no more than $5,250 and $10,500 for individuals and families respectively in 2006. These amounts increase each year based on the change in the Consumer Price Index. With the exception of “Preventive Care”, the HDHP cannot have any coverage until the deductible has been met. The health insurance carriers have specific plans that are H.S.A. qualified plans.
According to a recent study conducted by Deloitte Consulting, almost one out of four large employers has made a consumer directed health option available to employees. More than 40% of employers say account-based plans are the most effective way to manage coverage costs while maintaining quality of care. According to the same survey, premium increases for consumer directed plans are expected to increase an average of 2.6% while more traditional managed care plans will jump at least 8% in 2006. As a result, 70% of the responding employers say they are considering a consumer-driven option in the next 5 years.
The number of people enrolled in H.S.A. plans tripled during 2005, from 1 million to 3 million, according to America’s Health Insurance Plans, a Washington, D.C. industry group. The adoption of H.S.A.’s has been slower among smaller employers with 10 to 49 workers. According to a Mercer study, just 2% of these employers have adopted a consumer-directed plan. This can be explained by the fact that larger companies can offer these plans as one of several options to choose from. However, most carriers are now allowing small employers to offer H.S.A. plans and other consumer-directed options along with one or two other plans. So, we should see the adoption rate increase dramatically for small employers as well. So, ready or not, here they co me...
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