Consumer's choice: is a health savings account plan right for you?

As health insurance costs continue to rise, health savings accounts may help bring those rates down to earth.

HSAs--tax-free savings accounts paired with high-deductible health plans--allow consumers to store money and spend it directly on the health care provider of their choice.

"The concept of HSAs is simply that people spend their own money more carefully than they spend the insurance company's money," says John Phillips, executive director of the Group Insurance Trust. "HSAs have the power to change behavior."

The HSA concept grew out of other consumer-driven health plans, such as flexible spending accounts and health reimbursement accounts. But unlike the use-it-or-lose-it FSA, an HSA can roll over each year. And unlike the HRA, employees can take their HSA with them if they leave the company.

"It's like having your health plan and retirement account wrapped into one," says Alexander Domaszewicz, a Newport Beach-based senior consultant with Mercer Human Resources Consulting. "It's like an IRA for health care."

HOW IT WORKS

Before setting up an HSA, consumers must have a health insurance policy with an annual deductible of at least $1,000 for an individual and $2,000 for a family. That policy is then coupled with a savings account offered through a financial institution.

Pre-tax dollars are placed in the account either by the employer, employee or both. The maximum contribution for 2005 is the lesser of the deductible of $2,650 for an individual or $5,250 for a family. The annual out-of-pocket maximum is $5,000 for an individual or $10,000 for a family, at which point, the insurance policy pays 100 percent of covered expenses.

Subject to rules established by the HSA account custodian, consumers have the option of investing the HSA in stocks, bonds or mutual funds in much the same way that 401(k) plans work. Any unused portion of the account grows tax-free.

Consumers then can spend the money on health care any way they see fit, without the restrictions of traditional health insurance or HMO coverage. The money is withdrawn tax-free to pay the full cost of every medical expense, from prescription drugs to CAT scans.

THE PROS

HSAs are expected to save companies money by making consumers primarily accountable for their health care decisions. High deductible plans cost companies about $600 less per employee per year than regular HMO coverage, according to Mercer.

"Folks who are willing to become more engaged in their health care are going to benefit from an HSA plan; they'll be able to make smarter decisions, save themselves and the company money and get better care in the process," says Domaszewicz.

This accountability translates into shopping for the best health care value, which puts control in the consumer's hands.

Then there are the tax benefits. "The money goes in tax deductible, grows without any tax and if it's pulled out for medical expenditures, it's not taxable coming out," says the GIT's Phillips. "You won't find a better tax deal anywhere." Though California does not conform to the federal legislation, conformity legislation was introduced in February.

The plans also look to save the consumer money, in part by reducing monthly premiums. "I would suggest that if you had 10 people in an HSA plan, eight of them would come out well ahead, while the company also comes out ahead," Phillips says.

THE CONS

Critics of HSAs fear that consumers--shopping for the lowest health care prices--may shortchange care to save their HSA money. "Most employers are covering preventative care before the deductible so that consumers don't have to make that kind of tradeoff," Domaszewicz says.

Critics also charge that younger, healthier consumers with fewer claims will benefit the most from adopting an HSA account, while older consumers with ongoing health problems would quickly burn through their account.

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And HSA plans may result in a higher out-of-pocket expense for the consumer. "Compared to the most generous plans out there, often HMO plans with a small copay, this kind of plan would probably result in higher out-of-pocket costs," Carlson says. "But the typical HSA plan ensures the same level of catastrophic financial protection the employee had under their old plan. There's just more financial exposure at the low end, on smaller expenses."

There's also a higher degree of administrative responsibility for the consumer.

WHAT GIT OFFERS

The GIT offers ProtectPlus HSA, a high deductible health care policy, and has contracted with Blue Cross of California to use its provider network and process its claims.

Users of ProtectPlus HSA can choose virtually any health care provider; but choosing a participating provider will lower out-of-pocket expenses through negotiated rates.

ProtectPlus HSA subscribers can pair an HSA with an account from Mellon Financial Corp. and can invest their account once they reach a minimum dollar amount. Mellon offers the Dreyfus family of mutual funds.

For more information, visit www.cpaprotectplus.com/hsa.html.

Jerry Ascierto is CalCPA's managing editor. You can reach him at [e-mail].