HEALTH ACCOUNTS ON RISE BUT SAVINGS PROGRAM COULD BACKFIRE, EXPERTS SAY.

Byline: Evan Pondel Staff Writer

Consumer-directed health savings accounts, whose lower premiums and higher deductibles appeal to employers and the young and healthy, are expected to grow rapidly over the next two years after a slow start.

But critics of the accounts - designed as a cost-effective alternative to traditional health insurance under the Medicare Modernization Act - say they are harmful to many low-income and middle-class patients.

Nineteen- to 29-year-olds who sign up for a health savings plan can anticipate a monthly premium of just $77 with a deductible that ranges anywhere from $2,400 to $3,500, according to James A. Swick, founder and president of California Health Insurance Plans in Woodland Hills.

While that's a big monthly savings over traditional health plans, critics say the plans could wind up costing patients dearly if they fail to put enough money away for future medical costs. Because of the higher deductibles, the savings plans also can encourage many lower-income and middle-class patients to put off health care at the beginning of an illness, which can lead to more costly care later on.

They (HSAs) are sold as Band-Aids, but in essence they put salt in wounds, said Jerry Flanagan, consumer advocate at the Foundation for Taxpayer and Consumer Rights in Santa Monica. That's why I look at HSAs as a cost-management issue that keeps people from using care.

Despite a modest beginning since being introduced three years ago, the number of health savings accounts is expected to increase more than fifteenfold between 2005 and 2008, according to Forrester Research Inc. in Cambridge, Mass. Last year, there were approximately 391,000 accounts (held by individuals and families), with Forrester predicting more than 6.3 million accounts in 2008.

Functioning similar to a 401(k) retirement account, health savings accounts can move with an employee from company to company. Maximum annual contributions to HSAs range from $2,700 for single coverage and $5,450 for a family. However, annual contributions cannot exceed the deductible corresponding to your HSA.

Both employers and individuals can make contributions, but most plans are being funded by individuals. At the same time, money saved in an HSA can only be used for health care costs including deductibles, diagnostic services covered by your plan, long-term care insurance premiums, LASIK surgery and some nursing services.

While the federal government and some states allow individuals to make after-tax contributions to the savings plans, California does not.

Regardless, Katy Henrickson, a senior analyst with Forrester, said the federal income tax benefits alone make it worthwhile to switch from a traditional health plan to an HSA.

High-deductible health plans have been a fairly good option for small businesses because they act as a tax shelter," Henrickson said.

And considering the premium on a high-deductible health plan is significantly less, employers will not have to spend as much on health insurance policies.

But some small-business owners may not even know about them.

According to the Kaiser Family Foundation, more than 70 percent of 1,203 adults surveyed had not heard the term health savings account as of early February.

Dr. Vincent Riccardi, president of American Medical Consumers in La Crescenta, thinks that ignorance is a good thing. Basically, medical costs are rising so fast that a health savings account simply will not be able to keep up.

To think you can match the cost is rather naive, said Riccardi, citing the double-digit increases in the cost of health care in recent years.

Riccardi also claims that consumers who are enduring a medical procedure are in no position to make decisions about money. In some cases, HSAs require the individual to pay medical bills. That means if a patient with an HSA goes to a radiologist, the patient will receive billing from the radiologist, the X-ray lab and so on. You can't expect someone who is crippled or who has had a stroke to make decisions about their HSA, Riccardi said.

Health plans are attempting to streamline HSAs by providing debit cards tied directly to the account. Health Net of California recently partnered with Wells Fargo to offer debit cards for their high-deductible/HSA plans. The cards are slated to reach consumers in July, enabling patients to pay their medical bills at the doctor's office with the swipe of plastic.

So far, enrollment at Health Net is lukewarm. I wouldn't say we are exploding, but there is a growth curve, said Mark Morgan, product and marketing officer at the Woodland Hills-based health insurer.

Dr. Jack Lewin, chief executive officer of the California Medical Association, is in the process of signing up for an HSA. The family practitioner admits it is not for everyone, but he likes the idea of having more discretion over his health care dollars.

Ideally, Lewin believes high-deductible health plans should focus more on prevention services, scientifically proven interventions, to avoid the onus of medical bills later in life.

But I worry about the day middle- and low-income families won't spend money in their HSAs to treat their chronic diseases simply because they want to save money, Lewin said.

Evan Pondel, [phone]

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Drawing:

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Jorge Irribarren / Staff Artist