Byline: Travis E. Poling
Apr. 10--Music-store owner Scott Hillje was concerned for his 11-year-old son last year when he fell at the school playground and was taken by ambulance to the hospital. Unlike many self-employed people, Hillje wasn't worrying about how he was going to pay the medical bills.
Every month, $500 is automatically deducted from Hillje's account to go to HSA Bank. From that account, he pays a premium for a family health plan with a high deductible, while the remainder awaits spending on medical needs and grows from year to year if there is anything left at the end of the year.
While Americans and the medical community have been a little slow to take up the idea of a health savings account, or HSA, as a way to control medical costs, flexibility and tax-friendly changes to how HSAs work are getting people's attention.
There are about 10 million people enrolled in so-called 'consumer-driven health plans,' and about 6 million of those are health savings accounts. The U.S. Treasury Department estimates that 25 million to 30 million people will be enrolled in an HSA by 2010.
Laws passed late last year allow an individual to contribute up to $2,850 a year to an HSA and to allow a family to contribute up to $5,650 Although that's up only slightly from last year's allowance of $2,700 per individual and $5,450 per family, it comes with the advantage of being fully tax-deductible. In previous years, only the amount of the health plan deductible could be written off.
Deposits can be spread out throughout the year, but taxpayers also can take advantage of fully funding an HSA before April 17 for a break on their 2006 taxes.
'I think HSAs are the greatest thing since sliced bread,' said insurance broker Kevin Cooley of San Antonio's Integrated Health Plans. 'Most clients who are open to the HSA idea are self-employed, and they have a different view on money.' That view is one of watching every dollar and weighing options more carefully than workers with company-provided health benefits, low co-payments and a low deductible.
HSAs mean more out-of-pocket expenses than traditional insurance because of the high deductible; but for those without coverage, putting any amount toward tax-free health savings 'is still better than no coverage,' Cooley said.
A family health plan in San Antonio with a $1,500 deductible and 20 percent co-payments to health providers would cost $1,020.69 a month, under one illustration Cooley provided. That can be a tough nut to crack every month for most families.
But with a health savings account and a higher deductible of $5,650, the same family would pay $322 a month in premiums and any money not spent out of the HSA would roll over into the next year.
Managing those savings also is becoming more sophisticated.
United Healthcare's Golden Rule Insurance Co., one of the pioneers in the HSA field, recently launched mutual fund investment options that provide higher returns on health savings that go unused. After the savings account balance reaches $2,000, excess amounts can be invested into one or more of eight no-load mutual funds.
Golden Rule spokeswoman Ellen Laden said another advantage to the new HSA rules includes a one-time transfer from an IRA to help fund an HSA. This is especially useful for early retirees who are no longer covered by employer-based plans and aren't old enough to qualify for Medicare.
The law also allows money to be moved from a flexible spending account -- the use-it-or-lose-it part of many employer-based plans -- to an HSA.
Laden said about one-third of people signing up for health savings accounts with high-deductible plans were previously uninsured.
In Texas, Golden Rule found that most of their HSA clients were self-employed or a husband-and-wife business, followed by part-time workers and farmers and ranchers.
Long-term-care insurance premiums also can be paid out of HSA accounts beginning this year.
'There are young families that are concerned about the braces and the eyeglasses with the HSA,' Laden said. 'But there are older people who are worried about who is going to take care of them.' The growing use of the accounts is prompting new forms of banking to deal with unexpected expenses.
For example, if a person has made one contribution to the savings account at the beginning of the year, but gets hit with a big deductible right away, it can create problems, said Bart Halling, vice president for consumer-driven health products at Fiserv.
That could create a market for specialty lending against future HSA contributions, he said.
'My call to action on the consumers' side is to have a little bit longer horizon on planning for health care expenses,' Halling said. With traditional health plans, 'people are used to planning in nice one-year blocks.' With HSAs, they need to plan for larger expenses before a health event, he said.
Hillje said the health savings account has made him think differently about medical expenses.
'The HSA has just made it more workable for a self-employed person,' Hillje said. And because the first few thousand dollars of medical expenses each year will come out of his pocket, he says the family is more cautious about how they use the health care system.
The family still goes for regular doctor visits at provider network discounts to stretch their dollars further, and preventive medicine remains the way to control costs down the line.
'We don't just run to the doctor every time somebody has a cold,' Hillje said. 'It makes you really think, 'Do we need to go?' '
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