Health savings accounts double in Vermont

By Bruce Edwards, Rutland Herald, July 2, 2006

Touted by President Bush and others as a "consumer driven" solution to the nation's burgeoning health care crisis, health savings accounts have doubled in Vermont.

Health savings accounts, or HSAs, are used in combination with a high deductible health plan (HDHP) to pay for qualified medical expenses.

Supporters cite the tax advantages, flexibility and portability of HSAs. And because it's used to fill the gap with a high deductible health plan, insurance premiums are significantly lower for both the employee and employer. And because the individual has discretion over how to use money in their HSAs, supporters say that in turn can lead to better informed health care decisions.

The accounts are be used by individuals, such as the self-employed, who are enrolled in a high deductible non-group plan.

Critics, however, say the plans benefit the well off, shift more of the financial burden to consumers and away from employers and are of little use to those with chronic illnesses, families and those with moderate incomes and to older consumers who often require more health care.

The deductible, set by the federal government, is subject to change each year. For 2006, the minimum deductible for an individual enrolled in a HDHP is $1,050 and $2,100 for a family. The maximum out-of-pocket expenses (including deductible) cannot exceed $5,250 for an individual and $10,500 for a family.

Created by Congress as part of the Medicare Modernization and Prescription Drug Act of 2003, HSAs are open to anyone under age 65 and not enrolled in Medicare. Someone covered by another major medical plan such as through a spouse also isn't eligible to participate.

The May edition of Consumers Report puts the number of Americans signed up for high deductible health plans at 3 million.

In Vermont, the number enrolled in those plans doubled from 7,142 in 2004 to 15,071 last year, according to the state Department of Banking, Insurance, Securities and Health Care Administration. This number represents just 4 percent of the 360,000 Vermonters who are covered by private insurance companies.

Blue Cross Blue Shield of Vermont is the major provider of high deductible plans with an enrollment of 13,821. Vermont Health Plan is the second largest carrier with 1,244 enrollees.

"There's a lot of features to the HSA arrangement which are attractive to lots of different types of people," said Rebecca Heintz of the state Health Care Administration.

Heintz said the benefits include the ability of someone to switch jobs and take their HSA with them while employers benefit from different funding options.

"I think there's a lot of product flexibility … because of that I think they can be a good solution for a wide variety of people," she said. "If you have a fully funded HSA from your employer well then what's the difference to you versus first dollar coverage through traditional health insurance."

Chittenden Bank is a major player in the health savings account market with more than 6,000 accounts, said Sue Wainer, who manages Chittenden's HSA initiative.

Since introducing HSAs last July, Wainer said the bank has "more than doubled" the business it had anticipated during the first year.

"I have to say just based on being out in the market and talking with businesses I know there is a lot more coming that have made the decision to switch," she said. "I think this fall the volume will definitely pick up again getting ready for 2007."

She said most HSA accounts are tied in with an employee's high deductible plan at work.

And while the deductible's are much higher than a traditional health plan, Wainer said most of the employers have taken the premium savings in switching to an HDHP and have funded a portion of the deductible for the employees.

"Typically, 50 percent or above has been the experience we've seen from employers," she said.

She said the most popular plans have deductibles of $1,500 for an individual and $3,000 for a family.

There are tax advantages that accompany an HSA. Employer contributions are made on a pre-tax basis while employee and individual contributions can be deducted from the federal tax return even for someone who doesn't itemize. Interest accrued is non-taxable. Withdrawals for qualified medical expenses are also tax free.

HDHPs can pay for preventive care like annual exams, pre-natal care and well-child visits and immunizations before the deductible is met. However, the plans do not pay for prescription drugs until the insured meets the annual deductible.

At Blue Cross Blue Shield of Vermont, 16 percent of the company's 150,000 eligible policyholders are enrolled in HDHPs.

"We've seen the biggest demand in our small group business of less than 50 employees," said Blue Cross spokesman Leigh Tofferi.

Like Wainer at Chittenden Bank, Tofferi said that the "cost advantages (on premiums) are significant to the employers and some employers are even funding substantial portions of the deductibles for the employees and still saving money."

He said that interest in HDHPs has also caught the eye of larger employers, those with 50 or more employees.

One company that switched to a high deductible plan is King Arthur Flour.

Company spokeswoman Suzanne McDowell said so far the plan has worked well for employees and the company.

"This seemed to be the most viable option to get some of our claims under control and educate our employee/owners about health care costs and it seem to be working thus far," McDowell said.

King Arthur has a $1,500 deductible for single workers and a $3,000 deductible for families with the company picking up most of the tab.

"King Arthur Flour funds 75 percent of this high deductible," McDowell said.

She said the overall cost to employees, including premiums, is the same as it was before the switch to a high deductible plan.

Not everyone, however, is sold on HDHPs and HSAs.

Dr. Deborah Richter, who heads Vermont Health Care for All, a group that advocates universal health care, said HDHPs/HSAs are based on a "flawed theory."

"The theory being is that if we have increased cost sharing that will change people's buying behavior in terms of health care and that will supposedly lead to lower costs,' Richter said.

Richter said the U.S. already has one of the highest cost-sharing rates in the industrialized world and higher deductibles have done nothing to lower overall health care costs.

"That amount out of pocket that people are spending is rising and it's been rising for the last 15 years … and obviously it has done nothing to control overall costs," said Richter, who practices at a family health clinic in Cambridge.

She also argued that discretionary health care expenses are a very small percentage of total health care costs.

Richter said that most major medical costs are fixed with 84 percent of hospital costs fixed whether it's one patient or 1000 patients.

She said that at any one time most of the population needs very little medical care while just 10 percent of the population accounts for 70 percent of the country's health care cost.

She said health savings accounts attempt to affect utilization but do nothing to control total costs.

Richter advocates a publicly funded universal health care system that like would have an annual budget like other government departments and services.

"I'm in favor of us looking at health car as a public good like we do our roads and the public financing them fairly so that the costs are spread across the whole population for the services that we want for the whole population," she said.

As it stands now, she said health care is gobbling up 16.4 percent of gross domestic product or GDP, which means there is less money to spend on other things.

"Two-thirds of our economy is sustained by consumer spending and rising health care costs are taking a bigger share out of people's budgets," she said.