Legislation & Regulation

Health Savings Accounts Face an Uncertain Future

Despite an array of economically and politically strong advocates, a bill to beef up health savings accounts has stirred significant opposition

John Carroll

Just before members of Congress wrapped up their recent session and either headed back to their homes or fanned out on the nation's high-wire campaign trail, the House Committee on Ways and Means sanctioned a new bill that promises to spruce up the attractions of health savings accounts while guaranteeing a renewed debate over these controversial accounts.

This new battle has begun to play out on familiar political terrain among a well defined group of allies and opponents. On the one hand, we have America's Health Insurance Plans and various employer groups advocating passage, while consumer advocates rearm themselves with new numbers that they believe will help reveal the underlying weaknesses of HSAs.

The HSA bill — H.R. 6134 — is designed to help make it easier to fund an account and shelter a larger number of dollars. Alone among privileged investment accounts, the money flowing into an HSA and going out to pay for health care expenses is shielded from the tax man. The bill does away with a current annual provision that restricts contributions to the lower of two numbers — their deductible or a cap of $2,700 for an individual and $5,450 for a family — and just leaves the caps in place. People starting an HSA later in the year could contribute the full annual limit; employers may offer higher contributions to workers below the top tier of incomes.

The House bill also provides some other significant tweaks to prime the HSA pump. It allows for a transfer of funds from a flexible savings account (FSA) — where funds can't be rolled over from year to year, as in an HSA — or a health reimbursement arrangement (HRA), and even a one-time contribution from an IRA to obtain funds quickly to start covering costs.

The bill addresses some of the sticking points that have prevented employees from setting up HSAs to go with high-deductible accounts, says Lisa Horn, the Society for Human Resource Management's manager for health care. "Some of these tweaks need to take place to make them more attractive," adds Horn. There's no doubt, she says, that the changes will make the process easier and drive workers to open more accounts.

Another option

She's not expecting an overnight revolution, however.

"Our members never argued that HSAs would be the magic pill for the system. This is just another option for employers who want to offer health care coverage to their workers." Redesigning HSAs to make them more attractive just improves companies' flexibility in dealing with a tough issue. "Some members are very happy and say they're a great success; others are not implementing them and don't think they will work for their employee population."

With a midterm federal election looming for a public that has demonstrated some deep disappointment with a range of incumbents, there was also a great deal of uncertainty over just how the chips would fall on a health care insurance bill.

The midterm elections arrived with some heavy baggage for incumbents, but observers on Capitol Hill are still trying to figure out how recent changes are likely to influence this piece of legislation.

Technically, the lame-duck Congress that is coming back in mid-November will still be dominated by the same forces that have dominated legislation for the last two years, and that may be incentive enough for the Republican majority to make an effort to push the bill through before the new Congress is sworn in for 2007.

It is still too early to say what will happen in this lame-duck session, notes Horn. Congress could move swiftly to fund the government and decamp, or it could stay around awhile to act on various issues, giving the HSA bill a chance for quick approval. Other supportive lobbying groups note that a bill like H.R. 6134, which refines existing legislation rather than breaks new ground, could get incorporated into another bill and come up for a vote.

Opponents of H.R. 6134, though, are rooting for a quick end to the lame duck session and a shift to the 2007 battleground, when they believe that Democrats will be in a better position to stop it dead. "The Democrats have been pretty uniformly opposed to further expansion of HSAs," says Edwin Park, a senior health policy analyst at the left-leaning Center on Budget and Policy Priorities.

Park's group has never hidden its dislike of HSAs, so it's no surprise that a bill that embellishes them leaves his group cold. The argument: HSAs tend to be more popular with the most privileged, and healthiest, Americans. As you shift the accounts of wealthy, healthy Americans into HSAs, you're leaving a smaller number of people in traditional plans — adverse selection that can only keep premiums heading higher.

Not as planned?

The irony about the new bill, says Park, is that it encourages affluent people to overfund accounts. Every dollar that moves through the account is subsidized by the taxpayer and allows the HSA to cover procedures that no insurer would normally reimburse for. And why would the government want to encourage more health spending on elective procedures at a time when its professed aim is reining in costs?

Backing up his argument, a study by the GAO found that more than half of the people signing up for an HSA made more than $75,000 in 2004. And the tax shelter is looming as a distinct attraction, says the GAO. More than half of the HSA participants — 55 percent — accumulated money in their HSAs for a year without withdrawing any funds for health care expenses. Focus group participants talked up the long-term savings advantages of HSAs.

Backed by Bush

HSAs have been a key component of the Bush administration's response to the rising cost of care along with the surge of uninsured Americans. For the Republican majority, HSAs are a way to get people to focus on costs and demand better terms. The more skin consumers have in the health game, they add, the more likely consumers are to watch the bill. The Consumer-Directed Care newsletter now estimates that there are some 1.17 million health savings accounts sheltering $1.5 billion in assets. HSAs were introduced in 2004.

AHIP, meanwhile, noted last spring that there are 3.2 million people in HSA-eligible plans (with 45 percent of those who purchased from one online broker earning less than $50,000). Watson Wyatt estimates that large corporations of 1,000 or more workers are increasingly likely to offer up an HSA. Goldman Sachs, meanwhile, recently estimated that the total number of lives covered by consumer-directed plans will jump from 4 million last year to 49 million in 2010.

"Historically, the self-insured and the uninsured have gravitated toward CDHPs," said Matt Borsch, a health care analyst at Goldman Sachs, "but growth is increasingly coming from the employer market where rising health care costs are a real burden on profitability."

From AHIP's perspective, Congress could do considerably more for HSAs. Last July, AHIP CEO Karen Ignagni told the Ways and Means Committee that the cap should be boosted for the chronically ill and overall caps hiked to the maximum out-of-pocket expenses they faced.

"HSAs are helping a substantial number of previously uninsured consumers purchase coverage, accumulate savings for their future medical needs, and access preventive care services," Ignagni told members of Congress.

Analysts will be watching closely to see how well the same message plays now that voters have had a chance to realign the structure of power in Washington D.C.

John Carroll, a freelance writer living near Austin, Texas, has been a contributing editor of Managed Care for four years.