HSA Users Find Hassles Amid Their Health-Care Savings

The Wall Street Journal

The public debate over consumer-driven health care is heating up. High-deductible insurance plans paired with health-savings accounts - so-called HSAs - are a centerpiece of Republican presidential candidate John McCain's platform, even as the Democrats aim for universal health care. But new scrutiny of the plans, and the experience of people who have begun using them, are highlighting a number of challenges HSAs face in truly winning over consumers. A report released Wednesday by the Government Accountability Office, the investigative arm of Congress, found that HSA users were much wealthier than people covered by other types of plans, based on 2005 tax data. "HSAs clearly are attractive to higher-income people who are looking for tax shelters. But they aren't the answer for providing adequate health-insurance coverage for the average American," says Rep. Henry Waxman, D-Calif., one of the congressmen who requested the report. HSA plans don't pay for prescription drugs Karen Ignagni, CEO of America's Health Insurance Plans, a trade group of insurers, says the GAO analysis was based on information from 2005, and that "newer data indicate that individuals are not storing assets in these accounts but using them for health-care services." Certainly, many employers and workers are satisfied with the new plans, citing cost savings. Premiums on the high-deductible policies can be much lower than for traditional plans. And a recent study by consulting firm Watson Wyatt found that average health-insurance costs rose 3.6 percent in the past two years for employers who offered high-deductible plans, compared with a rise of 7 percent for employers without such plans. Some analysts say much of those employer savings come because many HSA participants tend to forgo care. "There is a lot of evidence that suggests that when patients pay a higher percentage of the cost of their care they get less of it," says Michael Thompson, a principal at PricewaterhouseCoopers, which advises employers on health plans. In health-savings accounts, consumers - often aided by their employers - save money in tax-advantaged accounts that can roll over from year to year, although many people with high-deductible plans forgo opening an HSA. The funds can be withdrawn tax-free if used for qualified medical expenses. The accompanying high-deductible insurance plans carry premiums that can be as much as 50 percent lower than those of a traditional comprehensive plan. The plans have deductibles of at least $1,100 for an individual and $2,200 for a family in 2008. In essence, it's almost like being self-insured for initial expenses. And plans associated with HSAs do not pay for prescription drugs. That's very different from traditional group health insurance, which typically begins right away paying doctor and prescription bills. Consumers often make a small co-payment, and possibly pay a percentage of the bills up to an annual limit. Some economists have long complained that that system encourages consumers to be wasteful about spending since they don't pay directly for much of the costs. Of course, traditional health plans can also present problems, including excessive paperwork, incomprehensible explanation-of- benefit statements and rising costs. But some individuals are surprised to find little improvement after switching to high- deductible plans with HSAs. Robert Daubin, a self-employed Web developer in San Francisco, says he pays $215 monthly for individual insurance with a $4,000 deductible under his Simple Choice plan from Health Net Inc. Last year, he suffered a pinched nerve and paid $1,200 out of pocket for treatment, because he hadn't yet funded an HSA. "It was higher than I expected." Mr. Daubin, 46, says he might choose an HMO plan next year. Among other problems some HSA users cite: The savings accounts can only be owned individually, which can prevent a spouse from raising questions about reimbursements or shifting investments. And reimbursements from HSAs for out-of-pocket expenses can take time, creating cash-flow problems for some individuals. HSA plans do have some strong backers Self-employed attorney Jonathan Stein, 34, of Elk Grove, Calif., got an HSA in 2005. Because he is responsible for paying the entire bill, he didn't go to the doctor for a recent bout of flu and doesn't get annual physicals despite a family history of heart disease and cancer. "My doctor and I fight about that when I do see her because she wants me to come in every year," Mr. Stein says. "If it was covered by insurance I'd probably go." To encourage preventive care, some high-deductible plans have begun covering the full cost of services such as annual checkups. Participants in HSAs can invest the money in their accounts, which are held at brokerages and banks, but fees can be high. Bill Greene, 61, a retired surgeon in Myrtle Beach, S.C., looked into opening an HSA at a full-service brokerage, but he says the fees were too high, including $50 transaction fees per trade, and fund choices were limited. Dr. Greene searched online and decided to open an account at Sovereign Bancorp Inc. because it charged lower fees and offered some no-load mutual funds. A Merrill Lynch spokesman says the brokerage currently is waiving its maintenance fee of $50 to $100 for new HSAs. As for transaction fees, he says, "as a full-service provider, we feel that fees are commensurate with services." Still, HSA plans have some strong backers. Michael Vittoria, vice president of human resources for the U.S. unit of Sperian Protection SA of France, which makes personal protective gear, says a growing share of its nearly 1,200 workers in Rhode Island have been signing up since the company's HSA plan was introduced early last year. This year, 30 percent of employees opted for the HSA plan, up from 23 percent, and few employees have switched back to a traditional plan, he says. He estimates the plan has so far saved the company $8 million in premiums. Meg Manley, 63, a human-resources database administrator at Sperian, switched to the HSA plan last year. Shortly afterward, her husband, who is 65 and retired, was diagnosed and treated for skin cancer, incurring bills totaling $5,000 for treatment. Ms. Manley had a $2,250 deductible under the plan. But after Sperian's $500 contribution to employees' HSAs, her out-of-pocket expenses totaled $1,750, she says. "I love it because my premiums are [less than] what they would be for the regular PPO plan and the money that is taken out of my pay each week can earn money," Ms. Manley says. She now pays a $52 biweekly premium, down from $84 under her old plan. Watson Wyatt expects 54 percent of big companies next year to offer high-deductible health plans, many of which are HSA eligible, up from 39 percent in 2007. Since the plans were introduced in 2004, more than six million Americans have enrolled in HSA-eligible plans, although that represents a small percentage of the more than 200 million people with private health coverage. Learning curve In health-savings accounts, consumers, often aided by their employers, save money in tax-advantaged accounts that can roll over from year to year. More people are signing up for high-deductible health plans with HSAs. Theyre finding some surprises: * Participants must pay the full cost of prescription drugs. * Health- care providers often mistakenly fail to give users in-network discounts.